<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 23, 1998
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
MCLEODUSA INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 4813 42-1407240
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
MCLEODUSA TECHNOLOGY PARK
6400 C STREET, SW, P.O. BOX 3177
CEDAR RAPIDS, IA 52406-3177
(319) 364-0000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
CLARK E. MCLEOD
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
MCLEODUSA INCORPORATED
MCLEODUSA TECHNOLOGY PARK
6400 C STREET, SW, P.O. BOX 3177
CEDAR RAPIDS, IA 52406-3177
(319) 364-0000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
----------------
COPIES TO:
JOSEPH G. CONNOLLY, JR., ESQ.
HOGAN & HARTSON L.L.P.
555 THIRTEENTH STREET, N.W.
WASHINGTON, D.C. 20004
(202) 637-5600
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
----------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
<TABLE>
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- ----------------------------------------------------------------------------------------------
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PRICE PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
9 1/2% Senior Notes Due
November 1, 2008...... $300,000,000 100% $300,000,000 $83,400
- ----------------------------------------------------------------------------------------------
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</TABLE>
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(f) under the Securities Act of 1933, as amended.
----------------
THE REGISTRANT HEREBY AMENDS 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 COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION
DATED DECEMBER 23, 1998
PROSPECTUS
[MCLEODUSA LOGO]
$300,000,000
MCLEODUSA INCORPORATED
OFFER TO EXCHANGE ALL OUTSTANDING
9 1/2% SENIOR NOTES DUE NOVEMBER 1, 2008
FOR 9 1/2% SENIOR NOTES DUE NOVEMBER 1, 2008
INTEREST PAYABLE MAY 1 AND NOVEMBER 1, COMMENCING MAY 1, 1999
MATERIAL TERMS OF THE EXCHANGE OFFER
. We are offering to . We will not receive any
exchange all Outstanding proceeds from the
Notes that are validly Exchange Offer.
tendered and not validly
withdrawn for an equal . The terms of the
amount of a new series Exchange Notes to be
of notes which are issued are substantially
registered under the identical to the
Securities Act of 1933. Outstanding Notes,
except for certain
. The Exchange Offer will transfer restrictions
expire at 5:00 P.M., New and registration rights
York City Time, on relating to the
[ ], 1999, unless Outstanding Notes.
extended.
. Outstanding Notes may be
. The Exchange Offer is tendered only in
subject to certain denominations of $1,000
customary conditions, and multiples of $1,000.
including that the
Exchange Offer not . Affiliates of McLeodUSA
violate applicable law may not participate in
or any applicable the Exchange Offer.
interpretation of the
Staff of the Securities . The exchange of notes
and Exchange Commission. should not be a taxable
exchange for U.S.
. Tenders of Outstanding federal income tax
Notes may be withdrawn purposes.
at any time prior to the
expiration of the
Exchange Offer.
PLEASE SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN
FACTORS WHICH YOU SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER.
WE ARE NOT MAKING THIS EXCHANGE OFFER IN ANY STATE OR JURISDICTION WHERE IT IS
NOT PERMITTED.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THE NOTES TO BE DISTRIBUTED IN THE EXCHANGE OFFER, NOR
HAVE ANY OF THESE ORGANIZATIONS DETERMINED THAT THIS PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Where You Can Get More Information....................................... ii
Forward-Looking Statements............................................... iii
Summary.................................................................. 1
Risk Factors............................................................. 12
The Exchange Offer....................................................... 22
Use of Proceeds.......................................................... 31
Capitalization........................................................... 32
Selected Consolidated Financial Data..................................... 33
Pro Forma Financial Data................................................. 35
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 38
Description of the Exchange Notes........................................ 53
Other Indebtedness....................................................... 88
Plan of Distribution..................................................... 90
Legal Matters............................................................ 90
Experts.................................................................. 91
Changes in Accountants................................................... 91
</TABLE>
(i)
<PAGE>
WHERE YOU CAN GET MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission (the "SEC" or the
"Commission") under the Securities Exchange Act of 1934 (the "Exchange Act").
You may read and copy any of this information at the SEC's public reference
rooms at:
<TABLE>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, New York 10048 Suite 1400
Chicago, Illinois 60661-2511
</TABLE>
You may call the SEC at 1-800-SEC-0330 for further information about the
public reference rooms. Copies of filed documents also can be obtained by mail
from the Public Reference Room at the above address or may be accessed at the
SEC's web site at http://www.sec.gov. Our Class A Common Stock is quoted on The
Nasdaq Stock Market's National Market System under the symbol "MCLD." You can
look at SEC reports, proxy statements and other information about our Company
at Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006.
We filed with the SEC a Registration Statement under the Securities Act of
1933 (the "Securities Act"), covering the Exchange Notes to be issued in the
Exchange Offer. As permitted by SEC rules, this Prospectus omits certain
information included in the Registration Statement and its exhibits. Statements
in this Prospectus concerning the contents of any contract, agreement or other
document are not necessarily complete. If we have filed any such contract,
agreement or other document as an exhibit to the Registration Statement, you
should read the exhibit for a more complete understanding of the document or
matter involved.
The SEC allows us to "incorporate by reference" information into this
Prospectus, which means we can disclose important information to you simply by
referring you to another document filed separately with the SEC. This
Prospectus incorporates by reference the following documents which contain
important information about us and our financial condition:
. Our Annual Report on Form 10-K for our fiscal year ended December 31,
1997, filed on March 9, 1998
. Our Current Reports on Form 8-K, filed on March 20, 1998, October 29,
1998 and November 19, 1998
. Our Quarterly Reports on Form 10-Q for the quarterly periods ended March
31, 1998, June 30, 1998 and September 30, 1998, filed on May 13, 1998,
August 14, 1998 and November 16, 1998, respectively
. The consolidated financial statements of Consolidated Communications
Inc. and subsidiaries appearing on pages F-45 through F-60 of our
definitive prospectus dated December 1, 1997 and filed with the SEC on
December 2, 1997 pursuant to Rule 424(b) under the Securities Act as
part of our Registration Statement on Form S-4 (Registration No. 333-
34227)
. All documents filed by us pursuant to Sections 13(a), 13(c), 14 and
15(d) of the Exchange Act, during the offering made by this Prospectus,
effective the date such documents are filed
In the event of conflicting information in these documents, the information
in the latest filed document should be considered correct.
(ii)
<PAGE>
The indenture that governs the Outstanding Notes and which will govern the
Exchange Notes requires us to furnish the Trustee with annual reports
containing consolidated financial statements audited by our independent public
accountants and with quarterly reports containing unaudited condensed
consolidated financial statements for each of the first three quarters of each
fiscal year.
YOU CAN OBTAIN THE DOCUMENTS INCORPORATED BY REFERENCE AT NO COST BY
CONTACTING US AT MCLEODUSA INCORPORATED, MCLEODUSA TECHNOLOGY PARK, 6400 C
STREET, SW, P.O. BOX 3177, CEDAR RAPIDS, IA 52406-3177, TELEPHONE NUMBER:
(319) 364-0000, ATTENTION: GENERAL COUNSEL. IN ORDER TO ENSURE TIMELY DELIVERY
OF THESE DOCUMENTS BEFORE THE EXCHANGE OFFER EXPIRES, ANY REQUEST SHOULD BE
MADE BY , 1999.
YOU SHOULD RELY ONLY ON THE INFORMATION INCORPORATED BY REFERENCE OR
PROVIDED IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE ELSE TO PROVIDE YOU
WITH DIFFERENT INFORMATION. YOU SHOULD NOT ASSUME THAT THE INFORMATION IN THIS
PROSPECTUS IS ACCURATE AS OF ANY OTHER DATE OTHER THAN THE DATE ON THE FRONT
COVER.
FORWARD-LOOKING STATEMENTS
Some of the statements contained, or incorporated by reference, in this
Prospectus discuss future expectations, contain projections of results of
operations or financial condition or state other "forward-looking"
information. Those statements are subject to known and unknown risks,
uncertainties and other factors that could cause the actual results to differ
materially from those contemplated by the statements. The forward-looking
information is based on various factors and was derived using numerous
assumptions. In some cases, you can identify these so-called "forward-looking"
statements by words like "may," "will," "should," "expects," "plans,"
"anticipates," "believes," "estimates," "predicts," "potential" or "continue"
or the negative of those words and other comparable words. You should be aware
that those statements only reflect our predictions. Actual events or results
may differ substantially. Important factors that could cause our actual
results to be materially different from the "forward-looking" statements are
disclosed under the heading "Risk Factors" and throughout this Prospectus.
(iii)
<PAGE>
SUMMARY
The following summary highlights selected information from this Prospectus
and may not contain all of the information that is important to you. The
summary is qualified in its entirety by the more detailed information and by
our Consolidated Financial Statements, the notes thereto and the other
financial data that are contained elsewhere, or incorporated by reference, in
this Prospectus. You should carefully consider the factors set forth under the
caption "Risk Factors" and we urge you to read this Prospectus and the Letter
of Transmittal in their entirety. Unless otherwise indicated, references in
this Prospectus to the "Company" include McLeodUSA's predecessor, McLeodUSA and
McLeodUSA's wholly owned subsidiaries. Unless otherwise indicated, dollar
amounts over $1 million have been rounded to one decimal place and dollar
amounts less than $1 million have been rounded to the nearest thousand.
OUR COMPANY
We provide integrated communications services to business and residential
customers in the Midwestern and Rocky Mountain regions of the United States.
Our integrated communications services include local, long distance, Internet
access, data, voice mail and paging, all from a single company on a single
bill. We believe we are the first communications provider in most of our
markets to offer "one-stop shopping" for communications services tailored to
customers' specific needs.
Our approach makes it easier for both our business and our residential
customers to satisfy their telecommunications needs. It also allows businesses
to receive customized services, such as competitive long distance pricing and
enhanced calling features, that might not otherwise be directly available on a
cost-effective basis. As of September 30, 1998, we served over 366,800 local
lines in 267 cities and towns.
In addition to our core business of providing competitive local, long distance
and related communications services, we also derive revenue from:
. the sale of advertising space in telephone directories
. incumbent local exchange services in east central Illinois
. communications network maintenance services
. telephone equipment sales, service and installation
. video services
. special access, private line and data services
. telemarketing services
. other communications services, including cellular, operator, payphone and
paging services
In most of our markets, we compete with the incumbent local phone company by
leasing their lines and switches. This allows customers to select our local
service without changing their existing telephone numbers. In other markets,
primarily in east central Illinois, we operate our own lines and switches. We
provide long distance services by using our own facilities and leasing capacity
from long-haul and local providers. We are constructing fiber optic networks in
Iowa, Illinois, Wisconsin, Indiana, Missouri, Minnesota, South Dakota and North
Dakota to carry additional communications traffic on our own network.
OUR STRATEGY
We want to be the leading and most admired provider of integrated
communications services in our markets. We are:
. aggressively capturing customer share and generating revenue using leased
network capacity
. concurrently constructing our own network
. migrating customers to our network to provide enhanced services and reduce
operating costs
1
<PAGE>
The principal elements of our business strategy are to:
Provide integrated communications services. We believe we can rapidly penetrate
our target markets and build customer loyalty by providing a "bundled" product
offering. We intend to add personal communications services ("PCS") to our
current array of integrated communications services over the next several
years.
Build customer share through branding. We believe we will create and strengthen
brand awareness in our target markets by branding our communications services
with the trade name McLeodUSA in combination with the distinctive black-and-
yellow motif of our directories.
Provide outstanding customer service. Our customer service representatives are
available 24 hours a day, seven days a week, to answer customer calls. Our
customer-focused software and systems allow our representatives immediate
access to our customer and network data, enabling a rapid and effective
response to customer requests.
Focus on small and mid-sized markets. We primarily target small and mid-sized
markets because we believe we can rapidly capture customer share by providing
face-to-face sales and service support to our customers before intense
competition develops.
Expand our fiber optic network. We are building a state-of-the-art digital
fiber optic network to deliver multiple services and reduce operating costs.
Expand intra-city fiber network build. Within selected cities, we plan to
extend our network directly to our customers' locations. This will allow us to
provide expanded services and reduce the expense of leasing facilities from the
local exchange carrier.
Explore acquisitions and strategic alliances. We plan to pursue acquisitions,
joint ventures and strategic alliances that expand or complement our business.
Leverage proven management team. Our executive management team consists of
veteran telecommunications managers who successfully implemented similar
customer-focused telecommunications strategies in the past.
----------------
As of September 30, 1998, we estimated, based on our current business plan and
projections, our aggregate capital requirements through 2001 would be $1.1
billion. Our estimated capital requirements include the projected cost of:
. building our fiber optic network, including intra-city fiber optic networks
. expanding operations in existing and new markets
. developing a PCS system
. funding general corporate expenses
We expect to fund these capital requirements with:
. approximately $291.9 million in net proceeds from the Outstanding Notes
. approximately $402.4 million of cash on hand and short-term investments at
September 30, 1998
. a proposed $100.0 million revolving credit facility
. projected operating cash flow of the Company
The actual amount and timing of our future capital requirements is subject to
risks and uncertainties and may differ materially from our estimates. See "Risk
Factors--Significant Capital Requirements."
----------------
Our principal executive offices are located at McLeodUSA Technology Park, 6400
C Street, SW, P.O. Box 3177, Cedar Rapids, Iowa 52406-3177, and our phone
number is (319) 364-0000.
2
<PAGE>
SUMMARY OF THE EXCHANGE OFFER
THE EXCHANGE OFFER.......... We are offering to exchange (the "Exchange
Offer") $1,000 principal amount of our 9 1/2%
Senior Notes due November 1, 2008 (the "Exchange
Notes"), which have been registered under the
Securities Act, for each $1,000 principal amount
of our outstanding unregistered 9 1/2% Senior
Notes due November 1, 2008 which were issued by
us on October 22, 1998 in a private offering (the
"Outstanding Notes" and, together with the
Exchange Notes, the "October 1998 Senior Notes").
In order for your Outstanding Notes to be
exchanged, you must properly tender them prior to
the expiration of the Exchange Offer. All
Outstanding Notes that are validly tendered and
not validly withdrawn will be exchanged. We will
issue the Exchange Notes on or promptly after the
expiration of the Exchange Offer.
Outstanding Notes may be tendered for exchange in
whole or in part in integral multiples of $1,000
principal amount.
REGISTRATION RIGHTS
AGREEMENT................... We sold the Outstanding Notes on October 22, 1998
to Salomon Smith Barney Inc., Bear, Stearns & Co.
Inc., Morgan Stanley & Co. Incorporated and Chase
Securities Inc. (the "Initial Purchasers").
Simultaneously with that sale we signed a
registration rights agreement with the Initial
Purchasers (the "Registration Rights Agreement")
which requires us to conduct this Exchange Offer.
You have the right pursuant to the Registration
Rights Agreement to exchange your Outstanding
Notes for Exchange Notes with substantially
identical terms. This Exchange Offer is intended
to satisfy these rights. After the Exchange Offer
is complete, you will no longer be entitled to
any exchange or registration rights with respect
to your Outstanding Notes.
For a description of the procedures for tendering
Outstanding Notes, see "The Exchange Offer--
Procedures for Tendering Outstanding Notes."
CONSEQUENCES OF FAILURE TO
EXCHANGE YOUR OUTSTANDING
NOTES....................... If you do not exchange your Outstanding Notes for
Exchange Notes pursuant to the Exchange Offer,
you will continue to be subject to the
restrictions on transfer provided in the
Outstanding Notes and the indenture governing the
October 1998 Senior Notes. In general, the
Outstanding Notes may not be offered or sold,
unless registered under the Securities Act,
except pursuant to an
3
<PAGE>
exemption from, or in a transaction not subject
to, the Securities Act and applicable state
securities laws. We do not currently plan to
register the Outstanding Notes under the
Securities Act.
EXPIRATION DATE............. The Exchange Offer will expire at 5:00 p.m., New
York City time, on , 1999 unless extended by
us (in which case the term "Expiration Date"
shall mean the latest date and time to which the
Exchange Offer is extended). See "The Exchange
Offer--Expiration Date; Extensions; Amendments."
CONDITIONS TO THE EXCHANGE
OFFER....................... The Exchange Offer is subject to certain
conditions which we may waive at our sole
discretion. The Exchange Offer is not conditioned
upon any minimum principal amount of Outstanding
Notes being tendered for exchange. See "The
Exchange Offer--Conditions to the Exchange
Offer."
We reserve the right in our sole and absolute
discretion, subject to applicable law, at any
time and from time to time:
. to delay the acceptance of the Outstanding
Notes
. to terminate the Exchange Offer if certain
specified conditions have not been satisfied
. to extend the Expiration Date of the Exchange
Offer and retain all tendered Outstanding
Notes subject, however, to the right of
tendering holders to withdraw their tender of
Outstanding Notes
. to waive any condition or otherwise amend the
terms of the Exchange Offer in any respect
See "The Exchange Offer--Expiration Date;
Extensions; Amendments."
PROCEDURES FOR TENDERING
OUTSTANDING NOTES........... If you wish to tender your Outstanding Notes for
exchange, you must:
. complete and sign a Letter of Transmittal in
accordance with the instructions contained in
the Letter of Transmittal
. forward the Letter of Transmittal by mail,
facsimile transmission or hand delivery,
together with any other required documents, to
the Exchange Agent, either with the
Outstanding Notes to be tendered or in
compliance with the specified procedures for
guaranteed delivery of such Outstanding Notes.
Certain brokers, dealers, commercial banks, trust
companies and other nominees may also effect
tenders by book-entry transfer.
4
<PAGE>
Please do not send your Letter of Transmittal or
certificates representing your Outstanding Notes
to us. Those documents should only be sent to the
Exchange Agent. Questions regarding how to tender
and requests for information should be directed
to the Exchange Agent. See "The Exchange Offer--
Exchange Agent."
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS........... If your Outstanding Notes are registered in the
name of a broker, dealer, commercial bank, trust
company or other nominee, we urge you to contact
such person promptly if you wish to tender your
Outstanding Notes pursuant to the Exchange Offer.
See "The Exchange Offer--Procedures for Tendering
Outstanding Notes."
WITHDRAWAL RIGHTS........... You may withdraw the tender of your Outstanding
Notes at any time prior to the Expiration Date by
delivering a written notice of your withdrawal to
the Exchange Agent in accordance with the
withdrawal procedures as described under the
heading "The Exchange Offer--Withdrawal Rights."
RESALES OF EXCHANGE NOTES... We believe that you will be able to offer for
resale, resell or otherwise transfer Exchange
Notes issued in the Exchange Offer without
compliance with the registration and prospectus
delivery provisions of the Securities Act,
provided that:
. you are acquiring the Exchange Notes in the
ordinary course of your business
. you are not participating, and have no
arrangement or understanding with any person
to participate, in the distribution of the
Exchange Notes
. you are not an "affiliate" of McLeodUSA
(within the meaning of Rule 405 under the
Securities Act)
Our belief is based on interpretations by the
Staff of the SEC, as set forth in no-action
letters issued to third parties unrelated to us.
The Staff of the SEC has not considered the
Exchange Offer in the context of a no-action
letter, and we cannot assure you that the Staff
of the SEC would make a similar determination
with respect to this Exchange Offer.
If our belief is not accurate and you transfer an
Exchange Note without delivering a prospectus
meeting the requirements of the Securities Act or
without an exemption from such requirements, you
may incur liability under the Securities Act. We
do not and will not assume or indemnify you
against such liability.
5
<PAGE>
Each broker-dealer that receives Exchange Notes
for its own account in exchange for Outstanding
Notes which were acquired by such broker-dealer
as a result of market-making or other trading
activities must acknowledge that it will deliver
a prospectus meeting the requirements of the
Securities Act in connection with any resale of
such Exchange Notes. A broker-dealer may use this
Prospectus for an offer to sell, resale or other
transfer of Exchange Notes. See "Plan of
Distribution."
EXCHANGE AGENT.............. The exchange agent for the Exchange Offer is
United States Trust Company of New York (the
"Exchange Agent"). The address, telephone number
and facsimile number of the Exchange Agent are
set forth in "The Exchange Offer--Exchange Agent"
and in the Letter of Transmittal.
USE OF PROCEEDS............. We will not receive any cash proceeds from the
issuance of the Exchange Notes offered hereby.
See "Use of Proceeds."
CERTAIN UNITED STATES
FEDERAL INCOME TAX
CONSEQUENCES................ Your acceptance of the Exchange Offer and the
related exchange of your Outstanding Notes for
Exchange Notes will not be a taxable exchange for
United States federal income tax purposes. You
should not recognize any taxable gain or loss or
any interest income as a result of the exchange.
See "The Exchange Offer--Certain United States
Federal Income Tax Consequences."
See "The Exchange Offer" for more detailed information concerning the
Exchange Offer.
6
<PAGE>
SUMMARY OF TERMS OF THE EXCHANGE NOTES
The Exchange Offer relates to the exchange of up to $300,000,000 principal
amount of Exchange Notes for up to an equal principal amount of Outstanding
Notes. The form and terms of the Exchange Notes are the same as the form and
terms of the Outstanding Notes, except the Exchange Notes will be registered
under the Securities Act. Therefore, the Exchange Notes will not bear legends
restricting their transfer and will not be entitled to registration under the
Securities Act. The Exchange Notes will evidence the same debt as the
Outstanding Notes (which they replace) and both the Outstanding Notes and the
Exchange Notes are governed by the same indenture (the "October 1998
Indenture").
SECURITIES OFFERED.......... $300 million principal amount of 9 1/2% Senior
Notes due November 1, 2008.
INTEREST.................... Interest on the Exchange Notes will accrue at the
rate of 9 1/2% per year and will be payable in
cash semi-annually in arrears on May 1 and
November 1, commencing May 1, 1999.
RANKING..................... The Exchange Notes will not be secured by any
assets and:
. will be subordinated to all of our existing
and future secured indebtedness, including any
Senior Credit Facility (as defined herein) or
Qualified Receivable Facility (as defined
herein)
. will be subordinated to all liabilities of our
subsidiaries (including trade payables)
. will rank equal in right of payment with all
of our existing and future senior unsecured
indebtedness
. will rank senior in right of payment to all of
our existing and future subordinated
indebtedness
As of September 30, 1998:
. we had total secured indebtedness of $28.4
million
. our subsidiaries had total liabilities of
$246.3 million
. we had $877.7 million of outstanding senior
unsecured indebtedness that will rank equal in
right of payment with the Exchange Notes
. we had no outstanding subordinated
indebtedness
See "Description of the Exchange Notes--General."
OPTIONAL REDEMPTION......... The Exchange Notes will be subject to redemption
at our option, in whole or in part, at any time
on or after November 1, 2003 at the redemption
prices set forth herein, plus accrued and unpaid
interest (if any) to the date of redemption. In
addition, in the event we sell our common stock
in a Strategic Equity Investment (as defined
herein) on or before November 1, 2001, we may, at
our option, use all or a portion of the net
proceeds from such sale to redeem up to
7
<PAGE>
33 1/3% of the originally issued principal amount
of the Exchange Notes at a redemption price equal
to 111.50% of the principal amount of the
Exchange Notes plus accrued and unpaid interest
thereon (if any) to the redemption date; provided
that at least 66 2/3% of the originally issued
principal amount of the Exchange Notes would
remain outstanding immediately after giving
effect to such redemption. See "Description of
the Exchange Notes--Optional Redemption."
CHANGE OF CONTROL........... Upon a Change of Control (as defined herein), you
will have the right to require us to repurchase
all or any part of your Exchange Notes at a
purchase price equal to 101% of their principal
amount plus accrued and unpaid interest. However,
we cannot assure you we will have the financial
resources necessary to repurchase the Exchange
Notes upon a Change of Control. See "Description
of the Exchange Notes--Repurchase at the Option
of Holders upon a Change of Control."
CERTAIN COVENANTS........... The October 1998 Indenture contains certain
covenants which, among other things, restrict our
ability and the ability of certain of our
subsidiaries to:
. incur additional indebtedness
. pay dividends
. make distributions in respect of our or our
subsidiaries' capital stock
. make other restricted payments
. enter into sale and leaseback transactions
. create liens
. enter into transactions with affiliates or
related persons
. sell assets
. consolidate, merge or sell all or
substantially all of our or our subsidiaries'
assets
These covenants are subject to important
exceptions and qualifications. See "Description
of the Exchange Notes--Certain Covenants."
RISK FACTORS
You should consider carefully certain factors set forth under the caption
"Risk Factors" before tendering your Outstanding Notes for Exchange Notes. See
"Risk Factors."
8
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
The following table sets forth selected consolidated financial and operating
data of the Company and should be read in conjunction with and is qualified by
reference to "Management's Discussion and Analysis of Financial Condition and
Results of Operations," the Consolidated Financial Statements of the Company,
the notes thereto and the other financial data contained elsewhere, or
incorporated by reference, in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
--------------------------------------------------------------------- -----------------------------------
PRO FORMA PRO FORMA
1993 1994 1995(1)(2) 1996(1)(3) 1997(1)(4)(5)(8) 1997(6)(7) 1997(1)(8) 1998(9) 1998(7)(10)
------- -------- ---------- ---------- ---------------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS
STATEMENT DATA:
Revenue......... $ 1,550 $ 8,014 $ 28,998 $ 81,323 $267,886 $ 462,191 $131,595 $438,642 $ 438,642
------- -------- -------- -------- -------- --------- -------- -------- ---------
Operating
expenses:
Cost of
service........ 1,528 6,212 19,667 52,624 155,430 255,794 77,745 239,195 239,195
Selling, general
and
administrative.. 2,390 12,373 18,054 46,044 143,918 208,981 86,363 189,579 189,579
Depreciation and
amortization... 235 772 1,835 8,485 33,275 61,916 15,708 63,663 63,663
Other........... -- -- -- 2,380 4,632 10,191 2,689 5,575 5,575
------- -------- -------- -------- -------- --------- -------- -------- ---------
Total operating
expenses....... 4,153 19,357 39,556 109,533 337,255 536,882 182,505 498,012 498,012
------- -------- -------- -------- -------- --------- -------- -------- ---------
Operating loss.. (2,603) (11,343) (10,558) (28,210) (69,369) (74,691) (50,910) (59,370) $ (59,370)
Interest income
(expense),
net............ 163 (73) (771) 5,369 (11,967) (48,984) (2,686) (35,519) (48,893)
Other income.... -- -- -- 495 1,426 2,508 40 1,789 1,789
Income taxes.... -- -- -- -- -- -- -- -- --
------- -------- -------- -------- -------- --------- -------- -------- ---------
Net loss........ $(2,440) $(11,416) $(11,329) $(22,346) $(79,910) $(121,167) $(53,556) $(93,100) $(106,474)
======= ======== ======== ======== ======== ========= ======== ======== =========
Loss per common
share.......... $ (.17) $ (.53) $ (.40) $ (.55) $ (1.45) $ (1.98) $ (1.02) $ (1.49) $ (1.70)
======= ======== ======== ======== ======== ========= ======== ======== =========
Weighted average
common shares
outstanding.... 14,761 21,464 28,004 40,506 54,974 61,184 52,752 62,620 62,620
======= ======== ======== ======== ======== ========= ======== ======== =========
Ratio of
earnings to
fixed
charges(11).... -- -- -- -- -- -- -- -- --
======= ======== ======== ======== ======== ========= ======== ======== =========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, 1998
-------------------------------------------------- ------------------------
ACTUAL AS
1993 1994 1995(1) 1996(1)(12) 1997(1)(5)(13) ACTUAL(9) ADJUSTED(14)
------ ------- ------- ----------- -------------- ----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets......... $7,077 $ 4,862 $ 8,507 $224,401 $ 517,869 $ 570,784 $ 862,659
Working capital
(deficit)............. $5,962 $ 1,659 $(1,208) $185,968 $ 378,617 $ 409,266 $ 701,141
Property and equipment,
net................... $1,958 $ 4,716 $16,119 $ 92,123 $ 373,804 $ 559,317 $ 559,317
Total assets........... $9,051 $10,687 $28,986 $452,994 $1,345,652 $1,621,564 $1,921,564
Long-term debt......... -- $ 3,500 $ 3,600 $ 2,573 $ 613,384 $ 939,102 $1,239,102
Stockholders' equity... $7,936 $ 3,291 $14,958 $403,429 $ 559,379 $ 483,745 $ 483,745
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------------------ -----------------------------------
PRO FORMA PRO FORMA
1993 1994 1995(1)(2) 1996(1)(3) 1997(1)(4)(5) 1997(6)(7) 1997(1) 1998(9) 1998(7)
------- -------- ---------- ---------- ------------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL
DATA:
Capital
expenditures,
including
business
acquisitions... $ 2,052 $ 3,393 $14,697 $173,782 $601,137 $617,463 $547,345 $251,253 $251,253
EBITDA(15)...... $(2,368) $(10,571) $(8,723) $(17,345) $(31,462) $ (2,584) $(32,513) $ 9,868 $ 9,868
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
SEPTEMBER 30,
1995 1996 1997 1998
------ ------ ------- -------------
<S> <C> <C> <C> <C>
OTHER OPERATING DATA:
Local lines................................ 35,800 65,400 282,600 366,800
Cities and towns served.................... 77 120 227 267
Route miles................................ 218 2,352 4,908 6,329
Employees.................................. 419 2,077 4,941 5,370
</TABLE>
- -------
(1) The acquisitions of MWR Telecom, Inc. ("MWR") (now part of McLeodUSA
Network Services, Inc. ("McLeodUSA Network Services")), Ruffalo, Cody &
Associates, Inc. ("Ruffalo Cody"), McLeodUSA Media Group, Inc. ("McLeodUSA
Publishing") and Consolidated Communications Inc. ("CCI") in April 1995,
July 1996, September 1996 and September 1997, respectively, affect the
comparability of the historical data presented to the historical data for
prior periods shown.
(2) Includes operations of MWR from April 29, 1995 to December 31, 1995.
(3) Includes operations of Ruffalo Cody from July 16, 1996 to December 31,
1996 and operations of McLeodUSA Publishing from September 21, 1996 to
December 31, 1996.
(4) Includes operations of CCI from September 25, 1997 to December 31, 1997.
(5) Reflects the issuance of $500 million aggregate principal amount at
maturity of 10 1/2% Senior Discount Notes due March 1, 2007 (the "1997
Senior Discount Notes") yielding net proceeds of approximately $288.9
million on March 4, 1997 (the "1997 Senior Discount Note Offering") and
the issuance of $225 million principal amount at maturity of 9 1/4% Senior
Notes due July 15, 2007 (the "1997 Senior Notes") yielding net proceeds of
approximately $217.6 million on July 21, 1997 (the "1997 Senior Note
Offering").
(6) Includes operations of CCI from January 1, 1997 to December 31, 1997 and
certain adjustments attributable to the acquisition of CCI by the Company.
Also reflects certain adjustments attributable to the 1997 Senior Discount
Notes, the 1997 Senior Notes, the issuance of $300 million principal
amount at maturity of 8 3/8% Senior Notes due March 15, 2008 (the "March
1998 Senior Notes") yielding net proceeds of approximately $291.9 million
on March 10, 1998 (the "March 1998 Senior Note Offering") and the issuance
of $300 million principal amount at maturity of 9 1/2% Senior Notes due
November 1, 2008 (the "October 1998 Senior Notes") yielding net proceeds
of approximately $291.9 million on October 30, 1998 (the "Offering")
computed as if the 1997 Senior Discount Notes, the 1997 Senior Notes, the
March 1998 Senior Notes and the October 1998 Senior Notes had been issued
on January 1, 1997.
(7) The issuance of the 1997 Senior Discount Notes in March 1997, the issuance
of the 1997 Senior Notes in July 1997, the acquisition of CCI in September
1997 (the "CCI Acquisition"), the issuance of the March 1998 Senior Notes
in March 1998 and the issuance of the October 1998 Senior Notes in October
1998 affect the comparability of the pro forma data presented to the data
for prior periods shown.
(8) Reflects the issuance of the 1997 Senior Discount Notes on March 4, 1997.
(9) Reflects the issuance of the March 1998 Senior Notes on March 16, 1998.
(10) Reflects certain adjustments attributable to the March 1998 Senior Notes
and the October 1998 Senior Notes computed as if each had occurred on
January 1, 1998.
10
<PAGE>
(11) For the purpose of calculating the ratio of earnings to fixed charges,
earnings consist of net loss before income taxes plus fixed charges
(excluding capitalized interest). Fixed charges consist of interest on all
debt (including capitalized interest), amortization of debt discount and
deferred loan costs and the portion of rental expense that is
representative of the interest component of rental expense (deemed to be
one-third of rental expense which management believes is a reasonable
approximation of the interest component). For each of the years ended
December 31, 1993, 1994, 1995, 1996 and 1997, earnings were insufficient
to cover fixed charges by $2.4 million, $11.4 million, $11.4 million,
$22.6 million and $84.4 million, respectively. For the nine months ended
September 30, 1997 and 1998, earnings were insufficient to cover fixed
charges by $50.7 million and $86.6 million, respectively. On a pro forma
basis computed as if the CCI Acquisition, the 1997 Senior Discount Note
Offering, the 1997 Senior Note Offering, the March 1998 Senior Note
Offering and the Offering were consummated at the beginning of the period
presented, earnings would not have been sufficient to cover fixed charges
by $116.7 million and $99.9 million for the year ended December 31, 1997
and the nine months ended September 30, 1998, respectively.
(12) Includes Ruffalo Cody and McLeodUSA Publishing, which we acquired on July
15, 1996 and September 20, 1996, respectively.
(13) Includes CCI, which we acquired on September 24, 1997.
(14) Adjusted to reflect the application of the net proceeds from the Offering.
(15) EBITDA consists of operating loss before depreciation, amortization and
other nonrecurring operating expenses. The Company has included EBITDA
data because it is a measure commonly used in the industry. EBITDA 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.
11
<PAGE>
RISK FACTORS
You should carefully consider the following risk factors and the other
information in this Prospectus before tendering your Outstanding Notes for
Exchange Notes. You should also consider the additional information set forth
in our SEC Reports on Forms 10-K, 10-Q and 8-K and in the other documents
incorporated by reference in this Prospectus.
LIMITED OPERATING HISTORY; RECENT AND ANTICIPATED LOSSES.
We began operations in 1992. Our limited operating history and rapid growth
may make it more difficult for you to evaluate our performance. As a result of
expenses related to the expansion of our existing businesses and strategic
acquisitions, we have incurred significant losses. Since January 1, 1995, our
net losses have been as follows:
Net Losses
<TABLE>
<CAPTION>
Period Amount
------ -------------
<S> <C>
1995.................. $11.3 million
1996.................. $22.3 million
1997.................. $79.9 million
1998 (through Sept.
30).................. $93.1 million
</TABLE>
We expect to incur significant operating losses during the next several years
while we develop our businesses, expand our fiber optic network and develop a
PCS system. If we do not become profitable in the future, we could have
difficulty obtaining funds to continue our operations or to pay amounts due on
the Exchange Notes. See "--Significant Capital Requirements."
SIGNIFICANT CAPITAL REQUIREMENTS.
We need significant capital to continue to expand our operations, facilities,
network and services. As of September 30, 1998, based on our current business
plan and projections, we estimated that we would require approximately $1.1
billion through 2001. This estimate includes the projected costs of:
. building our fiber optic network, including intra-city fiber optic
networks
. expanding operations in existing and new markets
. developing a PCS system
. funding general corporate expenses
We expect to fund these capital requirements with:
. approximately $291.9 million in net proceeds from the Outstanding Notes
. approximately $402.4 million of cash on hand and short-term investments
at September 30, 1998
. a proposed $100.0 million revolving credit facility
. projected operating cash flow
We cannot assure you that our capital resources will permit us to fund our
planned network deployment and operations or achieve operating profitability.
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:
. unforeseen delays
. cost overruns
. engineering design changes
. changes in demand for our services
. regulatory, technological, or competitive developments
. new opportunities
We have received a non-binding commitment from The Chase Manhattan Bank to
lead a syndication to provide a $100 million senior secured revolving credit
facility (the "Proposed Revolving Credit Facility"). We cannot assure you that
we will complete the Proposed Revolving Credit Facility on acceptable terms.
We also expect to evaluate potential acquisitions, joint ventures and
strategic
12
<PAGE>
alliances on an ongoing basis. We may require additional financing if we pursue
any of these opportunities.
We may meet any unanticipated capital needs by issuing additional debt or
equity securities or borrowing funds from one or more lenders. We cannot assure
you that we will have timely access to additional financing sources on
acceptable terms. Failure to generate or raise sufficient funds may require us
to delay or abandon some of our expansion plans or expenditures, which could
have a material adverse effect on our business, results of operations,
financial condition and ability to repay the Exchange Notes.
VARIABILITY OF OPERATING RESULTS.
Our revenues and operating results may fluctuate significantly from period to
period for many reasons, including:
. competition
. availability or announcement of alternative technologies
. fluctuations in the results of operations of existing business units,
recently acquired subsidiaries, or newly established business units
. changes in market growth rates for different products and services
. general economic conditions
. significant expenses associated with the construction and expansion of
our network and services, including the development, construction and
operation of a PCS system
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, financial condition and ability to repay the Exchange Notes.
UNCERTAINTIES OF EXPANSION.
We have rapidly expanded and developed our network and services. Further
expansion and development will depend on a number of factors, including:
. cooperation of the incumbent local exchange carriers
. regulatory and governmental developments
. changes in the competitive climate in which we operate
. development of customer billing, order processing and network management
systems
. availability of financing
. technological developments
. availability of rights-of-way, building access and antenna sites
. existence of strategic alliances or relationships
. emergence of future opportunities
We will need to continue to improve our operational and financial systems and
our procedures and controls. We must also grow, train and manage our employee
base. Failure to manage our anticipated growth effectively could have a
material adverse effect on our business, results of operations, financial
condition and ability to repay the Exchange Notes.
RISKS ASSOCIATED WITH ACQUISITIONS.
As part of our strategy, we have acquired other companies. We will continue
to evaluate additional strategic acquisitions and alliances principally
relating to our current operations. These transactions commonly involve a
number of risks,
. difficulty assimilating acquired operations and personnel
. diversion of management attention
. disruption of ongoing business
. inability to retain key personnel
. inability to successfully incorporate acquired assets and rights into our
service offerings
. inability to maintain uniform standards, controls, procedures and
policies
13
<PAGE>
. impairment of relationships with employees, customers or vendors
Failure to overcome these risks or any other problems encountered in these
transactions could have a material adverse effect on our business, results of
operations, financial condition and ability to repay the Exchange Notes. In
connection with these transactions, we may also issue additional equity
securities, incur additional debt or incur significant amortization expenses
related to goodwill and other intangible assets.
DEPENDENCE ON REGIONAL BELL OPERATING COMPANIES.
We depend on the Regional Bell Operating Companies ("RBOCs") to provide most
of our core local and some of our long distance services. U S WEST
Communications, Inc. ("U S WEST"), Ameritech Corporation ("Ameritech") and
Southwestern Bell Telephone Company ("SBC") are our primary suppliers of local
central office switching and local access lines. Their facilities allow us to
provide (1) local service, (2) long distance service and (3) interexchange
private lines. Today, without using these facilities, we could not provide
bundled local and long distance services to most of our customers, although we
could provide stand-alone long distance service to some customers.
Our plans to provide additional local services using our own switches also
depend on the RBOCs. In order to interconnect our switches and other facilities
to network elements controlled by the RBOCs, we must first negotiate and enter
into interconnection agreements with them. In August 1996, the Federal
Communications Commission ("FCC") released a decision (the "Interconnection
Decision") implementing the portions of the Telecommunications Act of 1996 (the
"Telecommunications Act") that impose interconnection obligations on the RBOCs.
The U.S. Eighth Circuit Court of Appeals vacated certain provisions of the
Interconnection Decision. The U.S. Supreme Court reviewed this matter and we
expect it to release its decision during the 1998-1999 term. If the U.S.
Supreme Court upholds the decision of the U.S. Eighth Circuit Court of Appeals,
obtaining interconnection agreements on favorable terms could become much more
difficult, which could limit or delay the expansion of our local exchange
switched services. We cannot assure you that we will succeed in obtaining
interconnection agreements on terms that would permit us to offer local
services at profitable and competitive rates.
Any successful effort by U S WEST, Ameritech, SBC or other local exchange
carriers to deny or limit our access to their network elements or wholesale
services would have a material adverse effect on our business, results of
operations, financial condition and ability to repay the Exchange Notes.
U S WEST CENTREX ACTION AND OTHER ACTIONS BY U S WEST.
On February 5, 1996, U S WEST filed tariffs and other notices with the public
utilities commissions in its fourteen-state service region to limit future
Centrex access to its switches (the "U S WEST Centrex Action"). Centrex access
allows a large customer to aggregate lines, have control over certain
characteristics of those lines and provide a set of standard features on those
lines. Under the terms of the U S WEST Centrex Action, U S WEST would permit us
to use its central office switches until April 2005, but would not allow us to
expand to new cities and would severely limit the number of new lines we could
partition onto its switches in the cities we serve.
We have challenged, or are challenging, the U S WEST Centrex Action in many
of the states where we do business or plan to do business. We have succeeded in
blocking the U S WEST Centrex Action in Iowa, Minnesota, South Dakota, North
Dakota and Colorado, although U S WEST could take further action in some of
these states. In Montana, Nebraska and Idaho, however, similar challenges to
the U S WEST Centrex Action have not succeeded. In Wyoming and Utah, challenges
to the U S WEST Centrex Action remain pending before state regulators.
U S WEST has introduced other measures that may make it more difficult or
expensive for
14
<PAGE>
us to use Centrex service. In January 1997, U S WEST proposed certain
interconnection surcharges in several of the states in its service region. In
February 1997, we joined other parties in filing a petition with the FCC
objecting to this proposal based on our belief that it violates certain
provisions of the Telecommunications Act. The matter remains pending before the
FCC and various state public utilities commissions.
We anticipate that U S WEST will also pursue legislative initiatives in
states within our target market area to reduce state regulatory oversight over
its rates and operations. If adopted, these initiatives could make it more
difficult for us to challenge U S WEST's actions in the future.
We cannot assure you that we will succeed in our challenges to the U S WEST
Centrex Action or other actions by U S WEST that would prevent or deter us from
using U S WEST's Centrex service or network elements. If U S WEST prevails in
any jurisdiction, we may not be able to offer integrated telecommunications
services in that jurisdiction, which could have a material adverse effect on
our business, results of operations, financial condition and ability to repay
the Exchange Notes.
PCS SYSTEM IMPLEMENTATION RISKS.
We do not own or operate any facilities for providing PCS services to the
public. Developing a PCS system involves a high degree of risk and will impose
significant demands on our management and financial resources. We may not
succeed in developing a PCS system. Even if we spend substantial amounts to
develop such a system, we may not make a profit from PCS operations. To
implement a PCS system successfully, we must, among other things:
. Select a digital protocol. We must choose from among several competing
and potentially incompatible digital protocol technologies. If the
digital protocol technology we choose does not become widely employed,
our future offering of PCS service could fail.
. Build out our wireless infrastructure. FCC rules impose minimum PCS
buildout and population coverage requirements. If we do not comply with
these requirements, the FCC could fine us or revoke our PCS licenses,
even after we have spent substantial amounts to develop a PCS system.
. Enter into "roaming" arrangements. The success of our PCS system will
depend on our ability to enter into "roaming" arrangements with other PCS
operators throughout the United States. We have not entered into any such
arrangements and cannot assure you that we will be able to do so.
. Relocate fixed microwave licensees. To secure a sufficient unencumbered
spectrum for the PCS service, we estimate that we may need to pay 19
microwave licensees to move to a different portion of the spectrum. The
time and expense of negotiating with and relocating these microwave
licensees could adversely affect our proposed PCS system.
Our success in implementing and operating a PCS system will also depend on a
number of factors beyond our control, including:
. changes in communications service rates charged by other companies
. changes in the supply and demand for PCS services due to competition with
other wireline and wireless operators in the same geographic area
. changes in the federal, state or local regulatory requirements affecting
the operation of PCS systems
. changes in PCS or competing wireless technologies that could render
obsolete the technology and equipment we choose for our PCS system
DEPENDENCE ON KEY PERSONNEL.
Our future success depends on the continued employment of our senior
management team, particularly Clark E.
15
<PAGE>
McLeod, our Chairman and Chief Executive Officer, and Stephen C. Gray, our
President and Chief Operating Officer. We do not have term employment
agreements with these employees.
We believe our success also depends in large part on our ability to attract,
develop, motivate and retain experienced and innovative management. The loss of
the services of key personnel, or the inability to attract additional qualified
personnel, could have a material adverse effect on our business, results of
operations, financial condition and ability to repay the Exchange Notes.
NEED TO OBTAIN AND MAINTAIN PERMITS AND RIGHTS-OF-WAY.
To obtain access to rights-of-way needed to install our fiber optic cables,
we must reach agreements with state highway authorities, local governments,
transit authorities, local exchange carriers, other utilities, railroads,
interexchange carriers and other parties. The loss of any of our rights-of-way
could have a material adverse effect on our business, results of operations,
financial condition and ability to repay the Exchange Notes. For example, we
may need to spend significant sums to remove and relocate our facilities.
RAPID TECHNOLOGICAL CHANGES.
Communications technology is changing quickly. Unexpected developments, or
our failure to adapt to them, could have a material adverse effect on our
business, results of operations, financial condition and ability to repay the
Exchange Notes.
CONTROL BY MANAGEMENT AND PRINCIPAL STOCKHOLDERS; POTENTIAL CONFLICTS OF
INTEREST WITH HOLDERS OF THE EXCHANGE NOTES.
As of September 30, 1998, IES Investments Inc. ("IES"), MHC Investments Inc.
("MHC"), Richard A. Lumpkin and various trusts for the benefit of his family,
Clark and Mary McLeod, and our directors and executive officers beneficially
owned approximately 60.4% of our outstanding Class A Common Stock. These
stockholders can collectively control management policy and all corporate
actions requiring a stockholder vote, including election of the Board of
Directors. IES, MHC, Mr. Lumpkin and various trusts for the benefit of his
family, and Mr. and Mrs. McLeod have entered into a voting agreement for the
election of directors and other matters. The fact that these stockholders hold
so much of the Class A Common Stock could make it more difficult for a third
party to acquire us. Our certificate of
incorporation contains provisions that may have the same effect.
Certain decisions concerning our operations or financial structure may
present conflicts of interest between you and our stockholders. For example,
our stockholders may have an interest in pursuing acquisitions, financings or
other transactions that could enhance their equity investment, but that also
increase the risk that we will not have sufficient funds to pay you. Since our
stockholders control our management policy and all fundamental corporate
actions, you should expect them to resolve any such conflict of interest in
their favor.
DEPENDENCE ON PAYMENTS FROM SUBSIDIARIES; SUBORDINATION OF THE OCTOBER 1998
SENIOR NOTES.
We are a holding company, which means we conduct all of our operations and
derive all of our operating income from our subsidiaries. Our ability to pay
our obligations, including our obligation to pay principal and interest on the
Exchange Notes, depends on receiving dividends and other payments from our
subsidiaries, raising additional funds in a public or private equity or debt
offering or selling assets. Our subsidiaries constitute separate legal entities
and have no obligation to pay any amounts due on the Exchange Notes or to make
funds available to us. Our subsidiaries' ability to pay dividends or make other
payments or advances to us will depend on their operating results and the
requirements of applicable law. The October 1998 Indenture contains covenants
that restrict the ability of our subsidiaries to enter into any agreement
limiting dividends and other transfers to us.
The Exchange Notes will be effectively subordinated in right of payment to
all liabilities of our subsidiaries. This means that in the event of a
bankruptcy, liquidation or reorganization, our subsidiaries must pay their
16
<PAGE>
creditors in full before we could use their assets to pay you. As of September
30, 1998, our subsidiaries had total liabilities (after the elimination of
loans and advances from us to our subsidiaries) of approximately $246.3
million. In addition, the October 1998 Indenture and the indentures governing
1997 Senior Discount Notes, the 1997 Senior Notes, and the March 1998 Senior
Notes (collectively, the "Indentures") permit us and our subsidiaries to incur
additional debt.
The Exchange Notes also will be unsecured and will be subordinated to our
secured debt. This means if we default on any of our secured debt, our secured
creditors could foreclose on their collateral and receive payment out of the
proceeds of that collateral before we could use those assets to pay you. If the
value of the collateral is less than the amount owed, our secured creditors
will have equal rights with you to our remaining assets. As of September 30,
1998, we had total secured debt (not including our subsidiaries) of
approximately $28.4 million. The Indentures permit us and our subsidiaries to
incur additional secured debt, including unlimited purchase money debt and up
to $250 million under one or more credit facilities.
SIGNIFICANT DEBT.
We have substantial debt. As of September 30, 1998, as adjusted to reflect
the issuance of the Outstanding Notes as if it had occurred on that date, we
had $1.2 billion of long-term debt outstanding and $483.7 million of
stockholder's equity. As a result, we expect our fixed charges to exceed our
earnings for the foreseeable future. This amount of debt could adversely affect
us in a number of ways, including:
. limiting our ability to obtain necessary financing in the future
. limiting our flexibility to plan for, or react to, changes in our
business
. requiring us to use a substantial portion of our cash flow from
operations to pay debt rather than for other purposes, such as working
capital or capital expenditures
. making us more leveraged than some of our competitors, which may place us
at a competitive disadvantage
. making us more vulnerable to a downturn in our business
RESTRICTIVE COVENANTS IMPOSED BY THE INDENTURES.
The Indentures impose operating and financial restrictions that limit our
discretion on certain business matters. These restrictions limit or prohibit
our ability to:
. incur additional debt
. pay dividends or make other distributions
. make investments or other restricted payments
. enter into sale and leaseback transactions
. create liens
. enter into transactions with affiliates or related persons
. sell assets
. consolidate, merge or sell all or substantially all of our assets
These restrictions could make it more difficult for us to expand, finance our
operations or engage in other business activities that may be in our interest.
COMPETITION.
Wireline Competition. We face intense competition from incumbent local
exchange carriers, including U S WEST, Ameritech, SBC and GTE. These companies
currently dominate their local telecommunications markets.
Our long distance services compete with hundreds of other companies in the
long distance marketplace. Three major competitors, AT&T, MCI WorldCom and
Sprint, dominate the long distance market. AT&T, MCI WorldCom and Sprint have
also indicated their intention to offer local telecommunications services,
either directly or in conjunction with competitive access providers or cable
television operators.
Other competitors may include cable television companies, competitive access
providers, microwave and satellite carriers, wireless telecommunications
providers, teleports, private networks owned by large
17
<PAGE>
end-users, and telecommunications management companies.
These and other firms may enter the small and mid-sized markets where we
focus our sales efforts. Many of our existing and potential competitors have
financial and other resources far greater than our own.
The trend toward business combinations and strategic alliances may strengthen
certain of our competitors. For example, WorldCom acquired MCI in September
1998 and AT&T acquired Teleport Communications Group Inc. in July 1998. In
addition, merger plans have been announced by:
1) AT&T and Tele-Communications, Inc.
2) SBC and Ameritech
3) Bell Atlantic and GTE
U S WEST and Ameritech also announced in May 1998 that each had entered into
a marketing arrangement with Qwest Communications, a long distance company. The
FCC ruled these marketing arrangements violate the Telecommunications Act, but
both U S WEST and Ameritech have appealed this ruling. If these or other
competitors enter into alliances or combinations it could put us at a
significant disadvantage.
The Telecommunications Act provides the incumbent local exchange carriers
with new competitive opportunities. It will permit the RBOCs, upon the
satisfaction of certain conditions, to offer additional long distance services
to customers. In December 1997, the U.S. District Court for the Northern
District of Texas ruled certain of these conditions unconstitutional. In
September 1998, the U.S. Fifth Circuit Court of Appeals reversed the District
Court decision. In October 1998, the U.S. Supreme Court announced it would
review the matter. If the District Court's decision is ultimately upheld, the
RBOCs could offer additional long distance service without first demonstrating
that they have opened their local market to competitors. The RBOCs could then
duplicate our strategy of offering bundled local and long distance services.
Increased competition from the RBOCs could have a material adverse effect on
our business, results of operations, financial condition and ability to repay
the Exchange Notes.
Wireless Competition. The wireless telecommunications industry is
experiencing significant technological change. We believe the market for
wireless services will expand significantly as:
. equipment costs decline
. equipment becomes more convenient and functional
. wireless services become more diverse
. technology improves
. new competitors enter the market
We also believe wireless service providers will offer wireline replacement
products that may result in wireless services becoming the customer's primary
means of communication. We expect up to eight wireless competitors in each of
our proposed PCS markets. We could face additional competition from mobile
satellite services currently under development.
Competition with these or other providers of wireless telecommunications
services may be intense. Many of our potential wireless competitors have
financial and other resources far greater than our own and have more experience
testing new or improved products and services. In addition, several wireless
competitors operate or plan to operate, through joint ventures and affiliation
arrangements, wireless telecommunications systems that encompass most of the
United States.
SIGNIFICANT GOVERNMENT REGULATION.
Our facilities and services are subject to federal, state and local
regulation. The FCC has jurisdiction over our facilities and services when they
are used to provide interstate or international communications. State
regulatory commissions retain jurisdiction to regulate state specific aspects
of our facilities and services when they are used to provide intrastate
communications. Local governments generally require us to obtain licenses or
permits to install and operate our networks in public rights-of-way. Our
proposed PCS system
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will be subject to varying degrees of regulation by the FCC, state regulatory
commissions and local governments. Our direct marketing, telemarketing and
fund-raising activities are also subject to federal and state regulatory
requirements. Any of the following could have a material adverse effect on our
business, results of operations, financial condition and ability to repay the
Exchange 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
. burdensome or adverse regulatory requirements
CERTAIN TRANSFER RESTRICTIONS; ABSENCE OF A PUBLIC MARKET FOR THE EXCHANGE
NOTES.
You may generally sell Exchange Notes without complying with the registration
requirements of the Securities Act, unless you are:
. an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act
. a broker-dealer that acquired Outstanding Notes as a result of market-
making or other trading activities
. a broker-dealer that acquired Outstanding Notes directly from us for
resale pursuant to Rule 144A or another available exemption under the
Securities Act
"Affiliates" of the Company may sell Exchange Notes only in compliance with
the provisions of Rule 144 under the Securities Act or another available
exemption. The broker-dealers described above must deliver a prospectus in
connection with any resale of Exchange Notes.
The Exchange Notes constitute a new issue of securities for which no
established trading market exists. If Exchange Notes are traded after their
initial issuance, they may trade at a discount, depending upon our financial
condition, prevailing interest rates, the market for similar securities and
other factors beyond our control, including general economic conditions. We do
not intend to apply for a listing or quotation of the Exchange Notes on any
securities exchange. The Initial Purchasers have informed us that they intend
to make a market in the Exchange Notes. However, the Initial Purchasers have no
obligation to do so, and may discontinue any market-making activities at any
time without notice. We cannot assure you of the development or liquidity of
any trading market for the Exchange Notes following the Exchange Offer.
CONSEQUENCES OF A FAILURE TO EXCHANGE THE OUTSTANDING NOTES.
We have not registered nor do we intend to register the Outstanding Notes
under the Securities Act. Outstanding Notes that remain outstanding after
consummation of the Exchange Offer will therefore remain subject to transfer
restrictions under applicable securities laws. Unexchanged Outstanding Notes
will continue to bear a legend reflecting these restrictions on transfer.
Furthermore, we have not conditioned the Exchange Offer on receipt of any
minimum or maximum principal amount of Outstanding Notes. As Outstanding Notes
are tendered and accepted in the Exchange Offer, the principal amount of
remaining Outstanding Notes will decrease. This decrease will reduce the
liquidity of the trading market for the Outstanding Notes. We cannot assure you
of the liquidity, or even the continuation, of the trading market for the
Outstanding Notes following the Exchange Offer.
RISKS OF NOT COMPLYING WITH EXCHANGE OFFER PROCEDURES.
You are responsible for complying with all Exchange Offer procedures. You
will only receive Exchange Notes in exchange for your Outstanding Notes if,
prior to the Expiration Date, you deliver the following to the Exchange Agent:
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. certificates for the Outstanding Notes or a book-entry confirmation of a
book-entry transfer of the Outstanding Notes into the Exchange Agent's
account at the Depository Trust Company ("DTC")
. the Letter of Transmittal (or a facsimile thereof), properly completed
and duly executed by you, together with any required signature guarantees
. any other documents required by the Letter of Transmittal
You should allow sufficient time to ensure that the Exchange Agent receives
all required documents prior to the Expiration Date. Neither we nor the
Exchange Agent has any duty to inform you of defects or irregularities with
respect to the tender of your Outstanding Notes for exchange. See "The Exchange
Offer."
YEAR 2000 DATE CONVERSION.
We are currently verifying system readiness for the processing of date-
sensitive information by our computerized information systems. The Year 2000
problem impacts computer programs and hardware timers using two digits (rather
than four) to define the applicable year. Some of our programs and timers that
have time-sensitive functions may recognize a date using "00" as the year 1900
rather than 2000, which could result in miscalculations or system failures.
We are reviewing our information technology ("IT") and non-IT computer
systems and programs to determine which are not capable of recognizing the Year
2000 and to verify system readiness for the millennium date. The review covers
all of our operations and is centrally managed. The review includes the
following steps:
1. increasing employee awareness and communication of Year 2000 issues
2. inventorying hardware, software and data interfaces and confirming Year
2000 readiness of key vendors
3. identifying mission-critical components for internal systems, vendor
relations and other third parties
4. estimating costs for remediation
5. estimating completion dates
6. correcting/remediating any identified problems
7. replacing systems or components that cannot be made Year 2000 ready
8. testing and verifying systems
9. implementing the remediation plan
10. developing contingency plans
11. training for contingency plans
We have completed more than 90% of the activities required for the first
three of these steps and more than 55% of the activities required for the
fourth and fifth steps. We are in the initial stages of performing the
activities required to complete the remaining steps and have begun to develop
contingency plans to handle our most reasonably likely worst case Year 2000
scenarios. The completion percentages do not include information for pending
and recently completed acquisitions. The review and related Year 2000
activities have not caused us to defer or forego, to any material degree, any
other critical IT projects.
We estimate that our Year 2000 readiness costs will not exceed $11.5 million.
We generally expense these costs as incurred. While certain costs have been
incurred, we have not incurred any material historical costs for remediation.
We do not expect these costs to have a material adverse effect on our business,
results of operations, financial condition and ability to repay the Exchange
Notes.
Our estimate of our Year 2000 readiness costs and our worst case scenarios
contain "forward-looking statements" within the meaning of the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Costs,
results, performance and effects of Year 2000 activities described in those
forward-looking statements may differ materially from actual costs, results,
performance and effects in the future due to the interrelationship and
interdependence of our computer systems and those of our vendors, material
service providers, customers and other third parties.
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We have not yet fully identified our most reasonably likely worst case Year
2000 scenarios. We continue to contact our vendors, suppliers and third parties
with which we have material relationships, regarding their state of readiness.
This activity is focused primarily on mission critical systems and key business
suppliers. Until we have received and analyzed substantial responses from these
entities we will have difficulty determining our worst case scenarios.
We have begun to develop contingency plans to handle worst case scenarios, to
the extent they can be identified fully. We intend to complete our contingency
planning after completing our determination of worst case scenarios. Completion
of these activities depends upon the responses to the inquiries we have made of
our major vendors, material service providers and third parties with which we
have material relationships. We have also begun work on contingency plans for
certain systems identified as critical to our operations.
If we, our major vendors, our material service providers or our customers
fail to address Year 2000 issues in a timely manner, such failure could have a
material adverse effect on our business, results of operations, financial
condition and ability to repay the Exchange Notes. We depend on local exchange
carriers, primarily the RBOCs, to provide most of our local and some of our
long distance services. To the extent U S WEST, Ameritech or SBC fail to
address Year 2000 issues which might interfere with their ability to fulfill
their obligations to us, such interference could have a material adverse effect
on our future operations. If other telecommunications carriers are unable to
resolve Year 2000 issues, it is likely we will be affected to a similar degree
as others in the telecommunications industry.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
In connection with the sale of the Outstanding Notes, the Company entered
into the Registration Rights Agreement with the Initial Purchasers pursuant to
which the Company agreed to file and to use its best efforts to cause to
become effective with the Commission a registration statement with respect to
the exchange of the Outstanding Notes for Exchange Notes with terms identical
in all material respects to the terms of the Outstanding Notes. A copy of the
Registration Rights Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part. The Exchange Offer is being made
to satisfy the contractual obligations of the Company under the Registration
Rights Agreement.
By tendering Outstanding Notes in exchange for Exchange Notes, each holder
will represent to the Company that: (i) any Exchange Notes to be received by
such holder are being acquired in the ordinary course of such holder's
business; (ii) such holder has no arrangement or understanding with any person
to participate in a distribution (within the meaning of the Securities Act) of
Exchange Notes; (iii) such holder is not an "affiliate" of the Company (within
the meaning of Rule 405 under the Securities Act), or if such holder is an
affiliate, that such holder will comply with the registration and prospectus
delivery requirements of the Securities Act to the extent applicable; (iv)
such holder has full power and authority to tender, exchange, sell, assign and
transfer the tendered Outstanding Notes, (v) the Company will acquire good,
marketable and unencumbered title to the tendered Outstanding Notes, free and
clear of all liens, restrictions, charges and encumbrances; and (vi) the
Outstanding Notes tendered for exchange are not subject to any adverse claims
or proxies. Each tendering holder also will warrant and agree that such holder
will, upon request, execute and deliver any additional documents deemed by the
Company or the Exchange Agent to be necessary or desirable to complete the
exchange, sale, assignment, and transfer of the Outstanding Notes tendered
pursuant to the Exchange Offer. Each broker-dealer that receives Exchange
Notes for its own account in exchange for Outstanding Notes pursuant to the
Exchange Offer, where such Outstanding Notes were acquired by such broker-
dealer as a result of market-making or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. See "Plan of Distribution."
The Exchange Offer is not being made to, nor will the Company accept tenders
for exchange from, holders of Outstanding Notes in any jurisdiction in which
the Exchange Offer or the acceptance thereof would not be in compliance with
the securities or blue sky laws of such jurisdiction.
Unless the context requires otherwise, the term "holder" with respect to the
Exchange Offer means any person in whose name the Outstanding Notes are
registered on the books of the Company or any other person who has obtained a
properly completed bond power from the registered holder, or any participant
in DTC whose name appears on a security position listing as a holder of
Outstanding Notes (which, for purposes of the Exchange Offer, include
beneficial interests in the Outstanding Notes held by direct or indirect
participants in DTC and Outstanding Notes held in definitive form).
TERMS OF THE EXCHANGE OFFER
The Company hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal, to
exchange $1,000 principal amount of Exchange Notes for each $1,000 principal
amount of Outstanding Notes properly tendered prior to the Expiration Date and
not properly withdrawn in accordance with the procedures described below.
Holders may tender their Outstanding Notes in whole or in part in integral
multiples of $1,000 principal amount.
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The form and terms of the Exchange Notes are the same as the form and terms
of the Outstanding Notes except that (i) the Exchange Notes have been
registered under the Securities Act and therefore are not subject to certain
restrictions on transfer applicable to the Outstanding Notes and (ii) holders
of the Exchange Notes will not be entitled to certain rights of holders of the
Outstanding Notes under the Registration Rights Agreement. The Exchange Notes
evidence the same indebtedness as the Outstanding Notes (which they replace)
and will be issued pursuant to, and entitled to the benefits of, the October
1998 Indenture.
The Exchange Offer is not conditioned upon any minimum principal amount of
Outstanding Notes being tendered for exchange. The Company reserves the right
in its sole discretion to purchase or make offers for any Outstanding Notes
that remain outstanding after the Expiration Date or, as set forth under "--
Conditions to the Exchange Offer," to terminate the Exchange Offer and, to the
extent permitted by applicable law, purchase Outstanding Notes in the open
market, in privately negotiated transactions or otherwise. The terms of any
such purchases or offers could differ from the terms of the Exchange Offer. As
of the date of this Prospectus, $300 million principal amount of Outstanding
Notes is outstanding.
Holders of Outstanding Notes do not have any appraisal or dissenters' rights
in connection with the Exchange Offer. Outstanding Notes which are not
tendered for, or are tendered but not accepted in connection with, the
Exchange Offer will remain outstanding. See "Risk Factors--Consequences of a
Failure to Exchange Outstanding Notes."
If any tendered Outstanding Notes are not accepted for exchange because of
an invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Outstanding Notes will be
returned, without expense, to the tendering holder thereof promptly after the
Expiration Date.
Holders who tender Outstanding Notes in connection with the Exchange Offer
will not be required to pay brokerage commissions or fees or, subject to the
instructions in the Letter of Transmittal, transfer taxes with respect to the
exchange of Outstanding Notes in connection with the Exchange Offer. The
Company will pay all charges and expenses, other than certain applicable taxes
described below, in connection with the Exchange Offer. See "--Fees and
Expenses."
THE BOARD OF DIRECTORS OF THE COMPANY MAKES NO RECOMMENDATION TO HOLDERS OF
OUTSTANDING NOTES AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING ALL OR ANY
PORTION OF THEIR OUTSTANDING NOTES PURSUANT TO THE EXCHANGE OFFER. IN
ADDITION, NO ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION. HOLDERS
OF OUTSTANDING NOTES MUST MAKE THEIR OWN DECISION WHETHER TO TENDER PURSUANT
TO THE EXCHANGE OFFER AND, IF SO, THE AGGREGATE AMOUNT OF OUTSTANDING NOTES TO
TENDER AFTER READING THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL AND
CONSULTING WITH THEIR ADVISERS, IF ANY, BASED ON THEIR FINANCIAL POSITION AND
REQUIREMENTS.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" means 5:00 p.m., New York City time, on ,
1999 unless the Exchange Offer is extended by the Company (in which case the
term "Expiration Date" shall mean the latest date and time to which the
Exchange Offer is extended).
The Company expressly reserves the right in its sole and absolute
discretion, subject to applicable law, at any time and from time to time, (i)
to delay the acceptance of the Outstanding Notes for exchange, (ii) to
terminate the Exchange Offer (whether or not any Outstanding Notes have
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theretofore been accepted for exchange) if the Company determines, in its sole
and absolute discretion, that any of the events or conditions referred to
under "--Conditions to the Exchange Offer" has occurred or exists or has not
been satisfied, (iii) to extend the Expiration Date of the Exchange Offer and
retain all Outstanding Notes tendered pursuant to the Exchange Offer, subject,
however, to the right of holders of Outstanding Notes to withdraw their
tendered Outstanding Notes as described under "--Withdrawal Rights," and (iv)
to waive any condition or otherwise amend the terms of the Exchange Offer in
any respect. If the Exchange Offer is amended in a manner determined by the
Company to constitute a material change, or if the Company waives a material
condition of the Exchange Offer, the Company will promptly disclose such
amendment by means of a prospectus supplement that will be distributed to the
registered holders of the Outstanding Notes, and the Company will extend the
Exchange Offer to the extent required by Rule 14e-1 under the Exchange Act.
Any such delay in acceptance, termination, extension or amendment will be
followed promptly by oral or written notice thereof to the Exchange Agent (any
such oral notice to be promptly confirmed in writing) and by making a public
announcement thereof, and such announcement in the case of an extension will
be made no later than 9:00 a.m., New York City time, on the next business day
after the previously scheduled Expiration Date. Without limiting the manner in
which the Company may choose to make any public announcement, and subject to
applicable laws, the Company shall have no obligation to publish, advertise or
otherwise communicate any such public announcement other than by issuing a
release to an appropriate news agency.
ACCEPTANCE FOR EXCHANGE AND ISSUANCE OF EXCHANGE NOTES
Upon the terms and subject to the conditions of the Exchange Offer, the
Company will exchange, and will issue to the Exchange Agent, Exchange Notes
for Outstanding Notes validly tendered and not withdrawn (pursuant to the
withdrawal rights described under "--Withdrawal Rights") promptly after the
Expiration Date.
In all cases, delivery of Exchange Notes in exchange for Outstanding Notes
tendered and accepted for exchange pursuant to the Exchange Offer will be made
only after timely receipt by the Exchange Agent of (i) Outstanding Notes or a
book-entry confirmation of a book-entry transfer of Outstanding Notes into the
Exchange Agent's account at DTC, (ii) the Letter of Transmittal (or facsimile
thereof), properly completed and duly executed, with any required signature
guarantees, and (iii) any other documents required by the Letter of
Transmittal. Accordingly, the delivery of Exchange Notes might not be made to
all tendering holders at the same time, and will depend upon when Outstanding
Notes, book-entry confirmations with respect to Outstanding Notes and other
required documents are received by the Exchange Agent.
The term "book-entry confirmation" means a timely confirmation of a book-
entry transfer of Outstanding Notes into the Exchange Agent's account at DTC.
Subject to the terms and conditions of the Exchange Offer, the Company will
be deemed to have accepted for exchange, and thereby exchanged, Outstanding
Notes validly tendered and not withdrawn as, if and when the Company gives
oral or written notice to the Exchange Agent (any such oral notice to be
promptly confirmed in writing) of the Company's acceptance of such Outstanding
Notes for exchange pursuant to the Exchange Offer. The Company's acceptance
for exchange of Outstanding Notes tendered pursuant to any of the procedures
described above will constitute a binding agreement between the tendering
holder and the Company upon the terms and subject to the conditions of the
Exchange Offer. The Exchange Agent will act as agent for the Company for the
purpose of receiving tenders of Outstanding Notes, Letters of Transmittal and
related documents, and as agent for tendering holders for the purpose of
receiving Outstanding Notes, Letters of Transmittal and related documents and
transmitting Exchange Notes to holders who validly tendered Outstanding
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Notes. Such exchange will be made promptly after the Expiration Date. If for
any reason whatsoever the acceptance for exchange or the exchange of any
Outstanding Notes tendered pursuant to the Exchange Offer is delayed (whether
before or after the Company's acceptance for exchange of Outstanding Notes),
or the Company extends the Exchange Offer or is unable to accept for exchange
or exchange Outstanding Notes tendered pursuant to the Exchange Offer, then,
without prejudice to the Company's rights set forth herein, the Exchange Agent
may, nevertheless, on behalf of the Company and subject to Rule 14e-1(c) under
the Exchange Act, retain tendered Outstanding Notes and such Outstanding Notes
may not be withdrawn except to the extent tendering holders are entitled to
withdrawal rights as described under "--Withdrawal Rights."
PROCEDURES FOR TENDERING OUTSTANDING NOTES
VALID TENDER. Except as set forth below, in order for Outstanding Notes to
be validly tendered pursuant to the Exchange Offer, either (i) (a) a properly
completed and duly executed Letter of Transmittal (or facsimile thereof), with
any required signature guarantees and any other required documents, must be
received by the Exchange Agent at the address set forth under "--Exchange
Agent" prior to the Expiration Date and (b) tendered Outstanding Notes must be
received by the Exchange Agent, or such Outstanding Notes must be tendered
pursuant to the procedures for book-entry transfer set forth below and a book-
entry confirmation must be received by the Exchange Agent, in each case prior
to the Expiration Date, or (ii) the guaranteed delivery procedures set forth
below must be complied with.
If less than all of the Outstanding Notes are tendered, a tendering holder
should fill in the amount of Outstanding Notes being tendered in the
appropriate box on the Letter of Transmittal. The entire amount of Outstanding
Notes delivered to the Exchange Agent will be deemed to have been tendered
unless otherwise indicated.
If any Letter of Transmittal, endorsement, bond power, power of attorney, or
any other document required by the Letter of Transmittal is signed by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company, in its sole discretion, of such person's
authority to so act must be submitted.
Any beneficial owner of Outstanding Notes that are held by or registered in
the name of a broker, dealer, commercial bank, trust company or other nominee
or custodian is urged to contact such entity promptly if such beneficial
holder wishes to participate in the Exchange Offer.
THE METHOD OF DELIVERY OF OUTSTANDING NOTES, THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING
HOLDER, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE
EXCHANGE AGENT. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS
USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY AND PROPER INSURANCE SHOULD BE
OBTAINED. NO LETTER OF TRANSMITTAL OR OUTSTANDING NOTES SHOULD BE SENT TO THE
COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL
BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THESE TRANSACTIONS FOR THEM.
BOOK-ENTRY TRANSFER. The Exchange Agent will make a request to establish an
account with respect to the Outstanding Notes at DTC for purposes of the
Exchange Offer within two business days after the date of this Prospectus. Any
financial institution that is a participant in DTC's book-entry
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transfer facility system may make a book-entry delivery of the Outstanding
Notes by causing DTC to transfer such Outstanding Notes into the Exchange
Agent's account at DTC in accordance with DTC's procedures for transfers.
However, although delivery of Outstanding Notes may be effected through book-
entry transfer into the Exchange Agent's account at DTC, the Letter of
Transmittal (or facsimile thereof), properly completed and duly executed, with
any required signature guarantees and any other required documents, must in
any case be delivered to and received by the Exchange Agent at its address set
forth under "--Exchange Agent" prior to the Expiration Date, or the guaranteed
delivery procedure set forth below must be complied with.
DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE
AGENT.
SIGNATURE GUARANTEES. Certificates for Outstanding Notes need not be
endorsed and signature guarantees on a Letter of Transmittal or a notice of
withdrawal, as the case may be, are unnecessary unless (a) a certificate for
Outstanding Notes is registered in a name other than that of the person
surrendering the certificate or (b) a registered holder completes the box
entitled "Special Issuance Instructions" or "Special Delivery Instructions" in
the Letter of Transmittal. In the case of (a) or (b) above, such certificates
for Outstanding Notes must be duly endorsed or accompanied by a properly
executed bond power, with the endorsement or signature on the bond power and
on the Letter of Transmittal or the notice of withdrawal, as the case may be,
guaranteed by a firm or other entity identified in Rule 17Ad-15 under the
Exchange Act as an "eligible guarantor institution," including (as such terms
are defined therein) (i) a bank, (ii) a broker, dealer, municipal securities
broker or dealer or government securities broker or dealer, (iii) a credit
union, (iv) a national securities exchange, registered securities association
or clearing agency, or (v) a savings association that is a participant in a
Securities Transfer Association (each an "Eligible Institution"), unless
surrendered on behalf of such Eligible Institution. See Instruction 1 to the
Letter of Transmittal.
GUARANTEED DELIVERY. If a holder desires to tender Outstanding Notes
pursuant to the Exchange Offer and the certificates for such Outstanding Notes
are not immediately available or time will not permit all required documents
to reach the Exchange Agent before the Expiration Date, or the procedures for
book-entry transfer cannot be completed on a timely basis, such Outstanding
Notes may nevertheless be tendered, provided that all of the following
guaranteed delivery procedures are complied with:
(i) such tenders are made by or through an Eligible Institution;
(ii) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery, substantially in the form accompanying the Letter of
Transmittal, setting forth the name and address of the holder of
Outstanding Notes and the amount of Outstanding Notes tendered, stating
that the tender is being made thereby and guaranteeing that within three
New York Stock Exchange trading days after the date of execution of the
Notice of Guaranteed Delivery, the certificates for all physically tendered
Outstanding Notes, in proper form for transfer, or a book-entry
confirmation, as the case may be, and any other documents required by the
Letter of Transmittal will be deposited by the Eligible Institution with
the Exchange Agent. The Notice of Guaranteed Delivery may be delivered by
hand, or transmitted by facsimile or mail to the Exchange Agent and must
include a guarantee by an Eligible Institution in the form set forth in the
Notice of Guaranteed Delivery; and
(iii) the certificates (or book-entry confirmation) representing all
tendered Outstanding Notes, in proper form for transfer, together with a
properly completed and duly executed Letter of Transmittal, with any
required signature guarantees and any other documents required by the
Letter of Transmittal, are received by the Exchange Agent within three New
York Stock Exchange trading days after the date of execution of the Notice
of Guaranteed Delivery.
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DETERMINATION OF VALIDITY. All questions as to the form of documents,
validity, eligibility (including time of receipt) and acceptance for exchange
of any tendered Outstanding Notes will be determined by the Company, in its
sole discretion, which determination shall be final and binding on all
parties. The Company reserves the absolute right, in its sole and absolute
discretion, to reject any and all tenders determined by it not to be in proper
form or the acceptance for exchange of which may, in the view of counsel to
the Company, be unlawful. The Company also reserves the absolute right,
subject to applicable law, to waive any of the conditions of the Exchange
Offer as set forth under "--Conditions to the Exchange Offer" or any defect or
irregularity in any tender of Outstanding Notes of any particular holder
whether or not similar defects or irregularities are waived in the case of
other holders.
The Company's interpretation of the terms and conditions of the Exchange
Offer (including the Letter of Transmittal and the instructions thereto) will
be final and binding on all parties. No tender of Outstanding Notes will be
deemed to have been validly made until all defects or irregularities with
respect to such tender have been cured or waived. Neither the Company, any
affiliates of the Company, the Exchange Agent or any other person shall be
under any duty to give any notification of any defects or irregularities in
tenders or incur any liability for failure to give any such notification.
RESALES OF EXCHANGE NOTES
Based on interpretations by the staff of the Commission, as set forth in no-
action letters issued to third parties unrelated to the Company, the Company
believes that holders of Outstanding Notes (other than any holder that is (i)
a broker-dealer that acquired Outstanding Notes as a result of market-making
activities or other trading activities, or (ii) a broker-dealer that acquired
Outstanding Notes directly from the Company for resale pursuant to Rule 144A
or another available exemption under the Securities Act) who exchange their
Outstanding Notes for Exchange Notes pursuant to the Exchange Offer may offer
for resale, resell and otherwise transfer such Exchange Notes without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such Exchange Notes are acquired in the ordinary
course of such holders' business, such holders have no arrangement or
understanding with any person to participate in the distribution of such
Exchange Notes and such holders are not "affiliates" of the Company (within
the meaning of Rule 405 under the Securities Act). However, the staff of the
Commission has not considered the Exchange Offer in the context of a no-action
letter, and there can be no assurance that the staff of the Commission would
make a similar determination with respect to the Exchange Offer. Each broker-
dealer that receives Exchange Notes for its own account in exchange for
Outstanding Notes pursuant to the Exchange Offer, where such Outstanding Notes
were acquired by such broker-dealer as a result of market-making or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. See "Plan of Distribution."
WITHDRAWAL RIGHTS
Except as otherwise provided herein, tenders of Outstanding Notes may be
withdrawn at any time prior to the Expiration Date.
In order for a withdrawal to be effective, a written, telegraphic or
facsimile transmission of such notice of withdrawal must be timely received by
the Exchange Agent at its address set forth under "--Exchange Agent" prior to
the Expiration Date. Any such notice of withdrawal must specify the name of
the person who tendered the Outstanding Notes to be withdrawn, the principal
amount of Outstanding Notes to be withdrawn, and (if certificates for such
Outstanding Notes have been tendered) the name of the registered holder of the
Outstanding Notes as set forth on the Outstanding Notes, if different from
that of the person who tendered such Outstanding Notes. If certificates for
Outstanding Notes have been delivered or otherwise identified to the Exchange
Agent, the notice of
27
<PAGE>
withdrawal must specify the serial numbers on the particular certificates for
the Outstanding Notes to be withdrawn and the signature on the notice of
withdrawal must be guaranteed by an Eligible Institution, except in the case
of Outstanding Notes tendered for the account of an Eligible Institution. If
Outstanding Notes have been tendered pursuant to the procedures for book-entry
transfer set forth in "--Procedures for Tendering Outstanding Notes," the
notice of withdrawal must specify the name and number of the account at DTC to
be credited with the withdrawal of Outstanding Notes and must otherwise comply
with the procedures of DTC. Withdrawals of tenders of Outstanding Notes may
not be rescinded. Outstanding Notes properly withdrawn will not be deemed
validly tendered for purposes of the Exchange Offer, but may be retendered at
any subsequent time prior to the Expiration Date by following any of the
procedures described above under "--Procedures for Tendering Outstanding
Notes."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Company, in its
sole discretion, which determination shall be final and binding on all
parties. Neither the Company, any affiliates of the Company, the Exchange
Agent or any other person shall be under any duty to give any notification of
any defects or irregularities in any notice of withdrawal or incur any
liability for failure to give any such notification. Any Outstanding Notes
which have been tendered but which are withdrawn will be returned to the
holder thereof promptly after withdrawal.
INTEREST ON THE EXCHANGE NOTES
Interest on the Outstanding Notes and the Exchange Notes will be payable
semi-annually in arrears on May 1 and November 1 of each year at a rate of 9
1/2% per annum, commencing May 1, 1999.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer or any extension
of the Exchange Offer, the Company will not be required to accept for
exchange, or to exchange, any Outstanding Notes for any Exchange Notes and
will not be required to issue Exchange Notes in exchange for any Outstanding
Notes, and as described below may, at any time and from time to time,
terminate or amend the Exchange Offer (whether or not any Outstanding Notes
have theretofore been accepted for exchange) or may waive any conditions to or
amend the Exchange Offer, if any of the following conditions have occurred or
exists or have not been satisfied prior to the Expiration Date:
(a) there shall occur a change in the current interpretation by the staff
of the Commission which permits the Exchange Notes issued in exchange for
Outstanding Notes pursuant to the Exchange Offer to be offered for resale,
resold and otherwise transferred by holders thereof (other than (i) broker-
dealers that acquired Outstanding Notes as a result of market-making or
other trading activities or (ii) broker-dealers that acquired Outstanding
Notes directly from the Company for resale pursuant to Rule 144A or another
available exemption under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act,
provided that such Exchange Notes are acquired in the ordinary course of
such holders' business, such holders have no arrangement or understanding
with any person to participate in the distribution of such Exchange Notes
and such holders are not "affiliates" of the Company (within the meaning of
Rule 405 under the Securities Act);
(b) any action or proceeding shall have been instituted or threatened in
any court or by or before any governmental agency or body with respect to
the Exchange Offer which, in the Company's judgment, would reasonably be
expected to impair the ability of the Company to proceed with the Exchange
Offer;
(c) any law, statute, rule or regulation shall have been adopted or
enacted which, in the Company's judgment, would reasonably be expected to
impair the ability of the Company to proceed with the Exchange Offer;
28
<PAGE>
(d) a stop order shall have been issued by the Commission or any state
securities authority suspending the effectiveness of the Registration
Statement, or proceedings shall have been initiated or, to the knowledge of
the Company, threatened for that purpose;
(e) any governmental approval has not been obtained, which approval the
Company shall, in its sole discretion, deem necessary for the consummation
of the Exchange Offer as contemplated hereby; or
(f) any change, or any development involving a prospective change, in the
business or financial affairs of the Company has occurred which, in the
sole judgment of the Company, might materially impair the ability of the
Company to proceed with the Exchange Offer.
If the Company determines in its sole and absolute discretion that any of
the foregoing events or conditions has occurred or exists or has not been
satisfied at any time prior to the Expiration Date, the Company may, subject
to applicable law, terminate the Exchange Offer (whether or not any
Outstanding Notes have theretofore been accepted for exchange) or may waive
any such condition or otherwise amend the terms of the Exchange Offer in any
respect. If such waiver or amendment constitutes a material change to the
Exchange Offer, the Company will promptly disclose such waiver or amendment by
means of a prospectus supplement that will be distributed to the registered
holders of the Outstanding Notes, and the Company will extend the Exchange
Offer to the extent required by Rule 14e-1 under the Exchange Act.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The exchange of the Outstanding Notes for the Exchange Notes will not be a
taxable exchange for federal income tax purposes, and holders of Outstanding
Notes should not recognize any taxable gain or loss or any interest income as
a result of such exchange.
EXCHANGE AGENT
United States Trust Company of New York has been appointed as Exchange Agent
for the Exchange Offer. Delivery of the Letters of Transmittal and any other
required documents, questions, requests for assistance, and requests for
additional copies of this Prospectus or of the Letter of Transmittal should be
directed to the Exchange Agent as follows:
By Mail
United States Trust Company of New York
P.O. Box 843
Cooper Station
New York, New York 10276
Attention: Corporate Trust Services
By Hand before 4:30 p.m.
United States Trust Company of New York
111 Broadway
New York, New York 10006
Attention: Lower Level Corporate Trust Window
By Overnight Courier and By Hand after 4:30 p.m.
United States Trust Company of New York
770 Broadway, 13th Floor
New York, New York 10003
By Facsimile
(212) 780-0592
Attention: Customer Service
Confirm by telephone: (800) 548-6565
29
<PAGE>
DELIVERY TO OTHER THAN THE ABOVE ADDRESSES OR FACSIMILE NUMBER WILL NOT
CONSTITUTE A VALID DELIVERY.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail. Additional solicitation may be
made personally or by telephone or other means by officers, directors or
employees of the Company.
The Company has not retained any dealer-manager or similar agent in
connection with the Exchange Offer and will not make any payments to brokers,
dealers or others soliciting acceptances of the Exchange Offer. The Company
has agreed to pay the Exchange Agent reasonable and customary fees for its
services and will reimburse it for its reasonable out-of-pocket expenses in
connection therewith. The Company will also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this Prospectus and related documents
to the beneficial owners of Outstanding Notes, and in handling or tendering
for their customers.
Holders who tender their Outstanding Notes for exchange will not be
obligated to pay any transfer taxes in connection therewith, except that if
Exchange Notes are to be delivered to, or are to be issued in the name of, any
person other than the registered holder of the Outstanding Notes tendered, or
if a transfer tax is imposed for any reason other than the exchange of
Outstanding Notes in connection with the Exchange Offer, then the amount of
any such transfer tax (whether imposed on the registered holder or any other
persons) will be payable by the tendering holder. If satisfactory evidence of
payment of such transfer tax or exemption therefrom is not submitted with the
Letter of Transmittal, the amount of such transfer tax will be billed directly
to such tendering holder.
30
<PAGE>
USE OF PROCEEDS
The Exchange Offer is intended to satisfy certain obligations of the Company
under the Registration Rights Agreement. The Company will not receive any cash
proceeds from the issuance of the Exchange Notes offered hereby. In
consideration for issuing the Exchange Notes as contemplated in this
Prospectus, the Company will receive, in exchange, an equal number of
Outstanding Notes in like principal amount. The form and terms of the Exchange
Notes are identical in all material respects to the form and terms of the
Outstanding Notes, except as otherwise described herein under "The Exchange
Offer--Terms of the Exchange Offer." The Outstanding Notes surrendered in
exchange for Exchange Notes will be retired and canceled and cannot be
reissued.
31
<PAGE>
CAPITALIZATION
The following table sets forth, as of September 30, 1998, the capitalization
of the Company, including the application of the net proceeds to the Company
from the Offering. This table should be read in conjunction with the Selected
Consolidated Financial Data, the Consolidated Financial Statements of the
Company, the notes thereto and the other financial data contained elsewhere or
incorporated by reference in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
-----------------------
ACTUAL AS ADJUSTED
---------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Short-term debt........................................ $ 19,933 $ 19,933
Long-term debt......................................... 939,102 1,239,102
---------- ----------
Stockholders' equity:
Class A Common Stock, $.01 par value, 250,000,000
shares authorized; 63,135,843 shares issued and
outstanding......................................... 631 631
Class B Common Stock, convertible, $.01 par value,
22,000,000 shares authorized; none issued or
outstanding......................................... -- --
Additional paid-in capital........................... 707,022 707,022
Accumulated deficit.................................. (220,835) (220,835)
Accumulated other comprehensive income............... (3,073) (3,073)
---------- ----------
Total stockholders' equity......................... 483,745 483,745
---------- ----------
Total capitalization............................... $1,442,780 $1,742,780
========== ==========
</TABLE>
32
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth selected consolidated financial data of the
Company and should be read in conjunction with and is qualified by reference
to "Management's Discussion and Analysis of Financial Condition and Results of
Operations," the Consolidated Financial Statements of the Company, the notes
thereto and the other financial data contained elsewhere or incorporated by
reference in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
--------------------------------------------------------------------- -----------------------------------
PRO FORMA PRO FORMA
1993 1994 1995(1)(2) 1996(1)(3) 1997(1)(4)(5)(6) 1997(6)(7) 1997(1)(8) 1998(9) 1998(7)(10)
------- -------- ---------- ---------- ---------------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS
STATEMENT DATA:
Revenue.......... $ 1,550 $ 8,014 $ 28,998 $ 81,323 $267,886 $ 462,191 $131,595 $438,642 $ 438,642
------- -------- -------- -------- -------- --------- -------- -------- ---------
Operating
expenses:
Cost of
service........ 1,528 6,212 19,667 52,624 155,430 255,794 77,745 239,195 239,195
Selling, general
and
administrative.. 2,390 12,373 18,054 46,044 143,918 208,981 86,363 189,579 189,579
Depreciation and
amortization... 235 772 1,835 8,485 33,275 61,916 15,708 63,663 63,663
Other........... -- -- -- 2,380 4,632 10,191 2,689 5,575 5,575
------- -------- -------- -------- -------- --------- -------- -------- ---------
Total operating
expenses....... 4,153 19,357 39,556 109,533 337,255 536,882 182,505 498,012 498,012
------- -------- -------- -------- -------- --------- -------- -------- ---------
Operating loss... (2,603) (11,343) (10,558) (28,210) (69,369) (74,691) (50,910) (59,370) $ (59,370)
Interest income
(expense), net.. 163 (73) (771) 5,369 (11,967) (48,984) (2,686) (35,519) (48,893)
Other income..... -- -- -- 495 1,426 2,508 40 1,789 1,789
Income taxes..... -- -- -- -- -- -- -- -- --
------- -------- -------- -------- -------- --------- -------- -------- ---------
Net loss......... $(2,440) $(11,416) $(11,329) $(22,346) $(79,910) $(121,167) $(53,556) $(93,100) $(106,474)
------- -------- -------- -------- -------- --------- -------- -------- ---------
Loss per common
share........... $ (.17) $ (.53) $ (.40) $ (.55) $ (1.45) $ (1.98) $ (1.02) $ (1.49) $ (1.70)
------- -------- -------- -------- -------- --------- -------- -------- ---------
Weighted average
common shares
outstanding..... 14,761 21,464 28,004 40,506 54,974 61,184 52,752 62,620 62,620
------- -------- -------- -------- -------- --------- -------- -------- ---------
Ratio of earnings
to fixed
charges(11)..... -- -- -- -- -- -- -- -- --
======= ======== ======== ======== ======== ========= ======== ======== =========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, 1998
-------------------------------------------------- ---------------------------
ACTUAL
1993 1994 1995(1) 1996(1)(12) 1997(1)(5)(13) ACTUAL(9) AS ADJUSTED(14)
------ ------- ------- ----------- -------------- ----------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets.......... $7,077 $ 4,862 $ 8,507 $224,401 $ 517,869 $ 570,784 $ 862,659
Working capital
(deficit).............. $5,962 $ 1,659 $(1,208) $185,968 $ 378,617 $ 409,266 $ 701,141
Property and equipment,
net.................... $1,958 $ 4,716 $16,119 $ 92,123 $ 373,804 $ 559,317 $ 559,317
Total assets............ $9,051 $10,687 $28,986 $452,994 $1,345,652 $1,621,564 $1,921,564
Long-term debt.......... -- $ 3,500 $ 3,600 $ 2,573 $ 613,384 $ 939,102 $1,239,102
Stockholders' equity.... $7,936 $ 3,291 $14,958 $403,429 $ 559,379 $ 483,745 $ 483,745
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------------------------------------------ -----------------------------------
PRO FORMA PRO FORMA
1993 1994 1995(1)(2) 1996(1)(3) 1997(1)(4)(5) 1997(6)(7) 1997(1) 1998(9) 1998(7)
------- -------- ---------- ---------- ------------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL
DATA:
Capital
expenditures,
including
business
acquisitions.... $ 2,052 $ 3,393 $14,697 $173,782 $601,137 $617,463 $547,345 $251,253 $251,253
EBITDA(15)....... $(2,368) $(10,571) $(8,723) $(17,345) $(31,462) $ (2,584) $(32,513) $ 9,868 $ 9,868
</TABLE>
(Footnotes on next page)
33
<PAGE>
- --------
(1) The acquisitions of MWR, Ruffalo Cody, McLeodUSA Publishing and CCI in
April 1995, July 1996, September 1996 and September 1997, respectively,
affect the comparability of the historical data presented to the
historical data for prior periods shown.
(2) Includes operations of MWR from April 29, 1995 to December 31, 1995.
(3) Includes operations of Ruffalo Cody from July 16, 1996 to December 31,
1996 and operations of McLeodUSA Publishing from September 21, 1996 to
December 31, 1996.
(4) Includes operations of CCI from September 25, 1997 to December 31, 1997.
(5) Reflects the 1997 Senior Discount Note Offering and the 1997 Senior Note
Offering.
(6) Includes operations of CCI from January 1, 1997 to December 31, 1997and
certain adjustments attributable to the acquisition of CCI by the Company.
Also reflects certain adjustments attributable to the 1997 Senior Discount
Notes, the 1997 Senior Notes, the March 1998 Senior Notes and the October
1998 Senior Notes computed as if the 1997 Senior Discount Notes, the 1997
Senior Notes, the March 1998 Senior Notes and the October 1998 Senior
Notes had been issued on January 1, 1997.
(7) The issuance of the 1997 Senior Discount Notes in March 1997, the issuance
of the 1997 Senior Notes in July 1997, the CCI Acquisition, the issuance
of the March 1998 Senior Notes in March 1998 and the issuance of the
October 1998 Senior Notes in October 1998 affect the comparability of the
pro forma data presented to the data for prior periods shown.
(8) Reflects the issuance of the 1997 Senior Discount Notes on March 4, 1997.
(9) Reflects the issuance of the March 1998 Senior Notes on March 16, 1998.
(10) Reflects certain adjustments attributable to the March 1998 Senior Notes
and the October 1998 Senior Notes computed as if each had occurred on
January 1, 1998.
(11) For the purpose of calculating the ratio of earnings to fixed charges,
earnings consist of net loss before income taxes plus fixed charges
(excluding capitalized interest). Fixed charges consist of interest on
all debt (including capitalized interest), amortization of debt discount
and deferred loan costs and the portion of rental expense that is
representative of the interest component of rental expense (deemed to be
one-third of rental expense which management believes is a reasonable
approximation of the interest component). For each of the years ended
December 31, 1993, 1994, 1995, 1996 and 1997, earnings were insufficient
to cover fixed charges by $2.4 million, $11.4 million, $11.4 million,
$22.6 million and $84.4 million, respectively. For the nine months ended
September 30, 1997 and 1998, earnings were insufficient to cover fixed
charges by $50.7 million and $86.6 million, respectively. On a pro forma
basis computed as if the CCI Acquisition, the 1997 Senior Discount Note
Offering, the 1997 Senior Note Offering, the March 1998 Senior Note
Offering and the Offering were consummated at the beginning of the period
presented, earnings would not have been sufficient to cover fixed charges
by $116.7 million and $99.9 million for the year ended December 31, 1997
and the nine months ended September 30, 1998, respectively.
(12) Includes Ruffalo Cody and McLeodUSA Publishing, which we acquired on July
15, 1996 and September 20, 1996, respectively.
(13) Includes CCI, which we acquired on September 24, 1997.
(14) Adjusted to reflect the application of the net proceeds from the
Offering.
(15) EBITDA consists of operating loss before depreciation, amortization and
other nonrecurring operating expenses. The Company has included EBITDA
data because it is a measure commonly used in the industry. EBITDA 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.
34
<PAGE>
PRO FORMA FINANCIAL DATA
The following unaudited pro forma financial information has been prepared to
give effect to (i) the CCI Acquisition in September 1997, (ii) the issuance of
the 1997 Senior Discount Notes in March 1997, (iii) the issuance of the 1997
Senior Notes in July 1997, (iv) the issuance of the March 1998 Senior Notes in
March 1998, and (v) the issuance of the Outstanding Notes in October 1998. The
Unaudited Pro Forma Condensed Consolidated Statements of Operations reflects
the CCI Acquisition using the purchase method of accounting, and assumes that
the CCI Acquisition, the issuance of the 1997 Senior Discount Notes, the
issuance of the 1997 Senior Notes, the issuance of the March 1998 Senior
Notes, and the issuance of the Outstanding Notes were consummated at the
beginning of the periods presented. The unaudited pro forma financial
information is derived from and should be read in conjunction with the
Consolidated Financial Statements of the Company and CCI and the related notes
thereto contained elsewhere or incorporated by reference in this Prospectus.
The pro forma adjustments are based upon available information and certain
assumptions that management believes to be reasonable.
The unaudited pro forma financial information is provided for informational
purposes only and is not necessarily indicative of the operating results that
would have occurred had the CCI Acquisition been consummated at the beginning
of the periods presented, nor is it necessarily indicative of future operating
results or financial position.
35
<PAGE>
MCLEODUSA INCORPORATED AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
ADJUSTMENTS
FOR 1997
SENIOR
MCLEODUSA DISCOUNT
INCORPORATED NOTES
------------ -----------
<S> <C> <C>
OPERATIONS
STATEMENT DATA:
Revenue.......... $267,886 $ --
-------- -------
Operating
expenses:
Cost of service.. 155,430 --
Selling, general
and
administrative... 143,918 --
Depreciation and
amortization..... 33,275 --
Other............ 4,632 --
-------- -------
Total operating
expenses........ 337,255 --
-------- -------
Operating income
(loss)........... (69,369) --
Interest income
(expense), net... (11,967) (2,246)(4)
Other non-
operating
income........... 1,426 --
Income taxes..... -- --
-------- -------
Net income
(loss)........... $(79,910) $(2,246)
======== =======
Loss per common
and common
equivalent
share............ $ (1.45)
========
Weighted average
common and common
equivalent shares
outstanding...... 54,974
========
OTHER FINANCIAL
DATA:
EBITDA(9)........ $(31,462) $ --
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
------------------------------------------------------------------------------------------------------------
PRO FORMA
FOR 1997 ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA
SENIOR CONSOLIDATED FOR FOR FOR 1997 FOR 1997 FOR MARCH 1998 FOR MARCH 1998
DISCOUNT COMMUNI- CCI CCI SENIOR SENIOR SENIOR SENIOR
NOTES CATIONS INC.(1) ACQUISITION ACQUISITION NOTES NOTES NOTES NOTES
---------- --------------- ------------- ----------- ------------- ---------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS
STATEMENT DATA:
Revenue.......... $267,886 $194,305 $ -- $462,191 $ -- $462,191 $ -- $ 462,191
---------- --------------- ------------- ----------- ------------- ---------- --------------- --------------
Operating
expenses:
Cost of service.. 155,430 100,364 -- 255,794 -- 255,794 -- 255,794
Selling, general
and
administrative... 143,918 65,063 -- 208,981 -- 208,981 -- 208,981
Depreciation and
amortization..... 33,275 17,913 10,728(2) 61,916 -- 61,916 -- 61,916
Other............ 4,632 -- 5,559(3) 10,191 -- 10,191 -- 10,191
---------- --------------- ------------- ----------- ------------- ---------- --------------- --------------
Total operating
expenses........ 337,255 183,340 16,287 536,882 -- 536,882 -- 536,882
---------- --------------- ------------- ----------- ------------- ---------- --------------- --------------
Operating income
(loss)........... (69,369) 10,965 (16,287) (74,691) -- (74,691) -- (74,691)
Interest income
(expense), net... (14,213) (2,972) -- (17,185) (5,718)(5) (22,903) (11,362)(6) (34,265)
Other non-
operating
income........... 1,426 1,082 -- 2,508 -- 2,508 -- 2,508
Income taxes..... -- (3,477) 3,477(8) -- -- -- -- --
---------- --------------- ------------- ----------- ------------- ---------- --------------- --------------
Net income
(loss)........... $(82,156) $ 5,598 $(12,810) $(89,368) $(5,718) $(95,086) $(11,362) $(106,448)
========== =============== ============= =========== ============= ========== =============== ==============
Loss per common
and common
equivalent
share............ $ (1.49) $ (1.46) $ (1.55) $ (1.74)
========== =========== ========== ==============
Weighted average
common and common
equivalent shares
outstanding...... 54,974 61,184 61,184 61,184
========== =========== ========== ==============
OTHER FINANCIAL
DATA:
EBITDA(9)........ $(31,462) $ 28,878 $ -- $ (2,584) $ -- $ (2,584) $ -- $ (2,584)
<CAPTION>
ADJUSTMENTS PRO FORMA
FOR THE FOR THE
OFFERING OFFERING
-------------- ----------
<S> <C> <C>
OPERATIONS
STATEMENT DATA:
Revenue.......... $ -- $ 462,191
-------------- ----------
Operating
expenses:
Cost of service.. -- 255,794
Selling, general
and
administrative... -- 208,981
Depreciation and
amortization..... -- 61,916
Other............ -- 10,191
-------------- ----------
Total operating
expenses........ -- 536,882
-------------- ----------
Operating income
(loss)........... -- (74,691)
Interest income
(expense), net... (14,719)(7) (48,984)
Other non-
operating
income........... -- 2,508
Income taxes..... -- --
-------------- ----------
Net income
(loss)........... $(14,719) $(121,167)
============== ==========
Loss per common
and common
equivalent
share............ $ (1.98)
==========
Weighted average
common and common
equivalent shares
outstanding...... 61,184
==========
OTHER FINANCIAL
DATA:
EBITDA(9)........ $ -- $ (2,584)
</TABLE>
(Table continued on following page.)
36
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1998
-----------------------------------------------------------------
PRO
ADJUSTMENTS FORMA
FOR THE FOR THE ADJUSTMENTS PRO FORMA
MCLEODUSA MARCH 1998 MARCH 1998 FOR THE FOR THE
INCORPORATED SENIOR NOTES SENIOR NOTES OFFERING OFFERING
------------ ------------ ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
OPERATIONS STATEMENT
DATA:
Revenue................ $438,642 $ -- $438,642 $ -- $ 438,642
-------- ------- -------- -------- ---------
Operating expenses:
Cost of service....... 239,195 -- 239,195 -- 239,195
Selling, general and
administrative....... 189,579 -- 189,579 -- 189,579
Depreciation and
amortization......... 63,663 -- 63,663 -- 63,663
Other................. 5,575 -- 5,575 -- 5,575
-------- ------- -------- -------- ---------
Total operating
expenses........... 498,012 -- 498,012 -- 498,012
-------- ------- -------- -------- ---------
Operating loss........ (59,370) -- (59,370) (59,370)
Interest expense,
net.................. (35,519) (2,335)(6) (37,854) (11,039)(7) (48,893)
Other non-operating
income............... 1,789 -- 1,789 -- 1,789
Income taxes.......... -- -- -- -- --
-------- ------- -------- -------- ---------
Net loss.............. $(93,100) $(2,335) $(95,435) $(11,039) $(106,474)
======== ======= ======== ======== =========
Loss per common
share................ $ (1.49) $ (1.52) $ (1.70)
======== ======== =========
Weighted average
common shares
outstanding.......... 62,620 62,620 62,620
======== ======== =========
OTHER FINANCIAL DATA:
EBITDA(9)............. $ 9,868 $ -- $ 9,868 $ -- $ 9,868
</TABLE>
- --------
(1) Includes operations of CCI from January 1, 1997 to September 24, 1997.
(2) To adjust depreciation and amortization to include amortization of
intangibles acquired in the CCI Acquisition. The intangibles acquired in
the CCI Acquisition will be amortized over periods ranging from 3 to 30
years.
(3) To recognize the costs associated with the directories in progress at the
time of the Company's acquisition of McLeodUSA Publishing and CCI.
(4) To record the interest expense on the 1997 Senior Discount Notes at 10
1/2% compounded semi-annually, reduced by an estimated annual yield of 5%
on the net proceeds from the issuance of the 1997 Senior Discount Notes
and estimated additional interest capitalization for the year ended
December 31, 1997.
(5) To record the interest expense on the 1997 Senior Notes at 9 1/4% reduced
by an estimated annual yield of approximately 5% on the net proceeds from
the issuance of the 1997 Senior Notes.
(6) To record the interest expense on the 1998 Senior Notes at 8 3/8% reduced
by an estimated annual yield of approximately 5% on the net proceeds from
the issuance of the 1998 Senior Notes.
(7) To record interest expense on the Notes at 9 1/2% reduced by an estimated
annual yield of approximately 5% on the net proceeds from the Offering.
(8) Net income (loss) includes pro forma adjustments for income taxes due to
the availability of net operating loss carryforwards and a valuation
allowance.
(9) EBITDA consists of operating loss before depreciation, amortization and
other nonrecurring operating expenses. The Company has included EBITDA
data because it is a measure commonly used in the industry. EBITDA 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.
37
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Company's Consolidated Financial Statements and the notes thereto and the
other financial data contained elsewhere or incorporated by reference in this
Prospectus.
OVERVIEW
The Company derives its revenue from (i) its core business of providing
local, long distance and related communications services to end users,
typically in a "bundled" package, (ii) communications network maintenance
services and telephone equipment sales, service and installation, (iii)
special access, private line and data services, (iv) the sale of advertising
space in telephone directories, (v) incumbent local exchange services in east
central Illinois through the operation of Illinois Consolidated Telephone
Company ("ICTC"), acquired as part of the CCI Acquisition, (vi) telemarketing
services and (vii) other communications services, including video, cellular,
operator, payphone and paging services. The Company began providing incumbent
local exchange services and other telecommunications services as a result of
the CCI Acquisition in September 1997, telephone directory advertising as a
result of its acquisition of McLeodUSA Publishing in September 1996, and
telemarketing services as a result of its acquisition of Ruffalo Cody in July
1996. The table set forth below summarizes the Company's percentage of
revenues from these sources:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
------------------- ---------------
1995 1996 1997(1) 1997 1998
---- ---- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Local and long distance
telecommunications services............. 74% 51% 41% 46% 44%
Network maintenance and equipment
services................................ 17 7 8 9 6
Special access, private line and data
services................................ 9 13 6 6 7
Telephone directory advertising.......... -- 19 30 34 24
Local exchange services (ICTC)........... -- -- 6 -- 11
Telemarketing services................... -- 10 5 5 3
Other telecommunications services........ -- -- 4 -- 5
--- --- --- ------ ------
100% 100% 100% 100% 100%
=== === === ====== ======
</TABLE>
- --------
(1) Includes revenues from CCI from September 25, 1997 through December 31,
1997.
The Company began offering "bundled" local and long distance services to
business customers in January 1994. At the end of 1995, the Company began
offering, on a test basis, long distance services to residential customers. In
June 1996, the Company began marketing and providing to residential customers
in Cedar Rapids, Iowa and Iowa City, Iowa an integrated package of
telecommunications services, marketed under the name PrimeLine(R), that
includes local and long distance service, voice mail, Internet access and
travel card services. Since June 1996 the Company has expanded the states in
which it offers service to business customers to include Iowa, Illinois,
Indiana, Minnesota, Wisconsin, North Dakota, South Dakota, Colorado, Missouri
and Wyoming. The Company has also expanded its PrimeLine(R) service to certain
additional cities in Iowa and Illinois and began offering the service to
customers in North Dakota, South Dakota, Wisconsin, Wyoming and Colorado. The
Company plans to continue its efforts to market and provide local, long
distance and other telecommunications services to business customers and
market its PrimeLine(R) service to residential customers. The Company believes
its efforts to market its integrated telecommunications services have been
enhanced by its July 1996 acquisition of Ruffalo Cody, which specializes in
direct marketing and telemarketing services, including telecommunications
sales, its September 1996 acquisition of
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McLeodUSA Publishing, which publishes and distributes proprietary "white page"
and "yellow page" telephone directories in 20 states in the Midwestern and
Rocky Mountain regions of the United States, including most of the Company's
target markets, and its September 1997 acquisition of CCI, including its
subsidiary Consolidated Communications Directories Inc. ("CCD"), which
publishes and distributes "white page" and "yellow page" telephone directories
for third parties in 38 states and the United States Virgin Islands.
In September 1997, the Company completed the CCI Acquisition. For the period
beginning January 1, 1997 through September 24, 1997, CCI had revenues of
$194.3 million and net income of $5.6 million. As a result of the CCI
Acquisition, the Company acquired all of the former CCI subsidiaries,
including ICTC, an independent local exchange carrier which serves customers
in east-central Illinois; Consolidated Communications Telecom Services Inc.
("CCTS"), a competitive local exchange carrier which offers integrated local,
long distance and other telecommunications services to customers in central
and southern Illinois and in Indiana; CCD, a telephone directory company; an
operator service company; an inmate pay-phone company; a full service
telemarketing agency; a majority interest in a cable television company
serving customers in Greene, Sangamon and Menard counties in Illinois and
Benton Harbor, Michigan; and a minority interest in a cellular telephone
partnership serving parts of east-central Illinois. The Company believes the
CCI Acquisition has enhanced its efforts to offer its telecommunications
services in adjoining target markets including expansion into Indiana and
Missouri, states where CCI provided telecommunications services.
The Company's principal operating expenses consist of cost of service;
selling, general and administrative expenses ("SG&A"); and depreciation and
amortization. Cost of service primarily includes local services purchased from
RBOCs, costs to terminate the long distance calls of the Company's customers
through interexchange carriers, costs of printing and distributing the
telephone directories published by McLeodUSA Publishing and CCD, costs
associated with maintaining the Iowa Communications Network and costs
associated with operating the Company's network. The Iowa Communications
Network is a fiber optic network that links certain of the State of Iowa's
schools, libraries and other public buildings. SG&A consists of sales and
marketing, customer service and administrative expenses. Depreciation and
amortization include depreciation of the Company's telecommunications network
and equipment; amortization of goodwill, and other intangibles related to the
Company's acquisitions, amortization expense related to the excess of
estimated fair market value in aggregate of certain options over the aggregate
exercise price of such options granted to certain officers, other employees
and directors; and amortization of one-time installation costs associated with
transferring customers' local line service from the RBOCs to the Company's
local telecommunications service.
As the Company expands into new markets, both cost of service and SG&A will
increase. The Company expects to incur cost of service and SG&A expenses prior
to achieving significant revenues in new markets. Fixed costs related to
leasing of central office facilities needed to provide telephone services must
be incurred prior to generating revenue in new markets, while significant
levels of marketing activity may be necessary in the new markets in order for
the Company to build a customer base large enough to generate sufficient
revenue to offset such fixed costs and marketing expenses.
In January and February 1996, the Company granted options to purchase an
aggregate of 965,166 and 688,502 shares of its Class A Common Stock,
respectively, at an exercise price of $2.67 per share, to certain directors,
officers and other employees. The estimated fair market value of these
options, in the aggregate, at the date of grant was later determined to exceed
the aggregate exercise price by approximately $9.2 million. Additionally, in
September 1997, the Company granted options to purchase an aggregate of
1,468,945 shares of its Class A Common Stock at an exercise price of $24.50 to
certain employees of CCI. The fair market value of these options, in the
aggregate, at the date of grant exceeded the aggregate exercise price by
approximately $15.8 million. These amounts are being amortized on a monthly
basis over the four-year vesting period of the options.
39
<PAGE>
The Company has experienced operating losses since its inception as a result
of efforts to build its customer base, develop and construct its network
infrastructure, build its internal staffing, develop its systems and expand
into new markets. The Company expects to continue to focus on increasing its
customer base and geographic coverage. Accordingly, the Company expects that
its cost of service, SG&A and capital expenditures will continue to increase
significantly, all of which may have a negative impact on operating results.
As a result of the CCI Acquisition, the Company anticipates a reduction in
operating losses and the generation of positive cash flows from operations in
the future. The anticipated financial benefits from the CCI Acquisition are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. The financial benefits the Company will
actually derive from the CCI Acquisition may differ materially as a result of
a variety of factors, including technological, regulatory or other
developments in the Company's business, the difficulty of assimilating CCI's
operations and personnel, the possible inability of management to maximize the
financial and strategic position of the Company through successful
incorporation of CCI into the Company's operations, and the risks of entering
markets in which the Company has little or no direct prior experience. In
addition, the projected increases in capital expenditures will continue to
generate negative cash flows from construction activities during the next
several years while the Company installs and expands its fiber optic network
and develops and constructs its proposed PCS system. The Company may also be
forced to change its pricing policies to respond to a changing competitive
environment, and there can be no assurance that the Company will be able to
maintain its operating margin. There can be no assurance that growth in the
Company's revenue or customer base will continue or that the Company will be
able to achieve or sustain profitability or positive cash flows.
The Company has generated net operating losses since its inception and,
accordingly, has incurred no income tax expense. The Company has reduced the
net deferred tax assets generated by these losses by a valuation allowance
which offsets the net deferred tax asset due to the uncertainty of realizing
the benefit of the tax loss carryforwards. The Company will reduce the
valuation allowance when, based on the weight of available evidence, it is
more likely than not that some portion or all of the deferred tax assets will
be realized.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1997
Total revenue increased from $131.6 million for the nine months ended
September 30, 1997 to $438.6 million for the nine months ended September 30,
1998, representing an increase of $307 million or 233%. Revenue from the sale
of local and long distance telecommunications services accounted for $134
million of this increase, including $52.2 million contributed by CCI. Local
exchange services generated by ICTC represented $49.3 million for the period,
for which there were no corresponding 1997 revenues. Private line and data
revenues accounted for $23.6 million of increased revenues over 1997, which
was primarily attributable to the CCI Acquisition. Network maintenance and
equipment revenue increased $12.2 million over 1997 due primarily to the
acquisitions of Digital Communications of Iowa, Inc. ("Digital
Communications"), ESI Communications, Inc. ("ESI Communications"), CCI and
NewCom Technologies, Inc. and NewCom OSP Services, Inc. (collectively,
"NewCom"). Other telecommunications revenue, which was due almost entirely to
the CCI Acquisition, represented $20.9 million of the revenues for the first
nine months of 1998 with no corresponding 1997 amount. Directory revenues
increased $58.5 million from the first nine months of 1997 to the first nine
months of 1998 due to revenues from new directories acquired in 1998 and the
acquisition of CCD. The $8.5 million increase in telemarketing revenues from
the first nine months of 1997 to the first nine months of 1998 was due almost
entirely to the CCI Acquisition.
Cost of service increased from $77.7 million for the nine months ended
September 30, 1997, to $239.2 million for the nine months ended September 30,
1998, representing an increase of $161.5 million or 208%. This increase in
cost of service was due primarily to the growth in the Company's local and
long distance telecommunications services and to the acquisitions of Digital
Communications, ESI Communications, CCI and NewCom, which contributed an
aggregate of $106.7 million to the increase.
40
<PAGE>
Cost of service as a percentage of revenue decreased from 59% for the nine
months ended September 30, 1997 to 55% for the nine months ended September 30,
1998, as a result of these acquisitions and as a result of reductions in the
cost of providing local and long distance services as a percentage of local
and long distance telecommunications revenue, which decreased from 77% to 71%
for those same periods. This decrease was primarily due to the realization of
benefits associated with new wholesale line cost rate agreements with the
RBOCs and reduced long distance costs resulting from migration of over 60% of
customer long distance traffic to the Company's fiber optic network.
SG&A increased from $86.4 million for the nine months ended September 30,
1997 to $189.6 million for the nine months ended September 30, 1998, an
increase of $103.2 million or 120%. The acquisitions of Digital
Communications, ESI Communications, CCI and NewCom contributed an aggregate of
$66.8 million to the increase. Also contributing to this increase were
increased costs of $36.4 million primarily related to expansion of selling,
customer support and administration activities to support the Company's
growth.
Depreciation and amortization expenses increased from $15.7 million for the
nine months ended September 30, 1997 to $63.7 million for the nine months
ended September 30, 1998, representing an increase of $48.0 million or 305%.
This increase consisted of $32.8 million related to the acquisitions of
Digital Communications, ESI Communications, CCI and NewCom, and $15.2 million
due primarily to the growth of the Company's network.
Other operating expenses represented the amortization of capitalized costs
associated with CCD directories in progress at the time the Company acquired
CCI.
Interest income increased from $18.1 million for the nine-month period ended
September 30, 1997, to $19.1 million for the same period in 1998. This
increase resulted from increased earnings on investments made with the
remaining proceeds from the 1997 Senior Discount Note Offering and the 1997
Senior Note Offering in March and July 1997, respectively, and the proceeds
from the March 1998 Senior Note Offering in March 1998.
Gross interest expense increased from $23.6 million for the first nine
months of 1997 to $61.1 million for the first nine months of 1998. This
increase was primarily a result of an increase in the accretion of interest on
the 1997 Senior Discount Notes of $7.5 million and an increase of interest of
$24.9 million as the result of the issuance of the 1997 Senior Notes and the
March 1998 Senior Notes. Interest expense of approximately $5.6 million and
$2.9 million was capitalized as part of the Company's construction of fiber
optic network during the nine months of 1998 and the first nine months of
1997, respectively. In addition, interest expense of approximately $899,000
was capitalized as part of the Company's operating facilities building
construction and the Company's software development in 1998 with no
corresponding amount in 1997.
Net loss increased from $53.6 million for the nine months ended September
30, 1997 to $93.1 million for the nine months ended September 30, 1998, an
increase of $39.5 million. This increase resulted primarily from the following
three factors: the expansion of the Company's local and long distance
services, which requires significant expenditures, a substantial portion of
which is incurred before the realization of revenues; the increased
depreciation expense related to the construction and expansion of the
Company's networks and amortization of intangibles related to acquisitions;
and net interest expense on indebtedness to fund market expansion, network
development and acquisitions.
YEAR ENDED 1997 COMPARED WITH YEAR ENDED 1996
Revenue was $267.9 million for the year ended December 31, 1997, an increase
of $186.6 million or 229% from $81.3 million for 1996. This increase was due
to the many acquisitions completed in 1997 and 1996 as well as the increase in
local and long distance customers. Revenue from the sale of local
41
<PAGE>
and long distance telecommunications services accounted for $68.6 million of
the increase, including $23.1 million contributed by CCI from September 25,
1997 to December 31, 1997. Local exchange services generated by ICTC
represented $16.1 million for the period from September 25, 1997 to December
31, 1997, for which there were no corresponding 1996 revenues. Private line
and data revenues accounted for $6.9 million of increased revenues over 1996
which was primarily attributable to the CCI Acquisition. Network maintenance
and equipment revenue increased $15.0 million over 1996 due to the
acquisitions of Digital Communications, ESI Communications and CCI. Other
telecommunications revenue that was due entirely to the CCI Acquisition
represented $9.9 million of 1997 revenues with no corresponding 1996 amount.
Directory revenues increased $65.9 million from 1996 to 1997 and were due to a
full year of McLeodUSA Publishing revenues in 1997 and the acquisition of CCD
on September 24, 1997. The increase in telemarketing revenues from 1996 to
1997 of $4.1 million was due almost entirely to the CCI Acquisition.
Cost of service increased from $52.6 million for the year ended December 31,
1996 to $155.4 million for the year ended December 31, 1997, representing an
increase of $102.8 million or 195%. This increase in cost of service was due
primarily to the growth in the Company's local and long distance
telecommunications services and to the acquisitions of Ruffalo Cody, McLeodUSA
Publishing, Digital Communications, ESI Communications and CCI, which
contributed an aggregate of $62.2 million to the increase. Cost of service as
a percentage of revenue decreased from 65% for the year ended December 31,
1996 to 58% for the year ended December 31, 1997, primarily as a result of the
effect of these acquisitions. The cost of providing local and long distance
services as a percentage of local and long distance telecommunications revenue
increased from 70% for the year ended December 31, 1996 to 73% for the year
ended December 31, 1997, primarily as a result of increased line costs
associated with the Company's accelerated expansion into new markets.
SG&A increased from $46 million for the year ended December 31, 1996 to
$143.9 million for the year ended December 31, 1997, an increase of $97.9
million or 213%. The acquisitions of Ruffalo Cody, McLeodUSA Publishing,
Digital Communications, ESI Communications and CCI contributed an aggregate of
$54.3 million to the increase. Also contributing to this increase were
increased costs of $43.6 million primarily related to expansion of selling,
customer support and administration activities to support the Company's
growth.
Depreciation and amortization expenses increased from $8.5 million for the
year ended December 31, 1996 to $33.3 million for the year ended December 31,
1997, representing an increase of $24.8 million or 292%. The increase was
primarily due to $14.3 million related to the acquisitions of Ruffalo Cody,
McLeodUSA Publishing, Digital Communications, ESI Communications and CCI, and
$3.8 million due primarily to the growth of the Company's network in 1997.
Other operating expenses in 1997 represented the realization of a purchase
accounting adjustment related to the capitalization of costs associated with
McLeodUSA Publishing and CCD directories in progress at the time of the
acquisitions.
Interest income increased from $6 million for the year ended December 31,
1996 to $22.7 million for the year ended December 31, 1997. This increase
resulted from increased earnings on investments made with a portion of the
proceeds from the Company's offerings of Class A Common Stock in June and
November 1996 and from the offerings of the 1997 Senior Discount Notes and the
1997 Senior Notes in March 1997 and July 1997, respectively.
Gross interest expense increased from $869,000 for the year ended December
31, 1996 to $39.1 million for the year ended December 31, 1997. This increase
was primarily a result of accretion of interest on the 1997 Senior Discount
Notes of $26.8 million and accrual of interest on the 1997 Senior Notes of
$9.5 million. Interest expense of approximately $4.4 million and $204,000 was
capitalized as
42
<PAGE>
part of the Company's construction of its fiber optic network during the years
ended December 31, 1997 and 1996, respectively.
Net loss increased from $22.3 million for the year ended December 31, 1996
to $79.9 million for the year ended December 31, 1997, an increase of $57.6
million. This increase resulted primarily from the following three factors:
the construction and expansion of the Company's network which require
significant expenditures, a substantial portion of which is incurred before
the realization of revenues; the increased depreciation expense related to
those networks and amortization of intangibles related to acquisitions; and
net interest expense on indebtedness to fund market expansion, network
development and acquisitions.
Operating loss before depreciation, amortization and other non-recurring
operating expenses increased from a negative $17.3 million for the year ended
December 31, 1996 to a negative $31.5 million for the year ended December 31,
1997, an increase of $14.2 million. The change reflected the increase in the
operating loss incurred in 1997 due primarily to the expansion of the
Company's local, long distance and other telecommunications services as
described above.
YEAR ENDED 1996 COMPARED WITH YEAR ENDED 1995
Revenue increased from $29 million for the year ended December 31, 1995 to
$81.3 million for the year ended December 31, 1996, representing an increase
of $52.3 million or 180%. Revenue from the sale of local and long distance
telecommunications services accounted for $19.9 million of this increase.
Included in the year ended December 31, 1996 revenue was $8.6 million of
revenue from Ruffalo Cody, which was acquired on July 15, 1996, and $15.1
million in revenue from McLeodUSA Publishing, which was acquired on September
20, 1996. Excluding these acquisitions, 1996 revenue would have been $57.6
million.
Cost of service increased from $19.7 million for the year ended December 31,
1995 to $52.6 million for the year ended December 31, 1996, an increase of
$32.9 million or 168%. This increase in cost of service was due primarily to
the growth in the Company's local and long distance telecommunications
services and to the acquisitions of Ruffalo Cody and McLeodUSA Publishing,
which contributed $4.5 million and $6.7 million, respectively, to the
increase. Cost of service as a percentage of revenue decreased from 68% to
65%, primarily as a result of the effect of these acquisitions. The cost of
providing local and long-distance services as a percentage of local and long
distance telecommunications revenue increased from 68% for the year ended
December 31, 1995 to 70% for the year ended December 31, 1996, primarily as a
result of an increased number of higher volume, price-sensitive customers and
increased local line costs associated with expansion into new markets.
SG&A increased from $18.1 million for the year ended December 31, 1995 to
$46 million for the year ended December 31, 1996, an increase of $27.9 million
or 155%. The acquisitions of Ruffalo Cody and McLeodUSA Publishing contributed
$3.3 million and $7.3 million, respectively, to the increase. Increased costs
of $17.3 million related to expansion of selling, customer support and
administration activities to support the Company's growth also contributed to
this increase.
Depreciation and amortization expenses increased from $1.8 million for the
year ended December 31, 1995 to $8.5 million for the year ended December 31,
1996, an increase of $6.7 million or 362%. This increase consisted of $2.1
million related to the acquisitions of Ruffalo Cody and McLeodUSA Publishing;
amortization expense of $2 million related to the excess of estimated
aggregate fair market value of certain options over the aggregate exercise
price of such options granted to certain officers, other employees, and
directors; and $2.6 million due primarily to the growth of the Company's
network in 1996.
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<PAGE>
Other operating expense in 1996 represented the realization of a purchase
accounting adjustment related to the capitalization of costs associated with
directories in progress at the time the Company acquired McLeodUSA Publishing.
The Company had net interest income of $5.4 million for the year ended
December 31, 1996 compared to net interest expense of $771,000 for the year
ended December 31, 1995 as a result of earnings on investments made with a
portion of the proceeds of the Company's public offerings of Class A Common
Stock during 1996 and decreased interest expense on reduced borrowings as a
result of the Company's repayment of all amounts outstanding under a bank
credit facility maintained by the Company from May 1994 until June 1996 (the
"Credit Facility") with a portion of the net proceeds from the Company's
initial public offering of Class A Common Stock. The Company also had other
non-operating income of $495,000 for the year ended December 31, 1996.
Net loss increased from $11.3 million for the year ended December 31, 1995
to $22.3 million for the year ended December 31, 1996, an increase of $11
million. This increase resulted primarily from the expansion of the local and
long distance businesses, amortization and other operating expenses related to
the acquisitions of Ruffalo Cody and McLeodUSA Publishing and amortization
expense related to stock options granted to certain officers, other employees
and directors. The development of the Company's business and the construction
and expansion of its network require significant expenditures, a substantial
portion of which is incurred before the realization of revenues.
Operating loss before depreciation, amortization and other non-recurring
operating expenses increased from a negative $8.7 million for the year ended
December 31, 1995 to a negative $17.3 million for the year ended December 31,
1996, an increase of $8.6 million. The change reflected the increase in the
operating loss incurred in 1996 due primarily to the expansion of the
Company's local, long distance and other telecommunications services and the
factors described above.
YEAR ENDED 1995 COMPARED WITH YEAR ENDED 1994
Revenue increased from $8 million in 1994 to $29 million in 1995,
representing an increase of $21 million or 262%. Revenue from the increase in
the sale of local and long distance telecommunications services accounted for
$16.9 million of this increase. Revenue from telecommunications network
maintenance services was $4.9 million in 1995. The Company acquired MWR, a
competitive access provider that offers most of the Company's special access
and private line services, in April 1995 in an acquisition accounted for as a
purchase. MWR represented $1.6 million of the Company's revenue in 1995.
Cost of service increased from $6.2 million in 1994 to $19.7 million in
1995, an increase of $13.5 million or 217%. This increase in cost of service
resulted primarily from costs for providing local and long distance services.
Cost of service as a percentage of revenue decreased from 78% in 1994 to 68%
in 1995, principally as a result of certain economies of scale.
SG&A increased from $12.4 million in 1994 to $18.1 million in 1995, an
increase of $5.7 million or 46%. This increase was due to increased
compensation resulting from selling and customer support activities of $2.8
million, additional administrative personnel expense of $1.6 million and
associated costs of $1.3 million required to handle the growth experienced
primarily in local and long distance revenues.
Depreciation and amortization expenses increased from $772,000 in 1994 to
$1.8 million in 1995, an increase of $1 million or 138%. This increase
consisted of depreciation of $362,000 related to the additional fiber optic
network purchased and built during 1995; $304,000 of depreciation related to
capital costs associated with the growth of the Company; $266,000 resulting
from the amortization of one-time installation costs primarily associated with
transferring customers' local line service from the
44
<PAGE>
RBOCs to the Company's telemanagement service; and amortization of goodwill of
$117,000 related to the Company's acquisition of MWR in 1995.
Net interest expense increased from $73,000 in 1994 to $771,000 in 1995.
This net increase resulted from an increase in interest expense of $692,000
due to the need for additional secured debt in 1995 to fund the Company's
growth and operating losses and a decrease in interest income of $6,000
resulting from reduced investment of funds due to the use of funds needed to
satisfy working capital needs.
The Company's net loss decreased from $11.4 million in 1994 to $11.3 million
in 1995, a decrease of $87,000. This decrease resulted from the ability of the
Company to generate additional service income while reducing customer
acquisition and support costs as a percentage of service income.
Operating loss before depreciation, amortization and other non-recurring
operating expenses improved from a negative $10.6 million in 1994 to a
negative $8.7 million in 1995, an improvement of $1.9 million. The improvement
reflected the decrease in the net loss and the increase in depreciation and
amortization in 1995 resulting from the capital expenditures necessary to
support the Company's revenue growth.
LIQUIDITY AND CAPITAL RESOURCES
The Company's total assets increased to $1.9 billion at September 30, 1998,
as adjusted to give effect to the Offering as if it had occurred on that date,
from $1.3 billion at December 31, 1997 and $453 million at December 31, 1996,
primarily due to the net proceeds of approximately $291.9 million from the
Offering, the net proceeds of approximately $288.9 million from the March 1998
Senior Note Offering, the net proceeds of approximately $506.5 million from
the 1997 Senior Discount Note Offering and the 1997 Senior Note Offering in
March 1997 and July 1997, respectively, and the acquisition of CCI in
September 1997. At September 30, 1998, the Company's current assets of $570.9
million exceeded its current liabilities of $161.5 million, providing working
capital of $409.4 million, which represents an increase of $30.9 million
compared to December 31, 1997 primarily attributable to the net proceeds from
the March 1998 Senior Note Offering. At December 31, 1997, the Company's
current assets of $517.8 million exceeded its current liabilities of $139.3
million, providing working capital of $378.5 million, which represents an
increase of $192.5 million compared to December 31, 1996 primarily
attributable to the net proceeds from the 1997 Senior Discount Note Offering
and the 1997 Senior Note Offering. At December 31, 1996, the Company's current
assets of $224.4 million exceeded current liabilities of $38.4 million,
providing working capital of $186 million.
Net cash used in operating activities totaled $10.9 million, $8.8 million
and $11.8 million for the nine months ended September 30, 1998, and the years
ended December 31, 1997 and 1996, respectively. During the nine months ended
September 30, 1998 cash for operating activities was used primarily to fund
the Company's net loss of $93.1 million for such period. The Company also
required cash to fund the growth in trade receivables and deferred line
installation costs of $10.1 million and $9.0 million, respectively, primarily
as a result of the expansion of the Company's local and long distance
telecommunications services. These uses of cash for operating activities
during the nine months ended September 30, 1998 were offset by an increase in
accounts payable and accrued expenses of $10.7 million and cumulative non-cash
expenses of $89.6 million. During the year ended December 31, 1997, cash for
operating activities was used primarily to fund the Company's net loss of
$79.9 million for such period. The Company also required cash to fund the
growth in trade receivables and deferred line installation costs of $15.9
million and $9.7 million, respectively, offset by increases in accounts
payable and accrued expenses of $27.1 million, deferred revenues of $7.2
million and customer deposits of $3 million. During the year ended December
31, 1996, cash for operating activities was used primarily to fund the
Company's net loss of $22.3 million for such period. The Company also required
cash to fund the growth in trade receivables of $9.3 million offset by an
increase in deferred revenue of $9.5 million.
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Net cash used in investing activities totaled $373.2 million, $242.8 million
and $283.1 million during the nine months ended September 30, 1998 and the
years ended December 31, 1997 and 1996, respectively. The expansion of the
Company's local and long distance telecommunications services, development and
construction of the Company's fiber optic network and other capital
expenditures resulted in purchases of equipment and fiber optic cable and
other property and equipment totaling $204.7 million, $151.3 million and $70.3
million during the nine months ended September 30, 1998 and the years ended
December 31, 1997 and 1996, respectively. The Company also used cash of $516.3
million to acquire available-for-sale securities during the first nine months
of 1998, offset by proceeds from sales and maturities of available-for-sale
securities of $246.1 million during the period. During the year ended December
31, 1997, the cash used in investing activities was partially offset by net
proceeds of $120.2 million from the sales and maturities of available-for-sale
securities.
In April and June 1997, the FCC granted the Company 26 "D" and "E" block
frequency PCS licenses and in September 1997 the Company acquired one
additional "E" block frequency license as a result of the CCI Acquisition (the
"CCI PCS License"), giving the Company 27 PCS licenses in a total of 25
markets covering areas of Iowa, Illinois, Minnesota, Nebraska and South
Dakota. The Company paid the FCC an aggregate of approximately $32.8 million
for the 26 PCS licenses granted to the Company by the FCC. The Company made a
deposit of $4.8 million with the FCC at the beginning of the bidding process
in 1996 and paid approximately $28 million during 1997 for the 26 PCS
licenses. CCI paid the FCC for the CCI PCS License prior to the CCI
Acquisition. The Company will be required to make significant additional
expenditures to develop, construct and operate a PCS system.
During the nine months ended September 30, 1998, the Company used an
aggregate of $27.6 million cash to acquire directories from F.D.S.D. Rapid
City Directories, Inc., Bi-Rite Directories, Inc., Smart Pages, Inc. and
Yellow Pages Publishers, Inc., and ADCO Publishing Co., Inc. on March 17,
1998, March 20, 1998, April 8, 1998, and September 15, 1998 respectively, and
in its acquisitions of NewCom capital stock, Communications Cable-Laying
Company, Inc. assets, and QST Communications Inc. capital stock in April, June
and August 1998, respectively.
During the nine months ended September 30, 1997, the Company used an
aggregate of $180.4 million cash to acquire Digital Communications, Fronteer
Financial Holdings, Ltd., Indiana Directories, Inc., ESI Communications and
CCI in January 1997, February 1997, March 1997, June 1997 and September 1997,
respectively.
On October 27, 1998, the Company entered into an Agreement and Plan of
Reorganization with Dakota Telecommunications Group, Inc. ("DTG") pursuant to
which the Company agreed, subject to certain conditions, to acquire DTG for an
aggregate of 1,295,000 shares of Class A Common Stock and the assumption of
$30.9 million in debt (the "DTG Acquisition").
Consummation of the DTG Acquisition is subject to the satisfaction or waiver
of certain conditions, including receipt of required regulatory approvals and
other customary conditions. There can be no assurance that the DTG Acquisition
will be consummated.
On September 24, 1997, the Company issued an aggregate of 8,488,586 shares
of Class A Common Stock and paid approximately $155 million in cash to the
shareholders of CCI in exchange for all of the outstanding shares of CCI in a
transaction accounted for using the purchase method of accounting. The total
purchase price was approximately $382.1 million, which includes approximately
$3.4 million of estimated direct acquisition costs.
Net cash received from financing activities was $283.2 million during the
nine months ended September 30, 1998, primarily as a result of the March 1998
Senior Note Offering. Net cash received from financing activities was $487
million during the year ended December 31, 1997 primarily as a result of the
1997 Senior Discount Note Offering in March 1997 and the 1997 Senior Note
Offering in
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July 1997. Cash received from financing activities during the year ended
December 31, 1996 was $391.4 million and was primarily obtained from the
Company's public offerings of Class A Common Stock in June and November 1996.
The Company paid off and canceled the Credit Facility in June 1996 with a
portion of the proceeds from its initial public offering.
On March 4, 1997, the Company completed the 1997 Senior Discount Note
Offering. The 1997 Senior Discount Notes were issued at an original issue
discount in which the Company received approximately $288.9 million in net
proceeds. The 1997 Senior Discount Notes accrete from March 4, 1997 at a rate
of 10 1/2% per year, compounded semi-annually to an aggregate principal amount
of $500 million by March 1, 2002. As of September 30, 1998, the accreted
balance of the 1997 Senior Discount Notes was $352.7 million. Interest will
not accrue on the 1997 Senior Discount Notes prior to March 1, 2002.
Thereafter, interest will accrue at a rate of 10 1/2% per annum and will be
payable in cash semi-annually in arrears on March 1 and September 1 of each
year, commencing September 1, 2002. The 1997 Senior Discount Notes are
redeemable, at the option of the Company, in whole or in part, at any time on
or after March 1, 2002 at 105.25% of their principal amount at maturity, plus
accrued and unpaid interest, declining to 100% of their principal amount at
maturity, plus accrued and unpaid interest, on or after March 1, 2005. In the
event of certain equity investments in the Company by certain strategic
investors on or before March 1, 2000, the Company may, at its option, use all
or a portion of the net proceeds therefrom to redeem up to a maximum of 33
1/3% of the original principal amount of the 1997 Senior Discount Notes at a
redemption price of 110.5% of the accreted value thereof, provided that at
least 66 2/3% of the original principal amount of the 1997 Senior Discount
Notes would remain outstanding after giving effect to such redemption. In
addition, in the event of a Change of Control (as defined in the 1997 Senior
Discount Note Indenture) of the Company, each holder of 1997 Senior Discount
Notes will have the right to require the Company to repurchase all or any part
of such holder's 1997 Senior Discount Notes at a purchase price equal to 101%
of the accreted value thereof prior to March 1, 2002, or 101% of the principal
amount thereof plus accrued and unpaid interest, if any, on or after March 1,
2002. The 1997 Senior Discount Notes will mature on March 1, 2007.
On July 21, 1997, the Company completed the 1997 Senior Note Offering in
which the Company received net proceeds of approximately $217.6 million.
Interest on the 1997 Senior Notes accrues at the rate of 9 1/4% per annum and
is payable in cash semi-annually in arrears on July 15 and January 15,
commencing January 15, 1998. The 1997 Senior Notes are redeemable at the
option of the Company, in whole or in part, at any time on or after July 15,
2002 at 104.625% of their principal amount at maturity, plus accrued and
unpaid interest, declining to 100.000% of their principal amount at maturity,
plus accrued and unpaid interest, on or after July 15, 2005. In the event of
certain equity investments in the Company by certain strategic investors on or
before July 15, 2000, the Company may, at its option, use all or a portion of
the of the net proceeds from such sale to redeem up to 33 1/3% of the original
principal amount of the 1997 Senior Notes at a redemption price equal to
109.25% of the principal amount of the 1997 Senior Notes plus accrued and
unpaid interest thereon, if any, to but excluding the redemption date,
provided that at least 66 2/3% of the original principal amount of the 1997
Senior Notes would remain outstanding immediately after giving effect to such
redemption. In addition, in the event of a Change of Control (as defined in
the 1997 Senior Note Indenture) of the Company, each holder of 1997 Senior
Notes shall have the right to require the Company to repurchase all or any
part of such holder's 1997 Senior Notes at a purchase price equal to 101% of
the principal amount of the 1997 Senior Notes tendered by such holder plus
accrued and unpaid interest, if any, to any Change of Control Payment Date (as
defined in the 1997 Senior Note Indenture). The 1997 Senior Notes will mature
on July 15, 2007.
On March 16, 1998, the Company completed the March 1998 Senior Note Offering
in which the Company received net proceeds of approximately $291.9 million.
Interest on the March 1998 Senior Notes accrues at the rate of 8 3/8% per
annum and is payable in cash semi-annually in arrears on
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March 15 and September 15, commencing September 15, 1998. The March 1998
Senior Notes are redeemable at the option of the Company, in whole or in part,
at any time on or after March 15, 2003 at 104.188% of their principal amount
at maturity, plus accrued and unpaid interest, declining to 100.000% of their
principal amount at maturity, plus accrued and unpaid interest, on or after
March 15, 2006. In the event of certain equity investments in the Company by
certain strategic investors on or before March 15, 2001, the Company may, at
its option, use all or a portion of the net proceeds from such sale to redeem
up to 33 1/3% of the original principal amount of the March 1998 Senior Notes
at a redemption price equal to 108.375% of the principal amount of the March
1998 Senior Notes plus accrued and unpaid interest thereon, if any, to but
excluding the redemption date, provided that at least 66 2/3% of the original
principal amount of the March 1998 Senior Notes would remain outstanding
immediately after giving effect to such redemption. In addition, in the event
of a Change of Control (as defined in the March 1998 Senior Note Indenture) of
the Company, each holder of March 1998 Senior Notes shall have the right to
require the Company to repurchase all or any part of such holder's March 1998
Senior Notes at a purchase price equal to 101% of the principal amount of the
March 1998 Senior Notes tendered by such holder plus accrued and unpaid
interest, if any, to any Change of Control Payment Date (as defined in the
March 1998 Senior Note Indenture). The March 1998 Senior Notes will mature on
March 15, 2008.
On October 30, 1998, the Company completed a private offering of the
Outstanding Notes in which the Company received net proceeds of approximately
$291.9 million. Interest on the October 1998 Senior Notes accrues at the rate
of 9 1/2% per annum and is payable in cash semi-annually in arrears on
November 1 and May 1, commencing May 1, 1999. The October 1998 Senior Notes
are redeemable at the option of the Company, in whole or in part, at any time
on or after November 1, 2003 at 106.75% of their principal amount at maturity,
plus accrued and unpaid interest, declining to 100.000% of their principal
amount at maturity, plus accrued and unpaid interest, on or after November 1,
2008. In the event of certain equity investments in the Company by certain
strategic investors on or before November 1, 2001, the Company may, at its
option, use all or a portion of the net proceeds from such sale to redeem up
to 33 1/3% of the original principal amount of the October 1998 Senior Notes
at a redemption price equal to 111.5% of the principal amount of the October
1998 Senior Notes plus accrued and unpaid interest thereon, if any, to but
excluding the redemption date, provided that at least 66 2/3% of the original
principal amount of the October 1998 Senior Notes would remain outstanding
immediately after giving effect to such redemption. In addition, in the event
of a Change of Control (as defined in the October 1998 Indenture) of the
Company, each holder of October 1998 Senior Notes shall have the right to
require the Company to repurchase all or any part of such holder's October
1998 Senior Notes at a purchase price equal to 101% of the principal amount of
the October 1998 Senior Notes tendered by such holder plus accrued and unpaid
interest, if any, to any Change of Control Payment Date (as defined in the
October 1998 Indenture). The October 1998 Senior Notes will mature on November
1, 2008.
The 1997 Senior Discount Notes, the 1997 Senior Notes, the March 1998 Senior
Notes and the October 1998 Senior Notes are senior unsecured obligations of
the Company ranking pari passu in right of payment with all other existing and
future senior unsecured obligations of the Company and senior to all existing
and future subordinated debt of the Company. The 1997 Senior Discount Notes,
the 1997 Senior Notes, the March 1998 Senior Notes and the October 1998 Senior
Notes are effectively subordinated to all existing and future secured
indebtedness of the Company and its subsidiaries to the extent of the value of
the assets securing such indebtedness. The 1997 Senior Discount Notes, the
1997 Senior Notes, the March 1998 Senior Notes and the October 1998 Senior
Notes also are effectively subordinated to all existing and future third-party
indebtedness and other liabilities of the Company's subsidiaries.
The Indentures impose operating and financial restrictions on the Company
and its subsidiaries. These restrictions affect, and in certain cases
significantly limit or prohibit, among other things, the
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ability of the Company and its subsidiaries to incur additional indebtedness,
pay dividends or make distributions in respect of the Company's or such
subsidiaries' capital stock, redeem capital stock, make other restricted
payments, enter into sale and leaseback transactions, create liens upon
assets, enter into transactions with affiliates or related persons, sell
assets, or consolidate, merge or sell all or substantially all of their
assets. There can be no assurance that such covenants will not adversely
affect the Company's ability to finance its future operations or capital needs
or to engage in other business activities that may be in the interests of the
Company.
Continued expansion of the Company's operations, facilities, network and
services will require significant capital expenditures. As of September 30,
1998, the Company estimates, based on its current business plan and
projections, that its aggregate capital requirements through 2001 will be
approximately $1.1 billion. The Company's estimated capital requirements
include the estimated cost of (i) building the Company's fiber optic network,
including intra-city fiber optic networks, (ii) expanding operations in
existing and new markets, (iii) developing a PCS system and (iv) funding
general corporate expenses. These capital requirements are expected to be
funded, in large part, out of the (i) approximately $291.9 million in net
proceeds from the Offering; (ii) approximately $402.4 million of cash on hand
and short-term investments at September 30, 1998; (iii) a proposed $100.0
million revolving credit facility; and (iv) projected operating cash flows of
the Company.
The actual amount and timing of the Company's future capital requirements
may differ materially from the Company's estimates, and additional financing
may be required in the event of changes in or expansion of the Company's
business plan and projections, including those that may be caused by
unforeseen delays, cost overruns, engineering design changes, demand for the
Company's services that varies from that expected by the Company, regulatory,
technological, or competitive developments and new opportunities. The Company
may also require additional capital, or require financing sooner than
anticipated, if it changes the schedule or scope of its business plan in
response to such developments or otherwise. The Company expects to evaluate
potential acquisitions, joint ventures and strategic alliances on an ongoing
basis, and may require additional financing if it elects to pursue any such
opportunities. There can be no assurance that the Company will be able to fund
its planned network deployment and operations or achieve operating
profitability with its anticipated capital resources. Furthermore, there can
be no assurance that any additional financing will be available on terms
acceptable to the Company or at all.
The Company's estimate of its 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 Company's actual capital
requirements may differ materially as a result of regulatory, technological
and competitive developments (including new opportunities) in the Company's
industry.
The Company expects to meet its additional capital needs with the proceeds
from credit facilities and other borrowings, and additional debt and equity
issuances. The Company has received a non-binding commitment from The Chase
Manhattan Bank to lead a syndication to provide a senior secured revolving
credit facility. There can be no assurance, however, that the Company will be
successful in obtaining such credit facility on terms acceptable to the
Company or at all, or that the Company will otherwise be successful in
producing sufficient cash flows. Failure to generate or raise sufficient funds
may require the Company to delay or abandon some of its future expansion plans
or expenditures, which could have a material adverse effect on the Company.
See "Risk Factors--Significant Capital Requirements."
MARKET RISK
At September 30, 1998, marketable equity securities of the Company are
recorded at a fair value of $28.2 million. A hypothetical ten percent adverse
change in quoted market prices would amount to a decrease in the recorded
value of investments of approximately $3 million. The Company believes
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its exposure to market rate fluctuations on all other investments is nominal
due to the short-term nature of its investment portfolio.
The Company has no material future earnings or cash flow exposures from
changes in interest rates on its long-term debt obligations, as substantially
all of the Company's long-term debt obligations are fixed rate obligations.
YEAR 2000 DATE CONVERSION
The Company is currently verifying system readiness for the processing of
date-sensitive information by the Company's computerized information systems.
The Year 2000 problem impacts computer programs and hardware timers using two
digits (rather than four) to define the applicable year. Some of the Company's
programs and timers that have time-sensitive functions may recognize a date
using "00" as the year 1900 rather than 2000, which could result in
miscalculations or system failures.
The Company is reviewing its IT and non-IT computer systems and programs to
determine which are not capable of recognizing the Year 2000 and to verify
system readiness for the millennium date. The review covers all of the
Company's operations and is centrally managed. The review includes the
following steps:
1. increasing employee awareness and communication of Year 2000 issues
2. inventorying hardware, software and data interfaces and confirming Year
2000 readiness of key vendors
3. identifying mission-critical components for internal systems, vendor
relations and other third parties
4. estimating costs for remediation
5. estimating completion dates
6. correcting/remediating any identified problems
7. replacing systems or components that cannot be made Year 2000 ready
8. testing and verifying systems
9. implementing the remediation plan
10. developing contingency plans
11. training for contingency plans
The Company has completed more than 90% of the activities required for the
completion of the first three of these steps of this review and more than 55%
of the activities required for the fourth and fifth steps. The Company is in
the initial stages of performing the activities required to complete the
remaining steps and has begun to develop contingency plans to handle its most
reasonably likely worst case Year 2000 scenarios.
The Company estimates that its Year 2000 readiness costs will not exceed
$11.5 million. The Company generally expenses these costs as incurred. While
certain costs have been incurred, the Company has not incurred any material
historical costs for remediation. The Company does not expect these costs to
have a material adverse effect on its financial position, results of
operations or cash flows.
The Company's estimate of its Year 2000 readiness costs is a "forward-
looking statement" within the meaning of the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Costs, results, performance
and effects of Year 2000 activities described in those forward-looking
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statements may differ materially from actual costs, results, performance and
effects in the future due to the interrelationship and interdependence of the
Company's computer systems and those of its vendors, material service
providers, customers and other third parties.
The Company has not yet fully identified its most reasonably likely worst
case Year 2000 scenarios. The Company continues to contact its vendors,
suppliers and third parties with which it has material relationships,
regarding their state of readiness. This activity is focused primarily on
mission critical systems and key business suppliers. Until the Company has
received and analyzed substantial responses from them it will have difficulty
determining its worst case scenarios.
The Company has begun to develop contingency plans to handle worst case
scenarios, to the extent they can be identified fully. The Company intends to
complete its contingency planning after completing its determination of worst
case scenarios. Completion of these activities depends upon the responses to
the inquiries the Company has made of its major vendors, material service
providers and third parties with which it has material relationships. The
Company has also begun work on contingency plans for certain systems
identified as critical to its operations.
If the Company, its major vendors, its material service providers or its
customers fail to address Year 2000 issues in a timely manner, such failure
could have a material adverse effect on the Company's business, results of
operations and financial condition. The Company depends on local exchange
carriers, primarily the RBOCs, to provide most of its local and some of its
long distance services. To the extent U S WEST, Ameritech or SBC fail to
address Year 2000 issues which might interfere with their ability to fulfill
their obligations to the Company, such interference could have a material
adverse effect on the Company's future operations. If other telecommunications
carriers are unable to resolve Year 2000 issues, it is likely that we will be
affected to a similar degree as others in the telecommunications industry.
EFFECTS OF NEW ACCOUNTING STANDARD
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS 131"). This
pronouncement is effective for calendar year 1998 financial statements and
requires reporting segment information consistent with the way executive
management of an entity disaggregates its operations internally to assess
performance and make decisions regarding resource allocations. Among
information to be disclosed, SFAS 131 requires an entity to report a measure
of segment profit or loss, certain specific revenue and expense items and
segment assets. SFAS 131 also requires reconciliations of total segment
revenues, total segment profit or loss and total segment assets to the
corresponding amounts shown in the entity's consolidated financial statements.
The Company is in the process of identifying reportable segments and has not
yet determined the effect of implementing SFAS 131.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use. This statement provides guidance on
accounting for the costs of computer software developed or obtained for
internal use and is required to be adopted no later than the Company's 1999
fiscal year. The Company plans to modify its method of capitalization of such
costs by adopting this statement prospectively on January 1, 1999. The Company
is currently evaluating this statement but does not expect it to have a
material impact on its financial condition or results of operations.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 133 establishes accounting and reporting standards requiring that
every derivative instrument (including certain derivative instruments embedded
in other contracts) be recorded in the balance sheet as either an
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asset or liability measured at its fair value. SFAS 133 requires that changes
in the derivative's fair value be recognized currently in earnings unless
specific hedge accounting criteria are met. Special accounting for qualifying
hedges allows a derivative's gains and losses to offset related results on the
hedged item in the income statement, and requires that a company must formally
document, designate and assess the effectiveness of transactions that receive
hedge accounting.
SFAS 133 is effective for fiscal years beginning after June 15, 1999. A
company may also implement SFAS 133 as of the beginning of any fiscal quarter
after issuance (that is, fiscal quarters beginning June 16, 1998 and
thereafter). SFAS 133 cannot be applied retroactively. SFAS 133 must be
applied to (a) derivative instruments and (b) certain derivative instruments
embedded in hybrid contracts that were issued, acquired or substantively
modified after December 31, 1997 (and, at the company's election, before
January 1, 1998).
The Company does not expect the impact of the adoption of SFAS 133 to be
material to the Company's results of operations as the Company does not
currently hold any derivative instruments or engage in hedging activities.
INFLATION
The Company does not believe that inflation has had a significant impact on
the Company's consolidated operations.
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DESCRIPTION OF THE EXCHANGE NOTES
GENERAL
The Outstanding Notes were, and the Exchange Notes will be, issued under an
indenture dated as of October 30, 1998 between the Company and United States
Trust Company of New York, as trustee under the October 1998 Indenture (the
"Trustee"). For purposes of this Description of the Exchange Notes, the term
"Company" refers to McLeodUSA Incorporated and does not include its
subsidiaries except for purposes of financial data determined on a
consolidated basis.
The terms of the Exchange Notes are identical in all material respects to
the Outstanding Notes, except that (i) the Exchange Notes will have been
registered under the Securities Act and therefore will not be subject to
certain restrictions on transfer applicable to the Outstanding Notes and (ii)
Holders of the Exchange Notes will not be entitled to certain rights of
Holders of Outstanding Notes under the Registration Rights Agreement. The
terms of the Exchange Notes include those stated in the October 1998 Indenture
and those made a part of the October 1998 Indenture by reference to the Trust
Indenture Act of 1939 as in effect on the date of the October 1998 Indenture
(the "Trust Indenture Act"). The Exchange Notes are subject to all such terms,
and Holders of the Exchange Notes are referred to the October 1998 Indenture
and the Trust Indenture Act for a complete statement of such terms. A copy of
the October 1998 Indenture is available from the Company on request. The
statements and definitions of terms under this caption relating to the
Exchange Notes and the October 1998 Indenture are summaries and do not purport
to be complete. Such summaries make use of certain terms defined in the
October 1998 Indenture and are qualified in their entirety by express
reference to the October 1998 Indenture. Certain terms used herein are defined
below under "--Certain Definitions."
The Exchange Notes will rank pari passu in right of payment with the 1997
Senior Discount Notes, the 1997 Senior Notes, the March 1998 Senior Notes, the
Outstanding Notes and all other existing and future senior unsecured
indebtedness of the Company and will rank senior in right of payment to all
existing and future subordinated indebtedness of the Company. As of September
30, 1998, the Company had no outstanding subordinated indebtedness and, other
than the 1997 Senior Discount Notes, the 1997 Senior Notes and the March 1998
Senior Notes, had no outstanding indebtedness that would rank pari passu with
the Exchange Notes. The Exchange Notes will not be secured by any assets and
will be effectively subordinated to any existing and future secured
indebtedness of the Company and its subsidiaries, including any Senior Credit
Facility or Qualified Receivable Facility, to the extent of the value of the
assets securing such indebtedness. As of September 30, 1998, the total secured
indebtedness of the Company and its subsidiaries was approximately $28.4
million.
The operations of the Company are conducted through its subsidiaries and,
therefore, the Company is dependent upon cash flow from those entities to meet
its obligations. The Company's subsidiaries will have no direct obligation to
pay amounts due on the Exchange Notes and will not guarantee the Exchange
Notes. As a result, the Exchange Notes will be effectively subordinated to all
existing and future third-party indebtedness (including any Senior Credit
Facility or any applicable Qualified Receivable Facility) and other
liabilities of the Company's subsidiaries (including trade payables). As of
September 30, 1998, the total liabilities of the Company's subsidiaries (after
the elimination of loans and advances by the Company to its subsidiaries) were
approximately $246.3 million. Any rights of the Company and its creditors,
including the Holders of Exchange Notes, to participate in the assets of any
of the Company's subsidiaries upon any liquidation or reorganization of any
such subsidiary will be subject to the prior claims of that subsidiary's
creditors (including trade creditors).
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PRINCIPAL, MATURITY AND INTEREST
The Exchange Notes will be limited in principal amount to $300 million and
will mature on November 1, 2008. Interest on the Exchange Notes will accrue at
the rate of 9 1/2% per annum and will be payable in cash semi-annually in
arrears on May 1 and November 1 of each year, commencing May 1, 1999. Interest
will be computed on the basis of a 360-day year comprised of twelve 30-day
months.
Principal and interest will be payable at the office of the Paying Agent
but, at the option of the Company, interest may be paid by check mailed to the
registered Holders at their registered addresses. The Exchange Notes will be
issued without coupons and in fully registered form only, in minimum
denominations of $1,000 and any integral multiples of $1,000 in excess
thereof. Unless otherwise designated by the Company, the Company's office or
agency in New York will be the office of the Trustee maintained for such
purpose.
The interest rate on the Exchange Notes will be subject to increase in
certain circumstances if certain conditions are not satisfied, all as further
described under "--Exchange Offer; Registration Rights." All references herein
to interest shall include such Special Interest, if appropriate.
BOOK-ENTRY SYSTEM
The Exchange Notes will initially be issued in the form of one or more
Global Securities (as defined in the October 1998 Indenture) held in book-
entry form. The Exchange Notes will be deposited with the Trustee as custodian
for the Depository, and the Depository or its nominee will initially be the
sole registered Holder of the Exchange Notes for all purposes under the
October 1998 Indenture. Except as set forth below, a Global Security may not
be transferred except as a whole by the Depository to a nominee of the
Depository or by a nominee of the Depository to the Depository.
The Exchange Notes that are issued as described below under "--Certificated
Notes" will be issued in definitive form.
Upon the transfer of an Exchange Note in definitive form, such Exchange Note
will, unless the Global Security has previously been exchanged for Exchange
Notes in definitive form, be exchanged for an interest in the Global Security
representing the principal amount Exchange Notes being transferred.
Upon the issuance of a Global Security, the Depository or its nominee will
credit, on its internal system, the accounts of persons holding through it
with the individual beneficial interests in such Global Security representing
the respective principal amounts of the Exchange Notes held by such persons.
Ownership of beneficial interests in a Global Security will be limited to
persons that have accounts with the Depository ("participants") or persons
that may hold interests through participants. Ownership of beneficial
interests by participants in a Global Security will be shown on, and the
transfer of that ownership interest will be effected only through, records
maintained by the Depository or its nominee for such Global Security.
Ownership of beneficial interests in such Global Security by persons that hold
through participants will be shown on, and the transfer of that ownership
interest within such participant will be effected only through, records
maintained by such participant. The laws of some jurisdictions require that
certain purchasers of securities take physical delivery of such securities in
definitive form. Such limits and such laws may impair the ability to transfer
beneficial interests in a Global Security.
Payment of principal of, premium, if any, on and interest on Exchange Notes
represented by any such Global Security will be made to the Depository or its
nominee, as the case may be, as the sole registered owner and the sole Holder
of the Exchange Notes represented thereby for all purposes under the October
1998 Indenture. None of the Company, the Trustee, any agent of the Company or
the Initial Purchasers will have any responsibility or liability for (i) any
aspect of the Depository's
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reports relating to or payments made on account of beneficial ownership
interests in a Global Security representing any Exchange Notes or for
maintaining, supervising or reviewing any of the Depository's records relating
to such beneficial ownership interests or (ii) any other matter relating to
the actions and practices of the Depository or any of its participants.
The Company has been advised by the Depository that upon receipt of any
payment of principal of, premium, if any, on or interest on any Global
Security, the Depository will immediately credit, on its book-entry
registration and transfer system, the accounts of participants with payments
in amounts proportionate to their respective beneficial interests in the
principal or face amount of such Global Security, as shown on the records of
the Depository. The Company expects that payments by participants to owners of
beneficial interests in a Global Security held through such participants will
be governed by standing instructions and customary practices as is now the
case with securities held for customer accounts registered in "street name"
and will be the sole responsibility of such participants.
So long as the Depository or its nominee is the registered owner or Holder
of such Global Security, the Depository or such nominee, as the case may be,
will be considered the sole owner or Holder of the Exchange Notes represented
by such Global Security for the purposes of receiving payment on the Exchange
Notes, receiving notices and for all other purposes under the October 1998
Indenture and the Exchange Notes. Beneficial interests in Exchange Notes will
be evidenced only by, and transfers thereof will be effected only through,
records maintained by the Depository and its participants. Except as provided
above, owners of beneficial interests in a Global Security will not be
entitled to and will not be considered the Holders of such Global Security for
any purposes under the October 1998 Indenture. Accordingly, each person owning
a beneficial interest in a Global Security must rely on the procedures of the
Depository and, if such person is not a participant, on the procedures of the
participant through which such person owns its interest, to exercise any
rights of a Holder under the October 1998 Indenture. The Company understands
that, under existing industry practices, in the event that the Company
requests any action of Holders or that an owner of a beneficial interest in a
Global Security desires to give or take any action that a Holder is entitled
to give or take under the October 1998 Indenture, the Depository would
authorize the participants holding the relevant beneficial interest to give or
take such action, and such participants would authorize beneficial owners
owning through such participants to give or take such action or would
otherwise act upon the instructions of beneficial owners owning through them.
The Depository has advised the Company that it will take any action
permitted to be taken by a Holder of Exchange Notes (including the
presentation of Exchange Notes for exchange as described below) only at the
direction of one or more participants to whose account with the Depository
interests in the Global Security are credited and only in respect of such
portion of the aggregate principal amount of the Exchange Notes as to which
such participant or participants has or have given such direction.
The Depository has advised the Company that the Depository is a limited-
purpose trust company organized under the Banking Law of the State of New
York, a "banking organization" within the meaning of New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). The Depository was created to hold the securities of its
participants and to facilitate the clearance and settlement of securities
transactions among its participants in such securities through electronic
book-entry changes in accounts of the participants, thereby eliminating the
need for physical movement of securities certificates. The Depository's
participants include securities brokers and dealers (including the Initial
Purchasers), banks, trust companies, clearing corporations and certain other
organizations some of whom (and/or their representatives) own the Depository.
Access to the Depository's book-
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entry system is also 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.
The information in this section concerning the Depository and the
Depository's book-entry system has been obtained from sources that the Company
believes to be reliable, but the Company takes no responsibility for the
accuracy thereof.
CERTIFICATED NOTES
The Exchange Notes represented by a Global Security are exchangeable for
certificated Exchange Notes only if (i) the Depository notifies the Company
that it is unwilling or unable to continue as a depository for such Global
Security or if at any time the Depository ceases to be a clearing agency
registered under the Exchange Act, and a successor depository is not appointed
by the Company within 90 days, (ii) the Company executes and delivers to the
Trustee a notice that such Global Security shall be so transferable,
registrable and exchangeable, and such transfer shall be registrable or (iii)
there shall have occurred and be continuing an Event of Default with respect
to the Exchange Notes represented by such Global Security. Any Global Security
that is exchangeable for certificated Exchange Notes pursuant to the preceding
sentence will be transferred to, and registered and exchanged for,
certificated Exchange Notes in authorized denominations and registered in such
names as the Depository or its nominee holding such Global Security may
direct. Subject to the foregoing, a Global Security is not exchangeable,
except for a Global Security of like denomination to be registered in the name
of the Depository or its nominee. In the event that a Global Security becomes
exchangeable for certificated Exchange Notes, (i) certificated Exchange Notes
will be issued only in fully registered form in denominations of $1,000 or
integral multiples thereof, (ii) payment of principal, any repurchase price,
and interest on the certificated Exchange Notes will be payable, and the
transfer of the certificated Exchange Notes will be registrable, at the office
or agency of the Company maintained for such purposes and (iii) no service
charge will be made for any issuance of the certificated Exchange Notes,
although the Company may require payment of a sum sufficient to cover any tax
or governmental charge imposed in connection therewith.
OPTIONAL REDEMPTION
The Exchange Notes will be subject to redemption at the option of the
Company, in whole or in part, at any time on or after November 1, 2003 and
prior to maturity, upon not less than 30 nor more than 60 days' notice, in
amounts of $1,000 or an integral multiple of $1,000, at the redemption prices
(expressed as percentages of principal amount) set forth below, plus accrued
and unpaid interest thereon (if any), if redeemed during the twelve month
periods beginning November 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003.............................................................. 106.750%
2004.............................................................. 105.400%
2005.............................................................. 104.050%
2006.............................................................. 102.700%
2007.............................................................. 101.350%
2008.............................................................. 100.000%
</TABLE>
The Exchange Notes will be redeemable prior to November 1, 2001 only in the
event that the Company receives net proceeds from the sale of its Common Stock
in a Strategic Equity Investment
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<PAGE>
on or before November 1, 2001, in which case the Company may, at its option,
use all or a portion of any such net proceeds to redeem up to 33 1/3% of the
originally issued principal amount of the October 1998 Senior Notes; provided,
that at least 66 2/3% of the originally issued principal amount of the October
1998 Senior Notes would remain outstanding after such redemption. Such
redemption must occur on a Redemption Date within 90 days of such sale and
upon not less than 30 nor more than 60 days' notice mailed to each Holder of
October 1998 Senior Notes to be redeemed at such Holder's address appearing in
the Note Register, in amounts of $1,000 or an integral multiple of $1,000 at a
redemption price equal to 111.5% of the principal amount of the October 1998
Senior Notes so redeemed, plus accrued and unpaid interest thereon (if any) to
but excluding the Redemption Date.
If less than all of the October 1998 Senior Notes are to be redeemed, the
Trustee shall select, in such manner as it shall deem fair and appropriate,
the particular October 1998 Senior Notes to be redeemed or any portion thereof
that is an integral multiple of $1,000.
MANDATORY REDEMPTION
Except as set forth under "--Repurchase at the Option of Holders upon a
Change of Control" and "--Asset Sales," the Company is not required to make
mandatory redemption payments or sinking fund payments with respect to the
Exchange Notes.
REPURCHASE AT THE OPTION OF HOLDERS UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder shall have the right
to require the Company to repurchase all or any part (equal to $1,000
principal amount or an integral multiple thereof) of such Holder's Exchange
Notes pursuant to the offer described below (the "Change of Control Offer") at
a purchase price (the "Change of Control Purchase Price") equal to 101% of the
principal amount of the Exchange Notes plus accrued and unpaid interest, if
any, to any Change of Control Payment Date.
Within 30 days following any Change of Control, the Company or the Trustee
(at the request and expense of the Company) shall mail a notice to each Holder
stating: (i) that a Change of Control Offer is being made pursuant to the
covenant described under "--Repurchase at the Option of Holders upon a Change
of Control" and that all Exchange Notes timely tendered will be accepted for
payment; (ii) the Change of Control Purchase Price and the purchase date (the
"Change of Control Payment Date"), which shall be no earlier than 30 days nor
later than 60 days from the date such notice is mailed; (iii) that any
Exchange Notes or portions thereof not tendered or accepted for payment will
continue to accrue interest; (iv) that, unless the Company defaults in the
payment of the Change of Control Purchase Price, all Exchange Notes or
portions thereof accepted for payment pursuant to the Change of Control Offer
shall cease to accrue interest from and after the Change of Control Payment
Date; (v) that Holders electing to have any Exchange Notes or portions thereof
purchased pursuant to a Change of Control Offer will be required to surrender
their Exchange Notes prior to the close of business on the third Business Day
preceding the Change of Control Payment Date; (vi) that Holders will be
entitled to withdraw their election if the Paying Agent receives, not later
than the close of business on the second Business Day preceding the Change of
Control Payment Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the Holder, the principal amount of Exchange Notes
delivered for purchase, and a statement that such Holder is withdrawing its
election to have such Exchange Notes or portions thereof purchased; (vii) that
Holders electing to have Exchange Notes purchased pursuant to the Change of
Control Offer must specify the principal amount that is being tendered for
purchase, which principal amount must be $1,000 or an integral multiple
thereof; (viii) that Holders whose Exchange Notes are being purchased only in
part will be issued new Exchange Notes equal in principal amount to the
unpurchased portion of the Exchange Note or Exchange Notes surrendered, which
unpurchased portion must be equal to $1,000 in principal amount or an integral
multiple thereof; and (ix) any other information necessary to enable any
Holder to tender Exchange Notes and to have such Exchange Notes purchased
pursuant to the October 1998 Indenture.
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The Company will comply with the requirements of Section 14(e) under the
Exchange Act and any other securities laws or regulations, to the extent such
laws and regulations are applicable, in connection with the repurchase of
Exchange Notes pursuant to a Change of Control Offer.
On the Change of Control Payment Date, the Company will (i) accept for
payment Exchange Notes or portions thereof properly tendered pursuant to the
Change of Control Offer; (ii) irrevocably deposit with the Paying Agent in
immediately available funds an amount equal to the Change of Control Purchase
Price in respect of all Exchange Notes or portions thereof so accepted; and
(iii) deliver, or cause to be delivered, to the Trustee the Exchange Notes so
accepted together with an Officers' Certificate listing the Exchange Notes or
portions thereof tendered to the Company and accepted for payment. The Paying
Agent shall promptly mail to each Holder of Exchange Notes so accepted payment
in an amount equal to the Change of Control Purchase Price for such Exchange
Notes, and the Trustee shall promptly authenticate and mail to each Holder a
new Exchange Note equal in principal amount to any unpurchased portion of the
Exchange Notes surrendered, if any; provided that each such new Exchange Note
shall be in a principal amount of $1,000 or any integral multiple thereof.
The existence of the Holders' right to require, subject to certain
conditions, the Company to repurchase Exchange Notes upon a Change of Control
may deter a third party from acquiring the Company in a transaction that
constitutes a Change of Control. If a Change of Control Offer is made, there
can be no assurance that the Company will have sufficient funds to pay the
Change of Control Purchase Price for all Exchange Notes tendered by Holders
seeking to accept the Change of Control Offer. In addition, instruments
governing other indebtedness of the Company may prohibit the Company from
purchasing any Exchange Notes prior to their Stated Maturity, including
pursuant to a Change of Control Offer. In the event that a Change of Control
Offer occurs at a time when the Company does not have sufficient available
funds to pay the Change of Control Purchase Price for all Exchange Notes
tendered pursuant to such offer or at a time when the Company is prohibited
from purchasing the Exchange Notes (and the Company is unable either to obtain
the consent of the holders of the relevant indebtedness or to repay such
indebtedness), an Event of Default would occur under the October 1998
Indenture. In addition, one of the events that constitutes a Change of Control
under the October 1998 Indenture is a sale, conveyance, transfer or lease of
all or substantially all of the property of the Company. The October 1998
Indenture is governed by New York law, and there is no established definition
under New York law of "substantially all" of the assets of a corporation.
Accordingly, if the Company were to engage in a transaction in which it
disposed of less than all of its assets, a question of interpretation could
arise as to whether such disposition was of "substantially all" of its assets
and whether the Company was required to make a Change of Control Offer.
Except as described herein with respect to a Change of Control, the October
1998 Indenture does not contain any other provisions that permit Holders of
Exchange Notes to require that the Company repurchase or redeem Exchange Notes
in the event of a takeover, recapitalization or similar restructuring.
ASSET SALES
The Company will not, and will not permit any Restricted Subsidiary to,
consummate an Asset Sale unless (i) the Company or such Restricted Subsidiary,
as the case may be, receives consideration for such Asset Sale at least equal
to the Fair Market Value (as evidenced by a Board Resolution delivered to the
Trustee) of the Property or assets sold or otherwise disposed of; (ii) at
least 75% of the consideration received by the Company or such Restricted
Subsidiary for such Property or assets consists of (a) cash, readily-
marketable cash equivalents, or Telecommunications Assets; (b) shares of
publicly-traded Voting Stock of any Person engaged in the Telecommunications
Business in the United States; or (c) the assumption of Indebtedness of the
Company or such Restricted Subsidiary (other
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than Indebtedness that is subordinated to the Exchange Notes) and the release
of the Company or the Restricted Subsidiary, as the case may be, from all
liability on the Indebtedness assumed; and (iii) the Company or such
Restricted Subsidiary, as the case may be, uses the Net Cash Proceeds from
such Asset Sale in the manner set forth in the next paragraph.
Within 360 days after any Asset Sale, the Company or such Restricted
Subsidiary, as the case may be, may at its option (i) reinvest an amount equal
to the Net Cash Proceeds (or any portion thereof) from such Asset Sale in
Telecommunications Assets or in Capital Stock of any Person engaged in the
Telecommunications Business and/or (ii) apply an amount equal to such Net Cash
Proceeds (or remaining Net Cash Proceeds) to the permanent reduction of
Indebtedness of the Company (other than Indebtedness to a Restricted
Subsidiary) that is senior to or pari passu with the Exchange Notes or to the
permanent reduction of Indebtedness or preferred stock of any Restricted
Subsidiary (other than Indebtedness to, or preferred stock owned by, the
Company or another Restricted Subsidiary). Any Net Cash Proceeds from any
Asset Sale that are not used to reinvest in Telecommunications Assets or in
Capital Stock of any Person engaged in the Telecommunications Business and/or
to reduce senior or pari passu Indebtedness of the Company or Indebtedness or
preferred stock of its Restricted Subsidiaries shall constitute Excess
Proceeds.
If at any time the aggregate amount of Excess Proceeds calculated as of such
date exceeds $5 million, the Company shall, within 30 days, use such Excess
Proceeds to make an offer to purchase (an "Asset Sale Offer") on a pro rata
basis, from all Holders, October 1998 Senior Notes in an aggregate principal
amount equal to the maximum principal amount that may be purchased out of
Excess Proceeds, at a purchase price (the "Offer Purchase Price") in cash
equal to 100% of the principal amount thereof plus accrued and unpaid
interest, if any, to the purchase date, in accordance with the procedures set
forth in the October 1998 Indenture. Upon completion of an Asset Sale Offer
(including payment of the Offer Purchase Price), any surplus Excess Proceeds
that were the subject of such offer shall cease to be Excess Proceeds, and the
Company may then use such amounts for general corporate purposes.
The Company will comply with the requirements of Section 14(e) under the
Exchange Act and any other securities laws or regulations, to the extent such
laws and regulations are applicable, in connection with the repurchase of
October 1998 Senior Notes pursuant to an Asset Sale Offer.
CERTAIN COVENANTS
Set forth below are certain covenants that are contained in the October 1998
Indenture:
Limitation on Consolidated Indebtedness
The Company will not, and will not permit any Restricted Subsidiary to,
Incur any Indebtedness after the Issue Date unless either (a) the ratio of (i)
the aggregate consolidated principal amount of Indebtedness of the Company
outstanding as of the most recent available quarterly or annual balance sheet,
after giving pro forma effect to the Incurrence of such Indebtedness and any
other Indebtedness Incurred since such balance sheet date and the receipt and
application of the proceeds thereof, to (ii) Consolidated Cash Flow Available
for Fixed Charges for the four full fiscal quarters immediately preceding the
Incurrence of such Indebtedness for which consolidated financial statements of
the Company have been filed with the Commission or have otherwise become
publicly available, determined on a pro forma basis as if any such
Indebtedness had been Incurred and the proceeds thereof had been applied at
the beginning of such four fiscal quarters, would be less than 5.5 to 1.0 for
such four-quarter periods ending prior to December 31, 2000 and 5.0 to 1.0 for
such periods ending thereafter, or (b) the Company's Consolidated Capital
Ratio as of the most recent quarterly or annual balance sheet of the Company
that has been filed with the Commission or has otherwise become publicly
available, after giving pro forma effect to (x) the Incurrence of such
Indebtedness and any
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other Indebtedness Incurred since such balance sheet date and (y) paid-in
capital received since such balance sheet date or concurrently with the
Incurrence of such Indebtedness, and in each case the receipt and application
of the proceeds thereof, is less than 2.0 to 1.0.
Notwithstanding the foregoing limitation, the Company and any Restricted
Subsidiary may Incur each and all of the following:
(i) Indebtedness under Senior Credit Facilities in an aggregate principal
amount outstanding or available at any one time not to exceed $100 million,
and any renewal, extension, refinancing or refunding thereof in an amount
which, together with any principal amount remaining outstanding or
available under all Senior Credit Facilities, does not exceed the aggregate
principal amount outstanding or available under all Senior Credit
Facilities immediately prior to such renewal, extension, refinancing or
refunding;
(ii) Indebtedness under Qualified Receivable Facilities in an aggregate
principal amount outstanding or available at any one time not to exceed the
greater of (x) $150 million or (y) an amount equal to 85% of net
Receivables determined in accordance with GAAP, and any renewal, extension,
refinancing or refunding thereof in an amount which, together with any
principal amount remaining outstanding or available under all Qualified
Receivable Facilities, does not exceed the aggregate principal amount
outstanding or available under all Qualified Receivable Facilities
immediately prior to such renewal, extension, refinancing or refunding;
(iii) Purchase Money Indebtedness, provided that the amount of such
Purchase Money Indebtedness does not exceed 90% of the cost of the
construction, acquisition or improvement of the applicable
Telecommunications Assets;
(iv) Indebtedness owed by the Company to any Wholly-Owned Restricted
Subsidiary of the Company or Indebtedness owed by a Restricted Subsidiary
of the Company to the Company or a Wholly-Owned Restricted Subsidiary of
the Company; provided that upon either (x) the transfer or other
disposition by such Wholly-Owned Restricted Subsidiary or the Company of
any Indebtedness so permitted to a Person other than the Company or another
Wholly-Owned Restricted Subsidiary of the Company or (y) the issuance
(other than directors' qualifying shares), sale, lease, transfer or other
disposition of shares of Capital Stock (including by consolidation or
merger) of such Wholly-Owned Restricted Subsidiary to a Person other than
the Company or another such Wholly-Owned Restricted Subsidiary, the
provisions of this clause (iv) shall no longer be applicable to such
Indebtedness and such Indebtedness shall be deemed to have been Incurred at
the time of such transfer or other disposition;
(v) Indebtedness Incurred to renew, extend, refinance or refund (each, a
"refinancing") the October 1998 Senior Notes or Indebtedness outstanding at
the date of the October 1998 Indenture or Purchase Money Indebtedness
Incurred pursuant to clause (iii) of this paragraph in an aggregate
principal amount not to exceed the aggregate principal amount of and
accrued interest on the Indebtedness so refinanced plus the amount of any
premium required to be paid in connection with such refinancing pursuant to
the terms of the Indebtedness so refinanced or the amount of any premium
reasonably determined by the Company as necessary to accomplish such
refinancing by means of a tender offer or privately negotiated repurchase,
plus the expenses of the Company incurred in connection with such
refinancing; provided that Indebtedness the proceeds of which are used to
refinance the October 1998 Senior Notes or Indebtedness which is pari passu
to the October 1998 Senior Notes or Indebtedness which is subordinate in
right of payment to the October 1998 Senior Notes shall only be permitted
under this clause (v) if (A) in the case of any refinancing of the October
1998 Senior Notes or Indebtedness which is pari passu to the October 1998
Senior Notes, the refinancing Indebtedness is made pari passu to the
October 1998 Senior Notes or constitutes Subordinated Indebtedness, and, in
the case of any refinancing of Subordinated Indebtedness, the refinancing
Indebtedness constitutes Subordinated Indebtedness and (B) in any case, the
refinancing Indebtedness by its terms, or by the terms of
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any agreement or instrument pursuant to which such Indebtedness is issued,
(x) does not provide for payments of principal of such Indebtedness at
stated maturity or by way of a sinking fund applicable thereto or by way of
any mandatory redemption, defeasance, retirement or repurchase thereof by
the Company (including any redemption, retirement or repurchase which is
contingent upon events or circumstances, but excluding any retirement
required by virtue of the acceleration of any payment with respect to such
Indebtedness upon any event of default thereunder), in each case prior to
the time the same are required by the terms of the Indebtedness being
refinanced and (y) does not permit redemption or other retirement
(including pursuant to an offer to purchase made by the Company) of such
Indebtedness at the option of the holder thereof prior to the time the same
are required by the terms of the Indebtedness being refinanced, other than
a redemption or other retirement at the option of the holder of such
Indebtedness (including pursuant to an offer to purchase made by the
Company) which is conditioned upon a change of control pursuant to
provisions substantially similar to those described under "--Repurchase at
the Option of Holders upon a Change of Control;"
(vi) Indebtedness consisting of Permitted Interest Rate and Currency
Protection Agreements;
(vii) Indebtedness (A) in respect of performance, surety or appeal bonds
provided in the ordinary course of business or (B) arising from customary
agreements providing for indemnification, adjustment of purchase price for
closing balance sheet changes within 90 days after closing, or similar
obligations, or from Guarantees or letters of credit, surety bonds or
performance bonds securing any obligations of the Company or any of its
Restricted Subsidiaries pursuant to such agreements, in each case Incurred
in connection with the disposition of any business, assets or Restricted
Subsidiary of the Company (other than Guarantees of Indebtedness Incurred
by any Person acquiring all or any portion of such business, assets or
Restricted Subsidiary of the Company for the purpose of financing such
acquisition) and in an aggregate principal amount not to exceed the gross
proceeds actually received by the Company or any Restricted Subsidiary in
connection with such disposition; and
(viii) Indebtedness not otherwise permitted to be Incurred pursuant to
clauses (i) through (vii) above, which, together with any other outstanding
Indebtedness Incurred pursuant to this clause (viii), has an aggregate
principal amount not in excess of $10 million at any time outstanding.
Notwithstanding any other provision of this "--Certain Covenants--Limitation
on Consolidated Indebtedness" covenant, the maximum amount of Indebtedness
that the Company or a Restricted Subsidiary may Incur pursuant to this "--
Certain Covenants--Limitation on Consolidated Indebtedness" covenant shall not
be deemed to be exceeded due solely as the result of fluctuations in the
exchange rates of currencies.
For purposes of determining any particular amount of Indebtedness under this
"--Certain Covenants--Limitation on Consolidated Indebtedness" covenant, (1)
Guarantees, Liens or obligations with respect to letters of credit supporting
Indebtedness otherwise included in the determination of such particular amount
shall not be included and (2) any Liens granted pursuant to the equal and
ratable provisions referred to in the "--Certain Covenants--Limitation on
Liens" covenant described below shall not be treated as Indebtedness. For
purposes of determining compliance with this "--Certain Covenants--Limitation
on Consolidated Indebtedness" covenant, in the event that an item of
Indebtedness meets the criteria of more than one of the types of Indebtedness
described in the above clauses, the Company, in its sole discretion, shall
classify such item of Indebtedness and only be required to include the amount
and type of such Indebtedness in one of such clauses.
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Limitation on Indebtedness and Preferred Stock of Restricted Subsidiaries
The Company will not permit any Restricted Subsidiary of the Company to
Incur any Indebtedness or issue any Preferred Stock except:
(i) Indebtedness or Preferred Stock outstanding on the date of the
October 1998 Indenture after giving effect to the application of the
proceeds of the October 1998 Senior Notes;
(ii) Indebtedness Incurred or Preferred Stock issued to and held by the
Company or a Wholly-Owned Restricted Subsidiary of the Company (provided
that such Indebtedness or Preferred Stock is at all times held by the
Company or a Wholly-Owned Restricted Subsidiary of the Company);
(iii) Indebtedness Incurred or Preferred Stock issued by a Person prior
to the time (A) such Person became a Restricted Subsidiary of the Company,
(B) such Person merges into or consolidates with a Restricted Subsidiary of
the Company or (C) another Restricted Subsidiary of the Company merges into
or consolidates with such Person (in a transaction in which such Person
becomes a Restricted Subsidiary of the Company), which Indebtedness or
Preferred Stock was not Incurred or issued in anticipation of such
transaction and was outstanding prior to such transaction;
(iv) Indebtedness under a Senior Credit Facility which is permitted to be
outstanding under clause (i) of the second paragraph of "--Certain
Covenants--Limitation on Consolidated Indebtedness;"
(v) in the case of a Restricted Subsidiary that is a Qualified Receivable
Subsidiary, Indebtedness under a Qualified Receivable Facility which is
permitted to be outstanding under clause (ii) of the second paragraph of
"--Certain Covenants--Limitation on Consolidated Indebtedness;"
(vi) Indebtedness consisting of Permitted Interest Rate and Currency
Protection Agreements;
(vii) Indebtedness (A) in respect of performance, surety and appeal bonds
provided in the ordinary course of business or (B) arising from customary
agreements providing for indemnification, adjustment of purchase price for
closing balance sheet changes within 90 days after closing, or similar
obligations, or from Guarantees or letters of credit, surety bonds or
performance bonds securing any obligation of such Restricted Subsidiary
pursuant to such agreements, in each case Incurred in connection with the
disposition of any business, assets or Restricted Subsidiary of such
Restricted Subsidiary (other than Guarantees of Indebtedness Incurred by
any Person acquiring all or any portion of such business, assets or
Restricted Subsidiary for the purpose of financing such acquisition) and in
an aggregate principal amount not to exceed the gross proceeds actually
received by such Restricted Subsidiary in connection with such disposition;
(viii) Indebtedness or Preferred Stock which is exchanged for, or the
proceeds of which are used to refinance, refund or redeem, any Indebtedness
or Preferred Stock permitted to be outstanding pursuant to clauses (i) and
(iii) hereof or any extension or renewal thereof (for purposes hereof, a
"refinancing"), in an aggregate principal amount, in the case of
Indebtedness, or with an aggregate liquidation preference in the case of
Preferred Stock, not to exceed the aggregate principal amount of the
Indebtedness so refinanced or the aggregate liquidation preference of the
Preferred Stock so refinanced, plus the amount of any premium required to
be paid in connection with such refinancing pursuant to the terms of the
Indebtedness or Preferred Stock so refinanced or the amount of any premium
reasonably determined by the Company as necessary to accomplish such
refinancing by means of a tender offer or privately negotiated repurchase,
plus the amount of expenses of the Company and the applicable Restricted
Subsidiary Incurred in connection therewith and provided the Indebtedness
or Preferred Stock Incurred or issued upon such refinancing by its terms,
or by the terms of any agreement or instrument
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pursuant to which such Indebtedness or Preferred Stock is Incurred or
issued, (x) does not provide for payments of principal or liquidation value
at the stated maturity of such Indebtedness or Preferred Stock or by way of
a sinking fund applicable to such Indebtedness or Preferred Stock or by way
of any mandatory redemption, defeasance, retirement or repurchase of such
Indebtedness or Preferred Stock by the Company or any Restricted Subsidiary
of the Company (including any redemption, retirement or repurchase which is
contingent upon events or circumstances, but excluding any retirement
required by virtue of acceleration of such Indebtedness upon an event of
default thereunder), in each case prior to the time the same are required
by the terms of the Indebtedness or Preferred Stock being refinanced and
(y) does not permit redemption or other retirement (including pursuant to
an offer to purchase made by the Company or a Restricted Subsidiary of the
Company) of such Indebtedness or Preferred Stock at the option of the
holder thereof prior to the stated maturity of the Indebtedness or
Preferred Stock being refinanced, other than a redemption or other
retirement at the option of the holder of such Indebtedness or Preferred
Stock (including pursuant to an offer to purchase made by the Company or a
Restricted Subsidiary of the Company) which is conditioned upon the change
of control of the Company pursuant to provisions substantially similar to
those described under "Repurchase at the Option of Holders upon a Change of
Control" and provided, further, that in the case of any exchange or
redemption of Preferred Stock of a Restricted Subsidiary of the Company,
such Preferred Stock may only be exchanged for or redeemed with Preferred
Stock of such Restricted Subsidiary; and
(ix) Indebtedness Incurred or Preferred Stock issued by a Restricted
Subsidiary, provided that the Fair Market Value of the Company's Investment
in all Restricted Subsidiaries which Incur Indebtedness or issue Preferred
Stock pursuant to this clause (ix) shall not exceed, at any time, $30
million in the aggregate, provided further, that such Indebtedness Incurred
is otherwise permitted pursuant to the covenant described under "--Certain
Covenants--Limitation on Consolidated Indebtedness."
Limitation on Restricted Payments
The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, make any Restricted Payment unless, at the time of
and after giving effect to such proposed Restricted Payment (i) no Default or
Event of Default shall have occurred and be continuing or shall occur as a
consequence thereof; (ii) after giving effect, on a pro forma basis, to such
Restricted Payment and the incurrence of any Indebtedness the net proceeds of
which are used to finance such Restricted Payment, the Company could incur at
least $1.00 of additional Indebtedness pursuant to the first paragraph of "--
Certain Covenants--Limitation on Consolidated Indebtedness"; and (iii) after
giving effect to such Restricted Payment on a pro forma basis, the aggregate
amount expended (the amount so expended, if other than cash, to be determined
in good faith by a majority of the disinterested members of the Board of
Directors, whose determination shall be conclusive and evidenced by a
resolution thereof) or declared for all Restricted Payments after the Issue
Date does not exceed the sum of (A) 50% of the Consolidated Net Income of the
Company (or, if Consolidated Net Income shall be a deficit, minus 100% of such
deficit) for the period (taken as one accounting period) beginning on the last
day of the fiscal quarter immediately preceding the Issue Date and ending on
the last day of the fiscal quarter for which the Company's financial
statements have been filed with the Commission or otherwise become publicly
available immediately preceding the date of such Restricted Payment, plus (B)
100% of the net reduction in Investments, subsequent to the Issue Date, in any
Person, resulting from payments of interest on Indebtedness, dividends,
repayments of loans or advances, or other transfers of Property (but only to
the extent such interest, dividends, repayments or other transfers of Property
are not included in the calculation of Consolidated Net Income), in each case
to the Company or any Restricted Subsidiary from any Person (including,
without limitation, from Unrestricted Subsidiaries) or from redesignations of
Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case as
provided in the definition of
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"Investments"), not to exceed in the case of any Person the amount of
Investments previously made subsequent to the Issue Date by the Company or any
Restricted Subsidiary in such Person and which was treated as a Restricted
Payment; provided that the Company or a Restricted Subsidiary of the Company
may make any Restricted Payment with the aggregate net proceeds received after
the date of the October 1998 Indenture, including the fair value of property
other than cash (determined in good faith by the Board of Directors as
evidenced by a resolution of the Board of Directors filed with the Trustee),
(x) as capital contributions to the Company, (y) from the issuance (other than
to a Restricted Subsidiary) of Capital Stock (other than Disqualified Stock)
of the Company and warrants, rights or options on Capital Stock (other than
Disqualified Stock) of the Company, or (z) from the conversion of Indebtedness
of the Company into Capital Stock (other than Disqualified Stock and other
than by a Restricted Subsidiary) of the Company after the date of the October
1998 Indenture.
The foregoing limitations shall not prevent the Company from (i) paying a
dividend on its Capital Stock at any time within 60 days after the declaration
thereof if, on the declaration date, the Company could have paid such dividend
in compliance with the preceding paragraph; (ii) retiring (A) any Capital
Stock of the Company or any Restricted Subsidiary of the Company, (B)
Indebtedness of the Company that is subordinate to the October 1998 Senior
Notes, or (C) Indebtedness of a Restricted Subsidiary of the Company, in
exchange for, or out of the proceeds of the substantially concurrent sale of
Qualified Stock of the Company; (iii) retiring any Indebtedness of the Company
subordinated in right of payment to the October 1998 Senior Notes in exchange
for, or out of the proceeds of, the substantially concurrent incurrence of
Indebtedness of the Company (other than Indebtedness to a Subsidiary of the
Company), provided that such new Indebtedness (A) is subordinated in right of
payment to the October 1998 Senior Notes at least to the same extent as, (B)
has an Average Life at least as long as, and (C) has no scheduled principal
payments due in any amount earlier than, any equivalent amount of principal
under the Indebtedness so retired; (iv) retiring any Indebtedness of a
Restricted Subsidiary of the Company in exchange for, or out of the proceeds
of, the substantially concurrent incurrence of Indebtedness of the Company or
any Restricted Subsidiary that is permitted under the covenant described under
"--Certain Covenants--Limitation on Consolidated Indebtedness" (in the case of
Indebtedness of the Company) and "--Certain Covenants--Limitation on
Indebtedness and Preferred Stock of Restricted Subsidiaries" (in the case of
Indebtedness of Restricted Subsidiaries) and that (A) is not secured by any
assets of the Company or any Restricted Subsidiary to a greater extent than
the retired Indebtedness was so secured, (B) has an Average Life at least as
long as the retired Indebtedness, and (C) is subordinated in right of payment
to the October 1998 Senior Notes at least to the same extent as the retired
Indebtedness; (v) retiring any Capital Stock or options to acquire Capital
Stock of the Company or any Restricted Subsidiary of the Company held by any
directors, officers or employees of the Company or any Restricted Subsidiary,
provided that the aggregate price paid for all such retired Capital Stock
shall not exceed, in the aggregate, the sum of $2 million plus the aggregate
cash proceeds received by the Company subsequent to the Issue Date from
issuances of Capital Stock or options to acquire Capital Stock by the Company
to directors, officers or employees of the Company and its Subsidiaries; (vi)
making payments or distributions to dissenting stockholders pursuant to
applicable law in connection with a consolidation, merger or transfer of
assets permitted under "--Consolidation, Merger, Conveyance, Lease or
Transfer"; (vii) retiring any Capital Stock of the Company to the extent
necessary (as determined in good faith by a majority of the disinterested
members of the Board of Directors, whose determination shall be conclusive and
evidenced by a resolution thereof) to prevent the loss, or to secure the
renewal or reinstatement, of any license or franchise held by the Company or
any Restricted Subsidiary from any governmental agency; (viii) making
Investments in any Person primarily engaged in the Telecommunications
Business; provided, that the aggregate amount of such Investments does not
exceed at any time the sum of (A) $30 million plus (B) the amount of Net Cash
Proceeds received by the Company after the Issue Date as a capital
contribution or from the sale of its Capital Stock (other than Disqualified
Stock) to a Person who is not a Subsidiary of the Company, except to the
extent such Net Cash Proceeds are used to make Restricted Payments permitted
pursuant to clauses (x), (y)
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and (z) of the first paragraph, or clause (ii) or this clause (viii) of this
paragraph, of this "Limitation on Restricted Payments" covenant, plus (C) the
net reduction in Investments made pursuant to this clause (viii) resulting
from distributions on or repayments of such Investments or from the Net Cash
Proceeds from the sale of any such Investment (except in each case to the
extent any such payment or proceeds are included in the calculation of
Consolidated Net Income) or from such Person becoming a Restricted Subsidiary
(valued in each case as provided in the definition of "Investment"), provided
that the net reduction in any Investment shall not exceed the amount of such
Investment; and (ix) making Investments not otherwise permitted in an
aggregate amount not to exceed $15 million at any time outstanding.
In determining the amount of Restricted Payments permissible under this
covenant, amounts expended pursuant to clauses (ii), (iii) and (iv) of the
foregoing paragraph shall not be included as Restricted Payments.
Not later than the date of making any Restricted Payment (including any
Restricted Payment permitted to be made pursuant to the two previous
paragraphs), the Company shall deliver to the Trustee an Officers' Certificate
stating that such Restricted Payment is permitted and setting forth the basis
upon which the required calculations were computed, which calculations may be
based upon the Company's latest available financial statements.
Limitation on Liens
The Company may not, and may not permit any Restricted Subsidiary of the
Company to, Incur or suffer to exist any Lien on or with respect to any
property or assets now owned or hereafter acquired to secure any Indebtedness
without making, or causing such Restricted Subsidiary to make, effective
provision for securing the October 1998 Senior Notes (x) equally and ratably
with such Indebtedness as to such property for so long as such Indebtedness
will be so secured or (y) in the event such Indebtedness is Indebtedness of
the Company which is subordinate in right of payment to the October 1998
Senior Notes, prior to such Indebtedness as to such property for so long as
such Indebtedness will be so secured.
The foregoing restrictions shall not apply to: (i) Liens existing on the
date of the October 1998 Indenture and securing Indebtedness outstanding on
the date of the October 1998 Indenture or Incurred on or after the Issue Date
pursuant to any Senior Credit Facility or Qualified Receivable Facility; (ii)
Liens securing Indebtedness in an amount which, together with the aggregate
amount of Indebtedness then outstanding or available under all Senior Credit
Facilities (or under refinancings or amendments of such Senior Credit
Facilities), does not exceed 1.5 times the Company's Consolidated Cash Flow
Available for Fixed Charges for the four full fiscal quarters preceding the
Incurrence of such Lien for which the Company's consolidated financial
statements have been filed with the Commission or become publicly available,
determined on a pro forma basis as if such Indebtedness had been Incurred and
the proceeds thereof had been applied at the beginning of such four fiscal
quarters; (iii) Liens in favor of the Company or any Wholly-Owned Restricted
Subsidiary of the Company; (iv) Liens on Property of the Company or a
Restricted Subsidiary acquired, constructed or constituting improvements made
after the Issue Date of the October 1998 Senior Notes to secure Purchase Money
Indebtedness which is otherwise permitted under the October 1998 Indenture,
provided that (a) the principal amount of any Indebtedness secured by any such
Lien does not exceed 100% of such purchase price or cost of construction or
improvement of the Property subject to such Lien, (b) such Lien attaches to
such property prior to, at the time of or within 180 days after the
acquisition, completion of construction or commencement of operation of such
Property and (c) such Lien does not extend to or cover any Property other than
the specific item of Property (or portion thereof) acquired, constructed or
constituting the improvements made with the proceeds of such Purchase Money
Indebtedness; (v) Liens to secure Acquired Indebtedness, provided that (a)
such Lien attaches to the acquired asset prior to the time of the acquisition
of such asset and (b) such Lien does
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not extend to or cover any other Property; (vi) Liens to secure Indebtedness
Incurred to extend, renew, refinance or refund (or successive extensions,
renewals, refinancings or refundings), in whole or in part, Indebtedness
secured by any Lien referred to in the foregoing clauses (i), (ii), (iv) and
(v) so long as such Lien does not extend to any other Property and the
principal amount of Indebtedness so secured is not increased except as
otherwise permitted under clause (v) of the second paragraph of "--Certain
Covenants--Limitation on Consolidated Indebtedness" (in the case of
Indebtedness of the Company) or clause (viii) of "--Certain Covenants--
Limitation on Indebtedness and Preferred Stock of Restricted Subsidiaries" (in
the case of Indebtedness of Restricted Subsidiaries); (vii) Liens not
otherwise permitted by the foregoing clauses (i) through (vi) in an aggregate
amount not to exceed 5% of the Company's Consolidated Tangible Assets; (viii)
Liens granted after the Issue Date pursuant to the immediately preceding
paragraph to secure the October 1998 Senior Notes; and (ix) Permitted Liens.
Limitation on Sale and Leaseback Transactions
The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, enter into, assume, Guarantee or otherwise become
liable with respect to any Sale and Leaseback Transaction (other than a Sale
and Leaseback Transaction between the Company or a Restricted Subsidiary on
the one hand and a Restricted Subsidiary or the Company on the other hand),
unless (i) the Company or such Restricted Subsidiary, as the case may be,
receives consideration at the time of such Sale and Leaseback Transaction at
least equal to the Fair Market Value (as evidenced by a Board Resolution
delivered to the Trustee) of the Property subject to such transaction; (ii)
the Attributable Indebtedness of the Company or such Restricted Subsidiary
with respect thereto is included as Indebtedness and would be permitted by the
covenant described under "--Certain Covenants--Limitation on Consolidated
Indebtedness" or "--Certain Covenants--Limitation on Indebtedness and
Preferred Stock of Restricted Subsidiaries", as the case may be; (iii) the
Company or such Restricted Subsidiary would be permitted to create a Lien on
such Property without securing the October 1998 Senior Notes by the covenant
described under "--Certain Covenants--Limitation on Liens"; and (iv) the Net
Cash Proceeds from such transaction are applied in accordance with the
covenant described under "--Asset Sales"; provided that the Company shall be
permitted to enter into Sale and Leaseback Transactions for up to $30 million
with respect to construction of the Company's headquarters buildings located
in Cedar Rapids, Iowa, provided that any such transaction is entered into
within 180 days of the earlier of (x) substantial completion or (y) occupation
of the applicable phase of such headquarters building.
Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, cause or suffer to exist or become effective, or enter
into, any encumbrance or restriction (other than pursuant to law or
regulation) on the ability of any Restricted Subsidiary (i) to pay dividends
or make any other distributions in respect of its Capital Stock or pay any
Indebtedness or other obligation owed to the Company or any Restricted
Subsidiary; (ii) to make loans or advances to the Company or any Restricted
Subsidiary; or (iii) to transfer any of its Property to the Company or any
other Restricted Subsidiary, except: (a) any encumbrance or restriction
existing as of the Issue Date pursuant to the October 1998 Indenture or any
other agreement relating to any Existing Indebtedness or any Indebtedness
under a Qualified Receivable Facility otherwise permitted under the October
1998 Indenture; (b) any encumbrance or restriction pursuant to an agreement
relating to an acquisition of Property, so long as the encumbrances or
restrictions in any such agreement relate solely to the Property so acquired;
(c) any encumbrance or restriction relating to any Indebtedness of any
Restricted Subsidiary existing on the date on which such Restricted Subsidiary
is acquired by the Company or another Restricted Subsidiary (other than any
such Indebtedness Incurred by such Restricted Subsidiary in connection with or
in anticipation of such acquisition); (d) any encumbrance or restriction
pursuant to an agreement effecting a permitted refinancing of Indebtedness
issued
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pursuant to an agreement referred to in the foregoing clauses (a) through (c),
so long as the encumbrances and restrictions contained in any such refinancing
agreement are not materially more restrictive than the encumbrances and
restrictions contained in such agreements; (e) customary provisions (A) that
restrict the subletting, assignment or transfer of any property or asset that
is a lease, license, conveyance or contract or similar property or asset; (B)
existing by virtue of any transfer of, agreement to transfer, option or right
with respect to, or Lien on, any property or assets of the Company or any
Restricted Subsidiary not otherwise prohibited by the October 1998 Indenture
or (C) arising or agreed to in the ordinary course of business, not relating
to any Indebtedness, and that do not, individually or in the aggregate,
detract from the value of property or assets of the Company or any Restricted
Subsidiary in any manner material to the Company or any Restricted Subsidiary;
(f) in the case of clause (iii) above, restrictions contained in any security
agreement (including a Capital Lease Obligation) securing Indebtedness of the
Company or a Restricted Subsidiary otherwise permitted under the October 1998
Indenture, but only to the extent such restrictions restrict the transfer of
the property subject to such security agreement; and (g) any restriction with
respect to a Restricted Subsidiary of the Company imposed pursuant to an
agreement which has been entered into for the sale or disposition of all or
substantially all of the Capital Stock or assets of such Restricted
Subsidiary, provided that the consummation of such transaction would not
result in an Event of Default or an event that, with the passing of time or
the giving of notice or both, would constitute an Event of Default, that such
restriction terminates if such transaction is not consummated and that the
consummation or abandonment of such transaction occurs within one year of the
date such agreement was entered into.
Nothing contained in this "--Certain Covenants--Limitation on Dividend and
Other Payment Restrictions Affecting Restricted Subsidiaries" covenant shall
prevent the Company or any other Restricted Subsidiary from (1) creating,
incurring, assuming or suffering to exist any Liens otherwise permitted under
the "--Certain Covenants--Limitation on Liens" covenant or (2) restricting the
sale or other disposition of property or assets of the Company or any of its
Restricted Subsidiaries that secure Indebtedness of the Company or any of its
Restricted Subsidiaries otherwise permitted under "--Certain Covenants--
Limitation on Consolidated Indebtedness" or "--Certain Covenants--Limitations
on Indebtedness and Preferred Stock of Restricted Subsidiaries", as the case
may be.
Limitation on Issuance and Sale of Capital Stock of Restricted Subsidiaries
The Company (i) shall not permit any Restricted Subsidiary to issue any
Capital Stock other than to the Company or a Wholly-Owned Restricted
Subsidiary unless immediately after giving effect thereto such Restricted
Subsidiary would no longer constitute a Restricted Subsidiary and any
Investment of the Company or any other Restricted Subsidiary in such
Restricted Subsidiary would have been permitted under "--Certain Covenants--
Limitation on Restricted Payments" if made on the date of such issuance and
(ii) shall not permit any Person other than the Company or a Wholly-Owned
Restricted Subsidiary to own any Capital Stock of any Restricted Subsidiary,
other than directors' qualifying shares and except for: (a) a sale of 100% of
the Capital Stock of a Restricted Subsidiary sold in a transaction not
prohibited by the covenant described under "--Asset Sales"; (b) a sale of the
Capital Stock of a Restricted Subsidiary sold in a transaction not prohibited
by the covenant described under "--Asset Sales" if, after giving effect
thereto, greater than 50% of the Capital Stock of such Restricted Subsidiary
is owned by the Company or by a Wholly-Owned Restricted Subsidiary; (c)
Capital Stock of a Restricted Subsidiary issued and outstanding on the Issue
Date and held by Persons other than the Company or any Restricted Subsidiary;
(d) Capital Stock of a Restricted Subsidiary issued and outstanding prior to
the time that such Person becomes a Restricted Subsidiary so long as such
Capital Stock was not issued in anticipation or contemplation of such Person's
becoming a Restricted Subsidiary or otherwise being acquired by the Company;
(e) any Preferred Stock permitted to be issued under "--Certain Covenants--
Limitation on Indebtedness and Preferred Stock of Restricted Subsidiaries";
and (f) ownership by any Person other than the Company or a Subsidiary
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of less than 50% of the Capital Stock of a Person (A) in which the Company or
a Restricted Subsidiary has made a Permitted Investment pursuant to clause
(iii) of the definition of "Permitted Investments", (B) of which more than 50%
of such Person's Capital Stock is owned, directly or indirectly, by the
Company and (C) as to which the Company has the power to direct the policies,
management and affairs.
Transactions with Affiliates
The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, sell, lease, transfer, or otherwise dispose of,
any of its Properties or assets to, or purchase any Property or assets from,
or enter into any contract, agreement, understanding, loan, advance or
Guarantee with or for the benefit of, any Affiliate (each of the foregoing, an
"Affiliate Transaction"), unless (a) such Affiliate Transaction or series of
Affiliate Transactions is on terms that are no less favorable to the Company
or such Restricted Subsidiary than those that would have been obtained in a
comparable arm's-length transaction by the Company or such Restricted
Subsidiary with a Person that is not an Affiliate (or, in the event that there
are no comparable transactions involving Persons who are not Affiliates of the
Company or the relevant Restricted Subsidiary to apply for comparative
purposes, is otherwise on terms that, taken as a whole, the Company has
determined to be fair to the Company or the relevant Restricted Subsidiary)
and (b) the Company delivers to the Trustee (i) with respect to any Affiliate
Transaction involving aggregate payments in excess of $1 million, a
certificate of the chief executive, operating or financial officer of the
Company evidencing such officer's determination that such Affiliate
Transaction or series of Affiliate Transactions complies with clause (a) above
and is in the best interests of the Company or such Restricted Subsidiary and
(ii) with respect to any Affiliate Transaction or series of Affiliate
Transactions involving aggregate payments in excess of $5 million, a Board
Resolution certifying that such Affiliate Transaction or series of Affiliate
Transactions complies with clause (a) above and that such Affiliate
Transaction or series of Affiliate Transactions has been approved by a
majority of the disinterested members of the Board of Directors who have
determined that such Affiliate Transaction or series of Affiliate Transactions
is in the best interest of the Company or such Restricted Subsidiary; provided
that the following shall not be deemed Affiliate Transactions: (i) any
employment agreement entered into by the Company or any of its Restricted
Subsidiaries in the ordinary course of business and consistent with industry
practice; (ii) any agreement or arrangement with respect to the compensation
of a director or officer of the Company or any Restricted Subsidiary approved
by a majority of the disinterested members of the Board of Directors and
consistent with industry practice; (iii) transactions between or among the
Company and its Restricted Subsidiaries; (iv) transactions permitted by the
covenant described under "--Certain Covenants--Limitation on Restricted
Payments"; (v) transactions pursuant to any agreement or arrangement existing
on the Issue Date; and (vi) transactions with respect to wireline or wireless
transmission capacity, the lease or sharing or other use of cable or
fiberoptic lines, equipment, rights-of-way or other access rights, between the
Company or any Restricted Subsidiary and any other Person; provided, in any
case, that such transaction is on terms that are no less favorable, taken as a
whole, to the Company or the relevant Restricted Subsidiary than those that
could have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with Persons who are not Affiliates of the Company or
the relevant Restricted Subsidiary (or, in the event that there are no
comparable transactions involving Persons who are not Affiliates of the
Company or the relevant Restricted Subsidiary to apply for comparative
purposes, is otherwise on terms that, taken as a whole, the Company has
determined to be fair to the Company or the relevant Restricted Subsidiary).
Restricted and Unrestricted Subsidiaries
(a) The Company may designate a Subsidiary (including a newly formed or
newly acquired Subsidiary) of the Company or any of its Restricted
Subsidiaries as an Unrestricted Subsidiary if such
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Subsidiary does not have any obligations which, if in Default, would result in
a cross default on Indebtedness of the Company or a Restricted Subsidiary
(other than Indebtedness to the Company or a Wholly-Owned Restricted
Subsidiary), and (i) such Subsidiary has total assets of $1,000 or less, (ii)
such Subsidiary has assets of more than $1,000 and an Investment in such
Subsidiary in an amount equal to the Fair Market Value of such Subsidiary
would then be permitted under the first paragraph of "--Certain Covenants--
Limitation on Restricted Payments" or (iii) such designation is effective
immediately upon such Person becoming a Subsidiary. Unless so designated as an
Unrestricted Subsidiary, any Person that becomes a Subsidiary of the Company
or any of its Restricted Subsidiaries shall be classified as a Restricted
Subsidiary thereof.
(b) The Company will not, and will not permit any of its Restricted
Subsidiaries to, take any action or enter into any transaction or series of
transactions that would result in a Person (other than a newly formed
Subsidiary having no outstanding Indebtedness (other than Indebtedness to the
Company or a Restricted Subsidiary) at the date of determination) becoming a
Restricted Subsidiary (whether through an acquisition, the redesignation of an
Unrestricted Subsidiary or otherwise) unless, after giving effect to such
action, transaction or series of transactions, on a pro forma basis, (i) the
Company could incur at least $1.00 of additional Indebtedness pursuant to the
first paragraph of "--Certain Covenants--Limitation on Consolidated
Indebtedness" and (ii) no Default or Event of Default would occur.
(c) Subject to clause (b), an Unrestricted Subsidiary may be redesignated as
a Restricted Subsidiary. The designation of a Subsidiary as an Unrestricted
Subsidiary or the designation of an Unrestricted Subsidiary as a Restricted
Subsidiary in compliance with clause (b) shall be made by the Board of
Directors pursuant to a Board Resolution delivered to the Trustee and shall be
effective as of the date specified in such Board Resolution, which shall not
be prior to the date such Board Resolution is delivered to the Trustee.
Reports
The Company has agreed that, for so long as any October 1998 Senior Notes
remain outstanding, it will furnish to the Holders of the October 1998 Senior
Notes and to securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act. The Company will file with the Trustee within 15
days after it files them with the Commission copies of the annual and
quarterly reports and the information, documents, and other reports that the
Company is required to file with the Commission pursuant to Section 13(a) or
15(d) of the Exchange Act ("SEC Reports"). In the event the Company shall
cease to be required to file SEC Reports pursuant to the Exchange Act, the
Company will nevertheless continue to file such reports with the Commission
(unless the Commission will not accept such a filing) and the Trustee. The
Company will furnish copies of the SEC Reports to the Holders of October 1998
Senior Notes at the time the Company is required to file the same with the
Trustee and will make such information available to investors who request it
in writing.
CONSOLIDATION, MERGER, CONVEYANCE, LEASE OR TRANSFER
The Company will not, in any transaction or series of transactions,
consolidate with, or merge with or into, any other Person or permit any other
Person to merge with or into the Company (other than a merger of a Restricted
Subsidiary into the Company in which the Company is the continuing
corporation), or sell, convey, assign, transfer, lease or otherwise dispose of
all or substantially all of the Property and assets of the Company and the
Restricted Subsidiaries taken as a whole to any other Person, unless:
(i) either (a) the Company shall be the continuing corporation or (b) the
corporation (if other than the Company) formed by such consolidation or
into which the Company is merged, or the
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Person which acquires, by sale, assignment, conveyance, transfer, lease or
disposition, all or substantially all of the Property and assets of the
Company and the Restricted Subsidiaries taken as a whole (such corporation
or Person, the "Surviving Entity"), shall be a corporation organized and
validly existing under the laws of the United States of America, any
political subdivision thereof, any state thereof or the District of
Columbia, and shall expressly assume, by a supplemental indenture, the due
and punctual payment of the principal of (and premium, if any) and interest
on all the October 1998 Senior Notes and the performance of the Company's
covenants and obligations under the October 1998 Indenture;
(ii) immediately after giving effect to such transaction or series of
transactions on a pro forma basis (including, without limitation, any
Indebtedness incurred or anticipated to be incurred in connection with or
in respect of such transaction or series of transactions), no Event of
Default or Default shall have occurred and be continuing;
(iii) immediately after giving effect to such transaction or series of
transactions on a pro forma basis (including, without limitation, any
Indebtedness incurred or anticipated to be incurred in connection with or
in respect of such transaction or series of transactions), the Company (or
the Surviving Entity, if the Company is not continuing) would (A) be
permitted to Incur at least $1.00 of additional Indebtedness pursuant to
the first paragraph of "--Certain Covenants--Limitation on Consolidated
Indebtedness" and (B) have a Consolidated Net Worth that is not less than
the Consolidated Net Worth of the Company immediately before such
transaction or series of transactions; and
(iv) if, as a result of any such transaction, Property of the Company
would become subject to a Lien prohibited by the provisions of the October
1998 Indenture described under "--Certain Covenants--Limitation on Liens"
above, the Company or the successor entity to the Company shall have
secured the October 1998 Senior Notes as required thereby.
EVENTS OF DEFAULT
Each of the following is an "Event of Default" under the October 1998
Indenture:
(a) default in the payment of interest on any October 1998 Senior Note
when the same becomes due and payable, and the continuance of such default
for a period of 30 days;
(b) default in the payment of the principal of (or premium, if any, on)
any October 1998 Senior Note at its maturity, upon optional redemption,
required repurchase (including pursuant to a Change of Control Offer or an
Asset Sale Offer) or otherwise or the failure to make an offer to purchase
any October 1998 Senior Note as required;
(c) the Company fails to comply with any of its covenants or agreements
described under "--Repurchase at the Option of the Holders upon a Change of
Control," "--Asset Sales" or "--Consolidation, Merger, Conveyance, Lease or
Transfer";
(d) default in the performance, or breach, of any covenant or warranty of
the Company in the October 1998 Indenture (other than a covenant or
warranty addressed in (a), (b) or (c) above) and continuance of such
Default or breach for a period of 60 days after written notice thereof has
been given to the Company by the Trustee or to the Company and the Trustee
by Holders of at least 25% of the aggregate principal amount of the
outstanding October 1998 Senior Notes;
(e) Indebtedness of the Company or any Restricted Subsidiary is not paid
when due within the applicable grace period, if any, or is accelerated by
the Holders thereof and, in either case, the principal amount of such
unpaid or accelerated Indebtedness exceeds $10 million;
(f) the entry by a court of competent jurisdiction of one or more final
judgments against the Company or any Restricted Subsidiary in an uninsured
or unindemnified aggregate amount in excess of $10 million which is not
discharged, waived, appealed, stayed, bonded or satisfied for a period of
45 consecutive days;
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(g) the entry by a court having jurisdiction in the premises of (i) a
decree or order for relief in respect of the Company or any Restricted
Subsidiary in an involuntary case or proceeding under U.S. bankruptcy laws,
as now or hereafter constituted, or any other applicable Federal, state, or
foreign bankruptcy, insolvency, or other similar law or (ii) a decree or
order adjudging the Company or any Restricted Subsidiary bankrupt or
insolvent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition of or in respect of
the Company or any Restricted Subsidiary under U.S. bankruptcy laws, as now
or hereafter constituted, or any other applicable Federal, state or foreign
bankruptcy, insolvency or similar law, or appointing a custodian, receiver,
liquidator, assignee, trustee, sequestrator or other similar official of
the Company or any Restricted Subsidiary or of any substantial part of the
Property or assets of the Company or any Restricted Subsidiary, or ordering
the winding up or liquidation of the affairs of the Company or any
Restricted Subsidiary, and the continuance of any such decree or order for
relief or any such other decree or order unstayed and in effect for a
period of 60 consecutive days; or
(h) (i) the commencement by the Company or any Restricted Subsidiary of a
voluntary case or proceeding under U.S. bankruptcy laws, as now or
hereafter constituted, or any other applicable Federal, state or foreign
bankruptcy, insolvency or other similar law or of any other case or
proceeding to be adjudicated a bankrupt or insolvent; or (ii) the consent
by the Company or any Restricted Subsidiary to the entry of a decree or
order for relief in respect of the Company or any Restricted Subsidiary in
an involuntary case or proceeding under U.S. bankruptcy laws, as now or
hereafter constituted, or any other applicable Federal, state or foreign
bankruptcy, insolvency or other similar law or to the commencement of any
bankruptcy or insolvency case or proceeding against the Company or any
Restricted Subsidiary; or (iii) the filing by the Company or any Restricted
Subsidiary of a petition or answer or consent seeking reorganization or
relief under U.S. bankruptcy laws, as now or hereafter constituted, or any
other applicable Federal, state or foreign bankruptcy, insolvency or other
similar law; or (iv) the consent by the Company or any Restricted
Subsidiary to the filing of such petition or to the appointment of or
taking possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or similar official of the Company or any Restricted
Subsidiary or of any substantial part of the Property or assets of the
Company or any Restricted Subsidiary, or the making by the Company or any
Restricted Subsidiary of an assignment for the benefit of creditors; or (v)
the admission by the Company or any Restricted Subsidiary in writing of its
inability to pay its debts generally as they become due; or (vi) the taking
of corporate action by the Company or any Restricted Subsidiary in
furtherance of any such action.
If any Event of Default (other than an Event of Default specified in clause
(g) or (h) above) occurs and is continuing, then and in every such case the
Trustee or the Holders of not less than 25% of the outstanding aggregate
principal amount of October 1998 Senior Notes may declare the Default Amount
(as defined herein) and any accrued and unpaid interest on all October 1998
Senior Notes then outstanding to be immediately due and payable by a notice in
writing to the Company (and to the Trustee if given by Holders of the October
1998 Senior Notes), and upon any such declaration, such Default Amount and any
accrued interest will become and be immediately due and payable. If any Event
of Default specified in clause (g) or (h) above occurs, the Default Amount and
any accrued and unpaid interest on the October 1998 Senior Notes then
outstanding shall become immediately due and payable without any declaration
or other act on the part of the Trustee or any Holder of October 1998 Senior
Notes. In the event of a declaration of acceleration because an Event of
Default set forth in clause (e) above has occurred and is continuing, such
declaration of acceleration shall be automatically rescinded and annulled if
the event of default triggering such Event of Default pursuant to clause (e)
shall be remedied, or cured or waived by the Holders of the relevant
Indebtedness, within 60 days after such event of default, provided that no
judgment or decree for the payment of money due on the October 1998 Senior
Notes has been obtained by the Trustee. The Default Amount shall equal 100% of
the principal amount of the October 1998 Senior Notes. Under certain
circumstances, the Holders of a
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majority in principal amount of the outstanding October 1998 Senior Notes by
notice to the Company and the Trustee may rescind an acceleration and its
consequences.
The Company will be required to deliver to the Trustee annually a statement
regarding compliance with the October 1998 Indenture, and the Company is
required within 30 days after becoming aware of any Default or Event of
Default, to deliver to the Trustee a statement describing such Default or
Event of Default, its status and what action the Company is taking or proposes
to take with respect thereto. The Trustee may withhold from Holders of the
October 1998 Senior Notes notice of any continuing Default or Event of Default
(other than relating to the payment of principal or interest) if the Trustee
determines that withholding such notice is in the Holders' interest.
AMENDMENT, SUPPLEMENT AND WAIVER
The Company and the Trustee may, at any time and from time to time, without
notice to or consent of any Holder of October 1998 Senior Notes, enter into
one or more indentures supplemental to the October 1998 Indenture (1) to
evidence the succession of another Person to the Company and the assumption by
such successor of the covenants of the Company in the October 1998 Indenture
and the October 1998 Senior Notes; (2) to add to the covenants of the Company,
for the benefit of the Holders, or to surrender any right or power conferred
upon the Company by the October 1998 Indenture; (3) to add any additional
Events of Default; (4) to provide for uncertificated October 1998 Senior Notes
in addition to or in place of certificated October 1998 Senior Notes; (5) to
evidence and provide for the acceptance of appointment under the October 1998
Indenture of a successor Trustee; (6) to secure the October 1998 Senior Notes;
(7) to cure any ambiguity in the October 1998 Indenture, to correct or
supplement any provision in the October 1998 Indenture which may be
inconsistent with any other provision therein or to add any other provisions
with respect to matters or questions arising under the October 1998 Indenture;
provided such actions shall not adversely affect the interests of the Holders
in any material respect; or (8) to comply with the requirements of the
Commission in order to effect or maintain the qualification of the October
1998 Indenture under the Trust Indenture Act.
With the consent of the Holders of not less than a majority in principal
amount of the outstanding October 1998 Senior Notes, the Company and the
Trustee may enter into one or more indentures supplemental to the October 1998
Indenture for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of the October 1998 Indenture or
modifying in any manner the rights of the Holders; provided that no such
supplemental indenture shall, without the consent of the Holder of each
outstanding October 1998 Senior Note: (1) change the Stated Maturity of the
principal of, or any installment of interest on, any October 1998 Senior Note,
or alter the redemption provisions thereof, or reduce the principal amount
thereof (or premium, if any), or the interest thereon that would be due and
payable upon Maturity thereof, or change the place of payment where, or the
coin or currency in which, any October 1998 Senior Note or any premium or
interest thereon is payable, or impair the right to institute suit for the
enforcement of any such payment on or after the maturity thereof; (2) reduce
the percentage in principal amount of the outstanding October 1998 Senior
Notes, the consent of whose Holders is necessary for any such supplemental
indenture or required for any waiver of compliance with certain provisions of
the October 1998 Indenture or certain Defaults thereunder; (3) subordinate in
right of payment, or otherwise subordinate, the October 1998 Senior Notes to
any other Indebtedness; or (4) modify any provision of this paragraph (except
to increase any percentage set forth herein).
The Holders of not less than a majority in principal amount of the
outstanding October 1998 Senior Notes may, on behalf of the Holders of all the
October 1998 Senior Notes, waive any past Default under the October 1998
Indenture and its consequences, except a Default (1) in the payment of the
principal of (or premium, if any) or interest on any October 1998 Senior Note,
or (2) in respect
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of a covenant or provision hereof which under the proviso to the prior
paragraph cannot be modified or amended without the consent of the Holder of
each outstanding October 1998 Senior Note affected.
SATISFACTION AND DISCHARGE OF THE INDENTURE; DEFEASANCE
The Company may terminate its obligations under the October 1998 Indenture
when (i) either (A) all outstanding October 1998 Senior Notes have been
delivered to the Trustee for cancellation or (B) all such October 1998 Senior
Notes not theretofore delivered to the Trustee for cancellation have become
due and payable, will become due and payable within one year or are to be
called for redemption within one year under irrevocable arrangements
satisfactory to the Trustee for the giving of notice of redemption by the
Trustee in the name and at the expense of the Company, and the Company has
irrevocably deposited or caused to be deposited with the Trustee funds in an
amount sufficient to pay and discharge the entire indebtedness on the October
1998 Senior Notes not theretofore delivered to the Trustee for cancellation,
for principal of (or premium, if any, on) and interest to the date of deposit
or maturity or date of redemption; (ii) the Company has paid or caused to be
paid all sums payable by the Company under the October 1998 Indenture; and
(iii) the Company has delivered an Officers' Certificate and an Opinion of
Counsel relating to compliance with the conditions set forth in the October
1998 Indenture.
The Company, at its election, shall (a) be deemed to have paid and
discharged its debt on the October 1998 Senior Notes and the October 1998
Indenture shall cease to be of further effect as to all outstanding October
1998 Senior Notes (except as to (i) rights of registration of transfer,
substitution and exchange of October 1998 Senior Notes and the Company's right
of optional redemption, (ii) rights of Holders to receive payments of
principal of, premium, if any, and interest on the October 1998 Senior Notes
(but not the Change of Control Purchase Price or the Offer Purchase Price) and
any rights of the Holders with respect to such amounts, (iii) the rights,
obligations and immunities of the Trustee under the October 1998 Indenture and
(iv) certain other specified provisions in the October 1998 Indenture) or (b)
cease to be under any obligation to comply with certain restrictive covenants
including those described under "--Certain Covenants," after the irrevocable
deposit by the Company with the Trustee, in trust for the benefit of the
Holders, at any time prior to the maturity of the October 1998 Senior Notes,
of (A) money in an amount, (B) U.S. Government Obligations which through the
payment of interest and principal will provide, not later than one day before
the due date of payment in respect of the October 1998 Senior Notes, money in
an amount, or (C) a combination thereof, sufficient to pay and discharge the
principal of, and interest on, the October 1998 Senior Notes then outstanding
on the dates on which any such payments are due in accordance with the terms
of the October 1998 Indenture and of the October 1998 Senior Notes. Such
defeasance or covenant defeasance shall be deemed to occur only if certain
conditions are satisfied, including, among other things, delivery by the
Company to the Trustee of an opinion of counsel reasonably acceptable to the
Trustee to the effect that (i) such deposit, defeasance and discharge will not
be deemed, or result in, a taxable event for federal income tax purposes with
respect to the Holders; and (ii) the Company's deposit will not result in the
Trust or the Trustee being subject to regulation under the Investment Company
Act of 1940.
THE TRUSTEE
United States Trust Company of New York is the Trustee under the October
1998 Indenture and its current address is 114 West 47th Street, New York, New
York 10036.
The Holders of not less than a majority in principal amount of the
outstanding October 1998 Senior Notes will have the right to direct the time,
method and place of conducting any proceeding for exercising any remedy
available to the Trustee, subject to certain exceptions. Except during the
continuance of an Event of Default, the Trustee will perform only such duties
as are specifically set forth in the October 1998 Indenture. The October 1998
Indenture provides that in case an Event of
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Default shall occur (which shall not be cured or waived), the Trustee will be
required, in the exercise of its rights and powers under the October 1998
Indenture, to use the degree of care of a prudent person in the conduct of
such person's own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the October
1998 Indenture at the request of any of the Holders of the October 1998 Senior
Notes, unless such Holders shall have offered to the Trustee indemnity
satisfactory to it against any loss, liability or expense.
NO PERSONAL LIABILITY OF CONTROLLING PERSONS, DIRECTORS, OFFICERS, EMPLOYEES
AND STOCKHOLDERS
No controlling Person, director, officer, employee, incorporator or
stockholder of the Company, as such, shall have any liability for any
covenant, agreement or other obligations of the Company under the October 1998
Senior Notes or the October 1998 Indenture or for any claim based on, in
respect of, or by reason of, such obligations or their creation, solely by
reason of its past, present or future status as a controlling Person,
director, officer, employee, incorporator or stockholder of the Company. By
accepting a October 1998 Senior Note each Holder waives and releases all such
liability (but only such liability). The waiver and release are part of the
consideration for issuance of the October 1998 Senior Notes. Nonetheless, such
waiver may not be effective to waive liabilities under the federal securities
laws and it has been the view of the Commission that such a waiver is against
public policy.
TRANSFER AND EXCHANGE
The Outstanding Notes are subject to certain restrictions on transfer. A
Holder may transfer or exchange October 1998 Senior Notes in accordance with
the October 1998 Indenture. The Company, the Registrar and the Trustee may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and the Company may require a Holder to pay any taxes and
fees required by law or permitted by the October 1998 Indenture.
EXCHANGE OFFER; REGISTRATION RIGHTS
The Company entered into the Registration Rights Agreement with the Initial
Purchasers, for the benefit of the holders of Outstanding Notes, pursuant to
which the Company agreed to file the Registration Statement (of which this
Prospectus constitutes a part) with the Commission. The Registration Rights
Agreement provides that the Company will, at its cost, use its best efforts to
cause the Registration Statement to be declared effective under the Securities
Act not later than 150 days after the Closing Date (as defined in the Purchase
Agreement among the Company and the Initial Purchasers attached as an exhibit
to the Registration Statement of which this Prospectus is a part). Upon the
effectiveness of the Registration Statement, the Company will offer the
Exchange Notes in exchange for surrender of the Outstanding Notes. The Company
has agreed to keep the Exchange Offer open for not less than 30 days and not
more than 45 days (or longer if required by applicable law) after the date
notice of the Exchange Offer is mailed to the holders of Outstanding Notes.
For each Outstanding Note surrendered to the Company pursuant to the Exchange
Offer, the holder of such Outstanding Note will receive an Exchange Note
having a principal amount equal to that of the surrendered Outstanding Note.
Under existing Commission interpretations, the Exchange Notes would be freely
transferable by holders other than affiliates of the Company after the
Exchange Offer without further registration under the Securities Act if the
holder of the Exchange Notes represents that it is acquiring the Exchange
Notes in the ordinary course of its business, that it has no arrangement or
understanding with any person to participate in the distribution of the
Exchange Notes and that it is not an affiliate of the Company, as such terms
are interpreted by the Commission; provided that broker-dealers that acquired
Outstanding Notes as a result of market-making or other trading activities or
directly from the Company for resale pursuant to Rule 144A or another
available exemption under the Securities Act ("Participating Broker-Dealers")
and who receive Exchange Notes in the Exchange Offer will have a prospectus
delivery requirement with respect to resales of
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such Exchange Notes. The Commission has taken the position that Participating
Broker-Dealers may fulfill their prospectus delivery requirements with respect
to Exchange Notes with the prospectus contained in the Registration Statement
under certain circumstances. Under the Registration Rights Agreement, the
Company is required to allow Participating Broker-Dealers and other persons,
if any, with similar prospectus delivery requirements to use this Prospectus
in connection with the resale of such Exchange Notes.
A holder of Outstanding Notes (other than certain specified holders) who
wishes to exchange such Outstanding Notes for Exchange Notes in the Exchange
Offer will be required to represent that, among other things, any Exchange
Notes to be received by it will be acquired in the ordinary course of its
business and that at the time of the commencement of the Exchange Offer it has
no arrangement or understanding with any person to participate in the
distribution (within the meaning of the Securities Act) of the Exchange Notes
and that it is not an "affiliate" of the Company, as defined in Rule 405 of
the Securities Act, or if it is an affiliate, that it will comply with the
registration and prospectus delivery requirements of the Securities Act to the
extent applicable.
The Company has filed the Registration Statement and will commence the
Exchange Offer pursuant to the Registration Rights Agreement. In the event
that applicable interpretations of the staff of the Commission do not permit
the Company to effect the Exchange Offer, or if for any other reason the
Exchange Offer is not consummated within 180 days after the Closing Date, or
if the Initial Purchasers so request with respect to Outstanding Notes not
eligible to be exchanged for Exchange Notes in the Exchange Offer, or if any
holder of Outstanding Notes does not receive freely tradeable Exchange Notes
in the Exchange Offer, the Company has agreed, at its cost, (a) as promptly as
practicable, to file a shelf registration statement (the "Shelf Registration
Statement") covering resales of the Outstanding Notes or the Exchange Notes,
as the case may be, (b) to use its best efforts to cause the Shelf
Registration Statement to be declared effective under the Securities Act and
(c) to keep the Shelf Registration Statement effective until two years after
its effective date or such shorter period ending when all resales of
Outstanding Notes or Exchange Notes covered by such Shelf Registration
Statement have been made. The Company has agreed, in the event a Shelf
Registration Statement is filed, among other things, to provide to each holder
for whom such Shelf Registration Statement was filed copies of the prospectus
which is a part of the Shelf Registration Statement, to notify each such
holder when the Shelf Registration Statement has become effective and to take
certain other actions as are required to permit unrestricted resales of the
Outstanding Notes or the Exchange Notes, as the case may be. A holder selling
such Outstanding Notes or Exchange Notes pursuant to the Shelf Registration
Statement generally would be required to be named as a selling security holder
in the related prospectus and to deliver a prospectus to purchasers, will be
subject to certain of the civil liability provisions under the Securities Act
in connection with such sales and will be bound by the provisions of the
Registration Rights Agreement which are applicable to such holder (including
certain indemnification obligations).
If (i) within 150 days after October 30, 1998 (the "Closing Date"), the
Registration Statement has not been declared effective; (ii) within 180 days
after the Closing Date, neither the Exchange Offer has been consummated nor
the Shelf Registration Statement has been declared effective; or (iii) after
either the Registration Statement or the Shelf Registration Statement has been
declared effective, such Registration Statement thereafter ceases to be
effective or usable (subject to certain exceptions) in connection with resales
of Outstanding Notes or Exchange Notes in accordance with and during the
periods specified in the Registration Rights Agreement (each such event
referred to in clauses (i) through (iii), a "Registration Default"),
additional interest ("Special Interest") will accrue on the Outstanding Notes
and the Exchange Notes (in addition to the stated interest on the Outstanding
Notes and the Exchange Notes) from and including the date on which any such
Registration Default shall occur to but excluding the date on which all
Registration Defaults have been cured. Special Interest will accrue at a rate
of 0.50% per annum during the 90-day period immediately following the
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occurrence of any Registration Default and shall increase by 0.25% per annum
at the end of each subsequent 90-day period, but in no event shall such rate
exceed 2.00% per annum in the aggregate regardless of the number of
Registration Defaults.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
October 1998 Indenture. Reference is made to the October 1998 Indenture for
the full definition of all such terms, as well as any capitalized terms used
herein for which no definition is provided.
"Acquired Indebtedness" means, with respect to any specified Person,
Indebtedness of any other Person existing at the time such other Person merged
with or into or became a Subsidiary of such specified Person; provided that
such Indebtedness was not incurred in connection with, or in anticipation or
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, but excluding Indebtedness which is
extinguished, retired or repaid in connection with such other Person merging
with or into or becoming a Subsidiary of such specified Person.
"Affiliate" means, as to any Person, any other Person which directly or
indirectly controls, or is under common control with, or is controlled by,
such Person; provided that each Unrestricted Subsidiary shall be deemed to be
an Affiliate of the Company and of each other Subsidiary of the Company;
provided, further, that neither the Company nor any of its Restricted
Subsidiaries shall be deemed to be Affiliates of each other. For purposes of
this definition, "control" (including, with correlative meanings, the terms
"controlling," "under common control with" and "controlled by"), as used with
respect to any Person, shall mean the possession, directly or indirectly, of
the power to direct or cause the direction of the management or policies of
such Person, whether through the ownership of Voting Stock, by agreement or
otherwise.
"Asset Sale" by any Person means any transfer, conveyance, sale, lease or
other disposition by such Person or any of its Restricted Subsidiaries
(including a consolidation or merger or other sale of any such Restricted
Subsidiary with, into or to another Person in a transaction in which such
Restricted Subsidiary ceases to be a Restricted Subsidiary of the specified
Person, but excluding a disposition by a Restricted Subsidiary of such Person
to such Person or a Wholly-Owned Restricted Subsidiary of such Person or by
such Person to a Wholly-Owned Restricted Subsidiary of such Person) of (i)
shares of Capital Stock or other ownership interests of a Restricted
Subsidiary of such Person (other than as permitted by the provisions of the
October 1998 Indenture described above under "--Certain Covenants--Limitation
on Indebtedness and Preferred Stock of Restricted Subsidiaries"), (ii)
substantially all of the assets of such Person or any of its Restricted
Subsidiaries representing a division or line of business (other than as part
of a Permitted Investment) or (iii) other assets or rights of such Person or
any of its Restricted Subsidiaries outside of the ordinary course of business
and, in each case, that is not governed by the provisions of the October 1998
Indenture applicable to consolidations, mergers, and transfers of all or
substantially all of the assets of the Company; provided that "Asset Sale"
shall not include (i) sales or other dispositions of inventory, receivables
and other current assets in the ordinary course of business, (ii) simultaneous
exchanges by the Company or any Restricted Subsidiary of Telecommunications
Assets for other Telecommunications Assets in the ordinary course of business;
provided that the applicable Telecommunications Assets received by the Company
or such Restricted Subsidiary have at least substantially equal Fair Market
Value to the Company or such Restricted Subsidiary (as determined by the Board
of Directors whose good faith
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determination shall be conclusive and evidenced by a Board Resolution), and
(iii) sales or other dispositions of assets with a Fair Market Value (as
certified in an Officers' Certificate) not in excess of $1 million.
"Attributable Indebtedness" means, with respect to any Sale and Leaseback
Transaction of any Person, as at the time of determination, the greater of (i)
the capitalized amount in respect of such transaction that would appear on the
balance sheet of such Person in accordance with GAAP and (ii) the present
value (discounted at a rate consistent with accounting guidelines, as
determined in good faith by the responsible accounting officer of such Person)
of the payments during the remaining term of the lease (including any period
for which such lease has been extended or may, at the option of the lessor, be
extended) or until the earliest date on which the lessee may terminate such
lease without penalty or upon payment of a penalty (in which case the rental
payments shall include such penalty).
"Average Life" means, as of any date, with respect to any debt security or
Disqualified Stock, the quotient obtained by dividing (i) the sum of the
products of (x) the number of years from such date to the dates of each
scheduled principal payment or redemption payment (including any sinking fund
or mandatory redemption payment requirements) of such debt security or
Disqualified Stock multiplied in each case by (y) the amount of such principal
or redemption payment, by (ii) the sum of all such principal or redemption
payments.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of the Board of Directors.
"Board Resolution" means a duly adopted resolution of the Board of Directors
in full force and effect at the time of determination.
"Capital Lease Obligation" of any Person means the obligation to pay rent or
other payment amounts under a lease of (or other Indebtedness arrangement
conveying the right to use) real or personal property of such Person which is
required to be classified and accounted for as a capital lease or a liability
on the face of a balance sheet of such Person prepared in accordance with
GAAP, and the stated maturity thereof shall be the date of the last payment of
rent or any amount due under such lease prior to the first date upon which
such lease may be terminated by the lessee without payment of a penalty.
"Capital Stock" in any Person means any and all shares, interests,
participations or other equivalents in the equity interest (however
designated) in such Person and any rights (other than Indebtedness convertible
into an equity interest), warrants or options to subscribe for or acquire an
equity interest in such Person.
"Change of Control" shall be deemed to occur if (i) the sale, conveyance,
transfer or lease of all or substantially all of the assets of the Company to
any "Person" or "group" (within the meaning of Sections 13(d)(3) and 14(d)(2)
of the Exchange Act or any successor provision to either of the foregoing,
including any group acting for the purpose of acquiring, holding or disposing
of securities within the meaning of Rule 13d-5(b)(i) under the Exchange Act),
other than any Permitted Holder (as defined below) or any Restricted
Subsidiary of the Company, shall have occurred; (ii) any "Person" or "group"
(within the meaning of Sections 13(d)(3) and 14(d)(2) of the Exchange Act or
any successor provision to either of the foregoing, including any group acting
for the purpose of acquiring, holding or disposing of securities within the
meaning of Rule 13d-5(b)(i) under the Exchange Act), other than any Permitted
Holder, becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act) of more than 35% of the total voting power of all classes of the
Voting Stock of the Company (including any warrants, options or rights to
acquire such Voting Stock), calculated on a fully diluted basis, and such
voting power percentage is greater than or equal to the total voting power
percentage then beneficially owned by the Permitted Holders in the aggregate;
or (iii) during any period of two
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consecutive years, individuals who at the beginning of such period constituted
the Board of Directors (together with any directors whose election or
appointment by the Board of Directors or whose nomination for election by the
stockholders of the Company was approved by a vote of a majority of the
directors then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors then in office.
"Common Stock" means Capital Stock other than Preferred Stock.
"Consolidated Capital Ratio" of any Person as of any date means the ratio of
(i) the aggregate consolidated principal amount of Indebtedness of such Person
then outstanding to (ii) the aggregate consolidated paid-in capital of such
Person as of such date.
"Consolidated Cash Flow Available for Fixed Charges" for any period means
the Consolidated Net Income of the Company and its Restricted Subsidiaries for
such period increased by the sum of (i) Consolidated Interest Expense of the
Company and its Restricted Subsidiaries for such period, plus (ii)
Consolidated Income Tax Expense of the Company and its Restricted Subsidiaries
for such period, plus (iii) the consolidated depreciation and amortization
expense included in the income statement of the Company and its Restricted
Subsidiaries for such period, plus (iv) any non-cash expense related to the
issuance to employees of the Company or any Restricted Subsidiary of the
Company of options to purchase Capital Stock of the Company or such Restricted
Subsidiary, plus (v) any charge related to any premium or penalty paid in
connection with redeeming or retiring any Indebtedness prior to its stated
maturity; and plus (vi) any non-cash expense related to a purchase accounting
adjustment not requiring an accrual or reserve and separately disclosed in the
Company's Consolidated Income Statement, and decreased by the amount of any
non-cash item that increases such Consolidated Net Income, all as determined
on a consolidated basis in accordance with GAAP; provided that there shall be
excluded therefrom the Consolidated Cash Flow Available for Fixed Charges (if
positive) of any Restricted Subsidiary of the Company (calculated separately
for such Restricted Subsidiary in the same manner as provided above for the
Company) that is subject to a restriction which prevents the payment of
dividends or the making of distributions to the Company or another Restricted
Subsidiary of the Company to the extent of such restriction.
"Consolidated Income Tax Expense" for any period means the aggregate amounts
of the provisions for income taxes of the Company and its Restricted
Subsidiaries for such period calculated on a consolidated basis in accordance
with GAAP.
"Consolidated Interest Expense" means for any period the interest expense
included in a consolidated income statement (excluding interest income) of the
Company and its Restricted Subsidiaries for such period in accordance with
GAAP, including without limitation or duplication (or, to the extent not so
included, with the addition of), (i) the amortization of Indebtedness
discount; (ii) any payments or fees with respect to letters of credit,
bankers' acceptances or similar facilities; (iii) fees with respect to
interest rate swap or similar agreements or foreign currency hedge, exchange
or similar agreements; (iv) Preferred Stock dividends of the Company and its
Restricted Subsidiaries (other than dividends paid in shares of Preferred
Stock that is not Disqualified Stock) declared and paid or payable; (v)
accrued Disqualified Stock dividends of the Company and its Restricted
Subsidiaries, whether or not declared or paid; (vi) interest on Indebtedness
guaranteed by the Company and its Restricted Subsidiaries; and (vii) the
portion of any Capital Lease Obligation paid during such period that is
allocable to interest expense in accordance with GAAP.
"Consolidated Net Income" of any Person means, for any period, the aggregate
net income (or net loss) of such Person and its Restricted Subsidiaries for
such period on a consolidated basis determined in accordance with GAAP;
provided that there shall be excluded therefrom, without duplication (i) all
items classified as extraordinary, (ii) any net income (or net loss) of any
Person other
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than such Person and its Restricted Subsidiaries, except to the extent of the
amount of dividends or other distributions actually paid to such Person or its
Restricted Subsidiaries by such other Person during such period, (iii) the net
income of any Person acquired by such Person or any of its Restricted
Subsidiaries in a pooling-of-interests transaction for any period prior to the
date of the related acquisition, (iv) any gain or loss, net of taxes, realized
on the termination of any employee pension benefit plan, (v) net gains (or net
losses) in respect of Asset Sales by such Person or its Restricted
Subsidiaries, (vi) the net income (or net loss) of any Restricted Subsidiary
of such Person to the extent that the payment of dividends or other
distributions to such Person is restricted by the terms of its charter or any
agreement, instrument, contract, judgment, order, decree, statute, rule,
governmental regulation or otherwise, except for any dividends or
distributions actually paid by such Restricted Subsidiary to such Person,
(vii) with regard to a non-wholly owned Restricted Subsidiary, any aggregate
net income (or loss) in excess of such Person's or such Restricted
Subsidiary's pro rata share of such non-wholly owned Restricted Subsidiary's
net income (or loss) and (viii) the cumulative effect of changes in accounting
principles.
"Consolidated Net Worth" of any Person means, at any date of determination,
the consolidated stockholders' equity or partners' capital (excluding
Disqualified Stock) of such Person and its subsidiaries, as determined in
accordance with GAAP.
"Consolidated Tangible Assets" of any Person means the total amount of
assets (less applicable reserves and other properly deductible items) which
under GAAP would be included on a consolidated balance sheet of such Person
and its Subsidiaries after deducting therefrom all goodwill, trade names,
trademarks, patents, unamortized debt discount and expense and other like
intangibles, which in each case under GAAP would be included on such
consolidated balance sheet.
"Default" means any event, act or condition, the occurrence of which is, or
after notice or the passage of time or both would be, an Event of Default.
"Depository" means, with respect to the October 1998 Senior Notes issuable
or issued in whole or in part in the form of one or more Global Notes, The
Depository Trust Company for so long as it shall be a clearing agency
registered under the Exchange Act, or such successor as the Company shall
designate from time to time in an Officers' Certificate delivered to the
Trustee.
"Disqualified Stock" means any Capital Stock which, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, or otherwise, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the option of the holder thereof, or is exchangeable for
Indebtedness at any time, in whole or in part, prior to the Stated Maturity of
the October 1998 Senior Notes.
"Eligible Cash Equivalents" means (i) securities issued or directly and
fully guaranteed or insured by the United States of America or any agency or
instrumentality thereof, provided that the full faith and credit of the United
States of America is pledged in support thereof; (ii) time deposits and
certificates of deposit of any commercial bank organized in the United States
having capital and surplus in excess of $500 million with a maturity date not
more than one year from the date of acquisition, (iii) repurchase obligations
with a term of not more than seven days for underlying securities of the types
described in clause (i) above entered into with any bank meeting the
qualifications specified in clause (ii) above; (iv) direct obligations issued
by any state of the United States of America or any political subdivision of
any such state or any public instrumentality thereof maturing, or subject to
tender at the option of the holder thereof within 270 calendar days after the
date of acquisition thereof and, at the time of acquisition, having a rating
of A or better from Standard & Poor's Corporation or A-2 or better from
Moody's Investors Service, Inc., (v) commercial paper issued by the parent
corporation of any commercial bank organized in the United States having
capital and surplus in excess of $500 million and commercial paper issued by
others having one of the two highest ratings obtainable from either Standard &
Poor's Corporation or Moody's Investors Service,
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Inc. and in each case maturing within 270 calendar days after the date of
acquisition, (vi) overnight bank deposits and bankers' acceptances at any
commercial bank organized in the United States having capital and surplus in
excess of $500 million; (vii) deposits available for withdrawal on demand with
a commercial bank organized in the United States having capital and surplus in
excess of $500 million; and (viii) investments in money market funds
substantially all of whose assets comprise securities of the types described
in clauses (i) through (vi).
"Existing Indebtedness" means Indebtedness outstanding on the date of the
October 1998 Indenture (other than under any Senior Credit Facility).
"Fair Market Value" means, with respect to any asset or Property, the sale
value that would be obtained in an arm's-length transaction between an
informed and willing seller under no compulsion to sell and an informed and
willing buyer under no compulsion to buy, as determined in good faith by the
Board of Directors.
"GAAP" means United States generally accepted accounting principles,
consistently applied, as set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board, or in such other statements by such other entity as may be
approved by a significant segment of the accounting profession of the United
States, that are applicable to the circumstances as of the date of
determination; provided that, except as otherwise specifically provided, all
calculations made for purposes of determining compliance with the terms of the
provisions of the October 1998 Indenture shall utilize GAAP as in effect on
the Issue Date.
"Guarantee" means any direct or indirect obligation, contingent or
otherwise, of a Person guaranteeing or having the economic effect of
guaranteeing any Indebtedness of any other Person in any manner (and
"Guaranteed," "Guaranteeing" and "Guarantor" shall have meanings correlative
to the foregoing).
"Holder" means (i) in the case of any certificated October 1998 Senior Note,
the Person in whose name such certificated October 1998 Senior Note is
registered in the Note Register and (ii) in the case of any Global October
1998 Senior Note, the Depositary.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise),
assume, Guarantee or otherwise become liable in respect of such Indebtedness
or other obligation including by acquisition of Subsidiaries or the recording,
as required pursuant to GAAP or otherwise, of any such Indebtedness or other
obligation on the balance sheet of such Person (and "Incurrence," "Incurred,"
"Incurrable" and "Incurring" shall have meanings correlative to the
foregoing); provided that a change in GAAP that results in an obligation of
such Person that exists at such time becoming Indebtedness shall not be deemed
an Incurrence of such Indebtedness and that neither the accrual of interest
nor the accretion of original issue discount shall be deemed an Incurrence of
Indebtedness. Indebtedness otherwise incurred by a Person before it becomes a
Subsidiary of the Company (whether by merger, consolidation, acquisition or
otherwise) shall be deemed to have been incurred at the time at which such
Person becomes a Subsidiary of the Company.
"Indebtedness" means, at any time (without duplication), with respect to any
Person, whether recourse as to all or a portion of the assets of such Person,
and whether or not contingent, (i) any obligation of such Person for money
borrowed, (ii) any obligation of such Person evidenced by bonds, debentures,
notes, Guarantees or other similar instruments, including, without limitation,
any such obligations incurred in connection with the acquisition of Property,
assets or businesses, excluding trade accounts payable made in the ordinary
course of business, (iii) any reimbursement obligation of such Person with
respect to letters of credit, bankers' acceptances or similar facilities
issued for the
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account of such Person, (iv) any obligation of such Person issued or assumed
as the deferred purchase price of Property or services (but excluding trade
accounts payable or accrued liabilities arising in the ordinary course of
business, which in either case are not more than 60 days overdue or which are
being contested in good faith), (v) any Capital Lease Obligation of such
Person, (vi) the maximum fixed redemption or repurchase price of Disqualified
Stock of such Person and, to the extent held by Persons other than such Person
or its Restricted Subsidiaries, the maximum fixed redemption or repurchase
price of Disqualified Stock of such Person's Restricted Subsidiaries, at the
time of determination, (vii) every obligation under Interest Rate and Currency
Protection Agreements of such Person, (viii) any Attributable Indebtedness
with respect to any Sale and Leaseback Transaction to which such Person is a
party and (ix) any obligation of the type referred to in clauses (i) through
(viii) of this definition of another Person and all dividends and
distributions of another Person the payment of which, in either case, such
Person has Guaranteed or is responsible or liable, directly or indirectly, as
obligor, Guarantor or otherwise. For purposes of the preceding sentence, the
maximum fixed repurchase price of any Disqualified Stock that does not have a
fixed repurchase price shall be calculated in accordance with the terms of
such Disqualified Stock as if such Disqualified Stock were repurchased on any
date on which Indebtedness shall be required to be determined pursuant to the
October 1998 Indenture; provided that, if such Disqualified Stock is not then
permitted to be repurchased, the repurchase price shall be the book value of
such Disqualified Stock. The amount of Indebtedness of any Person at any date
shall be the outstanding balance at such date of all unconditional obligations
as described above and, with respect to contingent obligations, the maximum
liability upon the occurrence of the contingency giving rise to the
obligation; provided that the amount outstanding at any time of any
Indebtedness issued with original issue discount (including, without
limitation, the 1997 Senior Discount Notes) is the face amount of such
Indebtedness less the remaining unamortized portion of the original issue
discount of such Indebtedness at such time as determined in conformity with
GAAP.
"Interest Rate or Currency Protection Agreement"of any Person means any
forward contract, futures contract, swap, option, future option or other
financial agreement or arrangement (including, without limitation, caps,
floors, collars and similar agreements) relating to, or the value of which is
dependent upon, interest rates or currency exchange rates or indices.
"Investment" in any Person means any direct, indirect or contingent (i)
advance or loan to, Guarantee of any Indebtedness of, extension of credit or
capital contribution to such Person, (ii) the acquisition of any shares of
Capital Stock, bonds, notes, debentures or other securities of such Person, or
(iii) the acquisition, by purchase or otherwise, of all or substantially all
of the business, assets or stock or other evidence of beneficial ownership of
such Person; provided that Investments shall exclude commercially reasonable
extensions of trade credit. The amount of any Investment shall be the original
cost of such Investment, plus the cost of all additions thereto and minus the
amount of any portion of such Investment repaid to such Person in cash as a
repayment of principal or a return of capital, as the case may be, but without
any other adjustments for increases or decreases in value, or write-ups,
write-downs or write-offs with respect to such Investment. In determining the
amount of any Investment involving a transfer of any Property other than cash,
such Property shall be valued at its Fair Market Value at the time of such
transfer.
"Issue Date" means the date on which the Outstanding Notes were first
authenticated and delivered under the October 1998 Indenture.
"Lien" means, with respect to any Property or other asset, any mortgage or
deed of trust, pledge, hypothecation, assignment, deposit arrangement,
security interest, lien (statutory or other), charge, easement, encumbrance,
preference, priority or other security or similar agreement or preferential
arrangement of any kind or nature whatsoever on or with respect to such
Property or other asset (including, without limitation, any conditional sale
or title retention agreement having substantially the same economic effect as
any of the foregoing).
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"Maturity" means, when used with respect to a October 1998 Senior Note, the
date on which the principal of such October 1998 Senior Note becomes due and
payable as provided therein or in the October 1998 Indenture, whether on the
date specified in such October 1998 Senior Note as the fixed date on which the
principal of such October 1998 Senior Note is due and payable, a Change of
Control Payment Date or an Asset Sale Payment Date, or by declaration of
acceleration, call for redemption or otherwise.
"Net Cash Proceeds" means, with respect to the sale of any Property or
assets by any Person or any of its Restricted Subsidiaries, cash or readily
marketable cash equivalents received net of (i) all reasonable out-of-pocket
expenses of such Person or such Restricted Subsidiary incurred in connection
with such sale, including, without limitation, all legal, title and recording
tax expenses, commissions and other fees and expenses incurred (but excluding
any finder's fee or broker's fee payable to any Affiliate of such Person) and
all federal, state, foreign and local taxes arising in connection with such
sale that are paid or required to be accrued as a liability under GAAP by such
Person or its Restricted Subsidiaries, (ii) all payments made or required to
be made by such Person or its Restricted Subsidiaries on any Indebtedness
which is secured by such Properties or other assets in accordance with the
terms of any Lien upon or with respect to such Properties or other assets or
which must, by the terms of such Lien, or in order to obtain a necessary
consent to such transaction or by applicable law, be repaid in connection with
such sale, (iii) all contractually required distributions and other payments
made to minority interest holders (but excluding distributions and payments to
Affiliates of such Person) in Restricted Subsidiaries of such Person as a
result of such transaction and (iv) appropriate amounts to be provided by such
Person or any Restricted Subsidiary thereof, as the case may be, as a reserve
in accordance with GAAP against any liabilities associated with such assets
and retained by such Person or any Restricted Subsidiary thereof, as the case
may be, after such transaction, including, without limitation, liabilities
under any indemnification obligations and severance and other employee
termination costs associated with such transaction, in each case as determined
by the Board of Directors of such Person, in its reasonable good faith
judgment evidenced by a resolution of the Board of Directors filed with the
Trustee; provided that, in the event that any consideration for a transaction
(which would otherwise constitute Net Cash Proceeds) is required to be held in
escrow pending determination of whether a purchase price adjustment will be
made, such consideration (or any portion thereof) shall become Net Cash
Proceeds only at such time as it is released to such Person or its Restricted
Subsidiaries from escrow; and provided, further, that any non-cash
consideration received in connection with any transaction, which is
subsequently converted to cash, shall be deemed to be Net Cash Proceeds at
such time, and shall thereafter be applied in accordance with the October 1998
Indenture.
"Officers' Certificate" means a certificate signed by (i) the Chairman of
the Board, a Vice Chairman of the Board, the President, the Chief Executive
Officer or a Vice President, and (ii) the Chief Financial Officer, the Chief
Accounting Officer, the Treasurer, an Assistant Treasurer, the Secretary or an
Assistant Secretary of the Company and delivered to the Trustee, which shall
comply with the October 1998 Indenture.
"Paying Agent" means any Person authorized by the Company to make payments
of principal, premium or interest with respect to the October 1998 Senior
Notes on behalf of the Company.
"Permitted Holders" means IES Industries Inc. and MidAmerican Energy
Holdings Company and their respective successors and assigns, and Clark E. and
Mary E. McLeod and foundations and trusts controlled by them or either of
them, and Affiliates (other than the Company and the Restricted Subsidiaries)
of each of the foregoing.
"Permitted Interest Rate or Currency Protection Agreement" of any Person
means any Interest Rate or Currency Protection Agreement entered into with one
or more financial institutions in the
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ordinary course of business that is designed to protect such Person against
fluctuations in interest rates or currency exchange rates with respect to
Indebtedness Incurred and which shall have a notional amount no greater than
the payments due with respect to the Indebtedness being hedged thereby and not
for purposes of speculation.
"Permitted Investments" means (i) Eligible Cash Equivalents; (ii)
Investments in Property used in the ordinary course of business; (iii)
Investments in any Person as a result of which such Person becomes a
Restricted Subsidiary in compliance with the October 1998 Indenture; (iv)
Investments pursuant to agreements or obligations of the Company or a
Restricted Subsidiary, in effect on the Issue Date, to make such Investments;
(v) Investments in prepaid expenses, negotiable instruments held for
collection and lease, utility and workers' compensation, performance and other
similar deposits; (vi) Permitted Interest Rate or Currency Protection
Agreements with respect to any floating rate Indebtedness that is permitted by
the terms of the October 1998 Indenture to be outstanding; (vii) bonds, notes,
debentures or other debt securities received as a result of Asset Sales
permitted under the covenant described under "--Asset Sales"; (viii)
Investments in existence at the Issue Date; (ix) commission, payroll, travel
and similar advances to employees in the ordinary course of business to cover
matters that are expected at the time of such advances ultimately to be
treated as expenses in accordance with GAAP; (x) stock, obligations or
securities received in satisfaction of judgments; and (xi) Investments made
pursuant to any deferred-compensation plan, including Investments made through
a trust (including a grantor trust) established in connection with any such
plan, for the benefit of employees of the Company or of any Restricted
Subsidiary.
"Permitted Liens" means (i) Liens for taxes, assessments, governmental
charges or claims which are not yet delinquent or which are being contested in
good faith by appropriate proceedings, if a reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP shall have
been made therefor; (ii) other Liens incidental to the conduct of the
Company's and its Restricted Subsidiaries' business or the ownership of its
property and assets not securing any Indebtedness, and which do not in the
aggregate materially detract from the value of the Company's and its
Restricted Subsidiaries' property or assets when taken as a whole, or
materially impair the use thereof in the operation of its business; (iii)
Liens with respect to assets of a Restricted Subsidiary granted by such
Restricted Subsidiary to the Company to secure Indebtedness owing to the
Company; (iv) pledges and deposits made in the ordinary course of business in
connection with workers' compensation and unemployment insurance, statutory
Liens of landlords, carriers, warehousemen, mechanics, materialmen, repairmen
and other types of statutory obligations; (v) deposits made to secure the
performance of tenders, bids, leases, and other obligations of like nature
incurred in the ordinary course of business (exclusive of obligations for the
payment of borrowed money); (vi) zoning restrictions, servitudes, easements,
rights-of-way, restrictions and other similar charges or encumbrances incurred
in the ordinary course of business which, in the aggregate, do not materially
detract from the value of the property subject thereto or interfere with the
ordinary conduct of the business of the Company or its Restricted
Subsidiaries; (vii) Liens arising out of judgments or awards against the
Company or any Restricted Subsidiary with respect to which the Company or such
Restricted Subsidiary is prosecuting an appeal or proceeding for review and
the Company or such Restricted Subsidiary is maintaining adequate reserves in
accordance with GAAP; (viii) any interest or title of a lessor in the property
subject to any lease other than a Capital Lease; (ix) Liens (including
extensions and renewals thereof) upon real or personal property acquired after
the Issue Date; provided that (a) such Lien is created solely for the purpose
of securing Indebtedness Incurred, in accordance with "--Certain Covenants--
Limitation on Consolidated Indebtedness," (1) to finance the cost (including
the cost of improvement or construction) of the item of property or assets
subject thereto and such Lien is created prior to, at the time of or within
six months after the later of the acquisition, the completion of construction
or the commencement of full operation of such property or (2) to refinance any
Indebtedness previously so secured, (b) the principal amount of the
Indebtedness secured by such Lien does not exceed 100% of such cost and (c)
any such Lien shall not extend to or
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cover any property or assets other than such item of property or assets and
any improvements on such item; (x) leases or subleases granted to others that
do not materially interfere with the ordinary course of business of the
Company and its Restricted Subsidiaries; (xi) Liens encumbering property or
assets under construction arising from progress or partial payments by a
customer of the Company or its Restricted Subsidiaries relating to such
property or assets; (xii) Liens arising from filing precautionary Uniform
Commercial Code financing statements regarding leases; (xiii) Liens on
property of, or on shares of stock or Indebtedness of, any corporation
existing at the time such corporation becomes, or becomes a part of, any
Restricted Subsidiary; provided that such Liens do not extend to or cover any
property or assets of the Company or any Restricted Subsidiary other than the
property or assets acquired; (xiv) Liens in favor of the Company or any
Restricted Subsidiary; (xv) Liens securing reimbursement obligations with
respect to letters of credit that encumber documents and other property
relating to such letters of credit and the products and proceeds thereof;
(xvi) Liens in favor of customs and revenue authorities arising as a matter of
law to secure payment of customs duties in connection with the importation of
goods; (xvii) Liens encumbering customary initial deposits and margin
deposits, and other Liens that are either within the general parameters
customary in the industry and incurred in the ordinary course of business, in
each case, securing Indebtedness under Permitted Interest Rate Agreements and
Currency Agreements; and (xviii) Liens arising out of conditional sale, title
retention, consignment or similar arrangements for the sale of goods entered
into by the Company or any of its Restricted Subsidiaries in the ordinary
course of business in accordance with the past practices of the Company and
its Restricted Subsidiaries prior to the Issue Date.
"Person" means any individual, corporation, limited liability company,
partnership, limited liability partnership, joint venture, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
"Preferred Stock" of any Person means Capital Stock of such Person of any
class or classes (however designated) that ranks prior, as to the payment of
dividends or as to the distribution of assets upon any voluntary or
involuntary liquidation, dissolution or winding up of such Person, to shares
of Capital Stock of any other class of such Person.
"Property" means, with respect to any Person, any interest of such Person in
any kind of property or asset, whether real, personal or mixed, or tangible or
intangible, excluding Capital Stock in any other Person.
"Purchase Money Indebtedness" means Indebtedness of the Company (including
Acquired Indebtedness and Capital Lease Obligations, mortgage financings and
purchase money obligations) incurred for the purpose of financing all or any
part of the cost of construction, acquisition, development or improvement by
the Company or any Restricted Subsidiary of any Telecommunications Assets of
the Company or any Restricted Subsidiary and including any related notes,
Guarantees, collateral documents, instruments and agreements executed in
connection therewith, as the same may be amended, supplemented, modified or
restated from time to time.
"Qualified Receivable Facility" means Indebtedness of the Company or any
Subsidiary Incurred from time to time pursuant to either (x) credit facilities
secured by Receivables or (y) receivable purchase facilities, and including
any related notes, Guarantees, collateral documents, instruments and
agreements executed in connection therewith, as the same may be amended,
supplemented, modified or restated from time to time.
"Qualified Receivable Subsidiary" means a Restricted Subsidiary formed
solely for the purpose of obtaining a Qualified Receivable Facility and
substantially all of the Property of which is Receivables.
"Qualified Stock" of any Person means a class of Capital Stock other than
Disqualified Stock.
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"Receivables" means receivables, chattel paper, instruments, documents or
intangibles evidencing or relating to the right to payment of money and
proceeds and products thereof in each case generated in the ordinary course of
business.
"Restricted Payment" means (i) a dividend or other distribution declared or
paid on the Capital Stock of the Company or to the Company's stockholders (in
their capacity as such), or declared or paid to any Person other than the
Company or a Restricted Subsidiary of the Company on the Capital Stock of any
Restricted Subsidiary of the Company, in each case, other than dividends,
distributions or payments made solely in Qualified Stock of the Company or
such Restricted Subsidiary, (ii) a payment made by the Company or any of its
Restricted Subsidiaries (other than to the Company or any Restricted
Subsidiary) to purchase, redeem, acquire or retire any Capital Stock of the
Company or of a Restricted Subsidiary, (iii) a payment made by the Company or
any of its Restricted Subsidiaries (other than a payment made solely in
Qualified Stock of the Company) to redeem, repurchase, defease (including an
in-substance or legal defeasance) or otherwise acquire or retire for value
(including pursuant to mandatory repurchase covenants), prior to any scheduled
maturity, scheduled sinking fund or mandatory redemption payment, Indebtedness
of the Company or such Restricted Subsidiary which is subordinate (whether
pursuant to its terms or by operation of law) in right of payment to the
October 1998 Senior Notes and which was scheduled to mature on or after the
maturity of the October 1998 Senior Notes or (iv) an Investment in any Person,
including an Unrestricted Subsidiary or the designation of a Subsidiary as an
Unrestricted Subsidiary, other than (a) a Permitted Investment, (b) an
Investment by the Company in a Wholly-Owned Restricted Subsidiary or (c) an
Investment by a Restricted Subsidiary in the Company or a Wholly-Owned
Restricted Subsidiary of the Company.
"Restricted Subsidiary" means any Subsidiary of the Company that has not
been designated as an "Unrestricted Subsidiary."
"Sale and Leaseback Transaction" means, with respect to any Person, any
direct or indirect arrangement pursuant to which Property is sold or
transferred by such Person or a Restricted Subsidiary of such Person and is
thereafter leased back from the purchaser or transferee thereof by such Person
or one of its Restricted Subsidiaries.
"Senior Credit Facility" means Indebtedness of the Company and its
Subsidiaries Incurred from time to time pursuant to one or more credit
agreements or similar facilities made available from time to time to the
Company and its Subsidiaries, whether or not secured, and including any
related notes, Guarantees, collateral documents, instruments and agreements
executed in connection therewith, as the same may be amended, supplemented,
modified or restated from time to time.
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred), and, when used with respect
to any installment of interest on such security, the fixed date on which such
installment of interest is due and payable.
"Strategic Equity Investment" means an equity investment made by a Strategic
Investor in the Company in an aggregate amount of not less than $25 million.
"Strategic Investor" means a Person (other than the Permitted Holders)
engaged in one or more Telecommunications Businesses that has, or 80% or more
of the Voting Stock of which is owned by a Person that has, an equity market
capitalization at the time of its initial Investment in the Company in excess
of $2 billion.
"Subordinated Indebtedness" means Indebtedness of the Company as to which
the payment of principal of (and premium, if any) and interest and other
payment obligations in respect of such
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Indebtedness shall be subordinate to the prior payment in full of the October
1998 Senior Notes to at least the following extent: (i) no payments of
principal of (or premium, if any) or interest on or otherwise due in respect
of such Indebtedness may be permitted for so long as any default in the
payment of principal (or premium, if any) or interest on the October 1998
Senior Notes exists; (ii) in the event that any other default that with the
passing of time or the giving of notice, or both, would constitute an event of
default exists with respect to the October 1998 Senior Notes, upon notice by
25% or more in principal amount of the October 1998 Senior Notes to the
Trustee, the Trustee shall give notice to the Company and the holders of such
Indebtedness (or trustees or agents therefor) of a payment blockage, and
thereafter no payments of principal of (or premium, if any) or interest on or
otherwise due in respect of such Indebtedness may be made for a period of 179
days from the date of such notice; and (iii) such Indebtedness may not (x)
provide for payments of principal of such Indebtedness at the stated maturity
thereof or by way of a sinking fund applicable thereto or by way of any
mandatory redemption, defeasance, retirement or repurchase thereof by the
Company (including any redemption, retirement or repurchase which is
contingent upon events or circumstances, but excluding any retirement required
by virtue of acceleration of such Indebtedness upon an event of default
thereunder), in each case prior to the final Stated Maturity of the October
1998 Senior Notes or (y) permit redemption or other retirement (including
pursuant to an offer to purchase made by the Company) of such other
Indebtedness at the option of the holder thereof prior to the final Stated
Maturity of the October 1998 Senior Notes, other than a redemption or other
retirement at the option of the holder of such Indebtedness (including
pursuant to an offer to purchase made by the Company) which is conditioned
upon a change of control of the Company pursuant to provisions substantially
similar to those described under "--Repurchase at the Option of Holders upon a
Change of Control" (and which shall provide that such Indebtedness will not be
repurchased pursuant to such provisions prior to the Company's repurchase of
the October 1998 Senior Notes required to be repurchased by the Company
pursuant to the provisions described under "--Repurchase at the Option of
Holders upon a Change of Control").
"Subsidiary" means, with respect to any Person, (i) any corporation more
than 50% of the outstanding shares of Voting Stock of which is owned, directly
or indirectly, by such Person, or by one or more other Subsidiaries of such
Person, or by such Person and one or more other Subsidiaries of such Person,
(ii) any general partnership, limited liability company, joint venture or
similar entity, more than 50% of the outstanding partnership, membership or
similar interests of which are owned, directly or indirectly, by such Person,
or by one or more other Subsidiaries of such Person, or by such Person and one
or more other Subsidiaries of such Person and (iii) any limited partnership of
which such Person or any Subsidiary of such Person is a general partner.
"Telecommunications Assets" means all assets, rights (contractual or
otherwise) and properties, whether tangible or intangible, used or intended
for use in connection with a Telecommunications Business.
"Telecommunications Business" means the business of (i) transmitting, or
providing services relating to the transmission of, voice, video or data
through owned or leased wireline or wireless transmission facilities, (ii)
creating, developing, constructing, installing, repairing, maintaining or
marketing communications-related systems, network equipment and facilities,
software and other products, (iii) creating, developing, producing or
marketing audiotext or videotext, (iv) publishing or distributing telephone
(including Internet) directories, whether in paper, electronic, audio or video
format, (v) marketing (including direct marketing and telemarketing), or (vi)
evaluating, participating in or pursuing any other business that is primarily
related to those identified in the foregoing clauses (i), (ii), (iii), (iv) or
(v) above (in the case of clauses (iii), (iv) and (v), however, in a manner
consistent with the Company's manner of business on the Issue Date), and
shall, in any event, include all businesses in which the Company or any of its
Subsidiaries are engaged on the Issue Date; provided that the determination of
what constitutes a Telecommunications Business shall be made in good faith by
the Board of Directors.
86
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"Trading Day" means, with respect to a security traded on a securities
exchange, automated quotation system or market, a day on which such exchange,
system or market is open for a full day of trading.
"Unrestricted Subsidiary" means any Subsidiary of the Company that the
Company has classified as an "Unrestricted Subsidiary" and that has not been
reclassified as a Restricted Subsidiary, pursuant to the terms of the October
1998 Indenture.
"U.S. Government Obligations" means (x) securities that are (i) direct
obligations of the United States of America for the payment of which the full
faith and credit of the United States of America is pledged or (ii)
obligations of a Person controlled or supervised by and acting as an agency or
instrumentality of the United States of America the payment of which is
unconditionally guaranteed as a full faith and credit obligation by the United
States of America, which, in either case, are not callable or redeemable at
the option of the issuer thereof, and (y) depository receipts issued by a bank
(as defined in Section 3(a)(2) of the Securities Act) as custodian with
respect to any U.S. Government Obligation which is specified in clause (x)
above and held by such Bank for the account of the holder of such depository
receipt, or with respect to any specific payment of principal or interest on
any U.S. Government Obligation which is so specified and held, provided that
(except as required by law) such custodian is not authorized to make any
deduction from the amount payable to the holder of such depository receipt
from any amount received by the custodian in respect of the U.S. Government
Obligation or the specific payment of principal or interest of the U.S.
Government Obligation evidenced by such depository receipt.
"Voting Stock" means, with respect to any Person, securities of any class or
classes of Capital Stock in such Person entitling the holders thereof (whether
at all times or at the times that such class of Capital Stock has voting power
by reason of the happening of any contingency) to vote in the election of
members of the board of directors or comparable body of such Person.
"Wholly-Owned Restricted Subsidiary" of any Person means a Subsidiary of
such Person all of the outstanding Capital Stock or other ownership interests
(other than any director's qualifying shares) of which shall at the time be
owned by such Person or by one or more other Wholly-Owned Restricted
Subsidiaries of such Person or by such Person and one or more other Wholly-
Owned Restricted Subsidiaries of such Person.
87
<PAGE>
OTHER INDEBTEDNESS
On March 4, 1997, the Company completed an offering of $500 million
aggregate principal amount at maturity of 1997 Senior Discount Notes. The 1997
Senior Discount Notes were priced at a discount and the Company received net
proceeds of approximately $288.9 million from the offering of the 1997 Senior
Discount Notes. The 1997 Senior Discount Notes will accrete to an aggregate
principal amount of $500 million by March 1, 2002. Interest will not accrue on
the 1997 Senior Discount Notes prior to March 1, 2002. Thereafter, interest
will accrue at a rate of 10-1/2% per annum which will be payable in cash semi-
annually in arrears on March 1 and September 1 of each year, commencing
September 1, 2002. The 1997 Senior Discount Notes rank pari passu in right of
payment with the 1997 Senior Notes, the March 1998 Senior Notes and the
October 1998 Senior Notes. The 1997 Senior Discount Notes will mature on March
1, 2007 and will be payable prior to the maturity of the 1997 Senior Notes,
the March 1998 Senior Notes and the October 1998 Senior Notes.
On July 21, 1997, the Company completed an offering of $225 million
principal amount of 1997 Senior Notes. The Company received net proceeds of
approximately $217.6 million from the offering of the 1997 Senior Notes. The
1997 Senior Notes accrue interest at a rate of 9-1/4% per annum which is
payable in cash semi-annually in arrears on July 15 and January 15 of each
year, commencing January 15, 1998. The 1997 Senior Notes rank pari passu in
right of payment with the 1997 Senior Discount Notes, the March 1998 Senior
Notes and the October 1998 Senior Notes. The 1997 Senior Notes will mature on
July 15, 2007 and will be payable prior to the maturity of the March 1998
Senior Notes and the October 1998 Senior Notes.
On March 16, 1998, the Company completed an offering of $300 million
principal amount of March 1998 Senior Notes. The Company received net proceeds
of approximately $291.9 million from the offering of the March 1998 Senior
Notes. The March 1998 Senior Notes accrue interest at a rate of 8-3/8% per
annum which is payable in cash semi-annually in arrears on March 15 and
September 15 of each year, commencing September 15, 1998. The March 1998
Senior Notes rank pari passu in right of payment with the 1997 Senior Discount
Notes, the 1997 Senior Notes and the October 1998 Senior Notes. The March 1998
Senior Notes will mature on March 15, 2008 and will be payable prior to the
maturity of the October 1998 Senior Notes.
The Indentures impose operating and financial restrictions on the Company
and its subsidiaries that are substantially the same as the restrictions
governing the October 1998 Senior Notes. These restrictions affect, and in
certain cases significantly limit or prohibit, among other things, the ability
of the Company and its subsidiaries to incur additional indebtedness, pay
dividends or make distributions in respect of the Company's or such
subsidiaries' capital stock, make other restricted payments, enter into sale
and leaseback transactions, create liens upon assets, enter into transactions
with affiliates or related persons, sell assets, or consolidate, merge or sell
all or substantially all of their assets. There can be no assurance that such
covenants will not adversely affect the Company's ability to finance its
future operations or capital needs or to engage in other business activities
that may be in the interest of the Company.
The Company has received a non-binding commitment from The Chase Manhattan
Bank to lead a syndication to provide the Proposed Revolving Credit Facility
to a newly formed, wholly owned subsidiary of the Company (the "Borrower").
The Proposed Revolving Credit Facility would be guaranteed by the Company and
all of its subsidiaries and would be secured by a first priority lien on all
current and future assets and properties of the Company or Borrower and such
subsidiaries and by a first priority pledge of the stock of the Borrower and
such subsidiaries. One of the covenants in the Proposed Revolving Credit
Facility would restrict the Company's ability to prepay, redeem or purchase
debt and one of the events of default would be the occurrence of a default
with respect to other indebtedness of the Borrower or the Company. The
Borrower would be obligated to pay interest
88
<PAGE>
and fees with respect to the Proposed Revolving Credit Facility at the rates
and in the amounts specified in such commitment. It is expected that revisions
will be made to such commitment and that additional matters will be negotiated
with the prospective lenders prior to the finalization of the Proposed
Revolving Credit Facility. There can be no assurance however that the Company
will complete the Proposed Revolving Credit Facility on acceptable terms or at
all.
89
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. This Prospectus, as it may
be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of Exchange Notes received in exchange for
Outstanding Notes where such Outstanding Notes were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that, starting on the Expiration Date and ending on the close of business on
the first anniversary of the Expiration Date, it will make this Prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale.
The Company will not receive any proceeds from any sale of Exchange Notes by
broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from
any such broker-dealer and/or the purchasers of any such Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit of any
such resale of Exchange Notes and any commissions or concessions received by
any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by acknowledging that it
will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
For a period of one year after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such
documents in the Letter of Transmittal. The Company has agreed to pay all
expenses incident to the Exchange Offer (including the expenses of one counsel
for the holders of the Outstanding Notes), other than commissions or
concessions of any brokers or dealers, and will indemnify the holders of the
Outstanding Notes (including any broker-dealers) against certain liabilities,
including liabilities under the Securities Act.
LEGAL MATTERS
The legality of the Exchange Notes offered hereby are being passed upon for
the Company by Hogan & Hartson L.L.P., Washington, D.C., special counsel for
the Company. Certain legal matters relating to the Offering were passed upon
for the Initial Purchasers by Mayer, Brown & Platt, Chicago, Illinois.
90
<PAGE>
EXPERTS
The consolidated financial statements and schedule of McLeodUSA and
subsidiaries as of December 31, 1997 and 1996, and for each of the three years
ended December 31, 1997, 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.
The consolidated financial statements of Consolidated Communications Inc. as
of December 31, 1996 and 1995, and for each of the three years ended December
31, 1996 incorporated by reference in this Registration Statement have been
audited by Arthur Andersen LLP, independent public accountants, as indicated
in their report with respect thereto, and are incorporated by reference herein
in reliance upon the authority of said firm as experts in giving said reports.
CHANGES IN ACCOUNTANTS
On March 27, 1997, the Company engaged the accounting firm of Arthur
Andersen LLP as the Company's principal independent accountants to replace
McGladrey & Pullen, LLP, the Company's former independent accountants,
effective with such engagement. The decision to change independent accountants
was made following a review of competitive proposals submitted by Arthur
Andersen LLP and two other major public accounting firms, and was recommended
by the Audit Committee of the Board of Directors and approved by the Board.
McGladrey & Pullen, LLP did not resign and did not decline to stand for re-
election. During the Company's two fiscal years ended December 31, 1995 and
December 31, 1996 and during the interim period prior to the engagement of
Arthur Andersen LLP, there have been no consultations with the newly engaged
accountants with regard to either the application of accounting principles as
to any specific transaction, either completed or proposed; the type of audit
opinion that would be rendered on the Company's financial statements; or any
matter of disagreement with the former accountants.
During the two fiscal years ended December 31, 1996 and 1995, and the
interim period subsequent to December 31, 1996, there have been no
disagreements with McGladrey & Pullen, LLP on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure which would have caused McGladrey & Pullen, LLP to make reference in
their report to such disagreements if not resolved to their satisfaction.
McGladrey & Pullen, LLP's reports on the financial statements of the Company
for the fiscal years ended December 31, 1996 and 1995 have contained no
adverse opinion or disclaimer of opinion and were not qualified or modified as
to uncertainty, audit scope or accounting principles.
The Company has provided McGladrey & Pullen, LLP with a copy of this
disclosure and requested that McGladrey & Pullen, LLP furnish it with a letter
addressed to the Commission stating whether it agrees with the above
statements. (A copy of the McGladrey & Pullen, LLP letter addressed to the
Commission is filed as Exhibit 16.1 to the Company's Annual Report on Form 10-
K for the fiscal year ended December 31, 1997).
91
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NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER MADE
HEREBY EXCEPT AS CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE, NO SUCH
INFORMATION OR REPRESENTATION SHOULD BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, THE INITIAL PURCHASERS OR ANY OF THEIR RESPECTIVE AGENTS. NEI-
THER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATIONS THAT THERE HAS BEEN NO CHANGE IN
THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF THE COMPANY SINCE THE
DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICI-
TATION OF AN OFFER TO BUY THE EXCHANGE NOTES BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAK-
ING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
-----------------
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
Where You Can Get More Information....................................... ii
Forward-Looking Statements............................................... iii
Summary.................................................................. 1
Risk Factors............................................................. 12
The Exchange Offer....................................................... 22
Use of Proceeds.......................................................... 31
Capitalization........................................................... 32
Selected Consolidated Financial Data..................................... 33
Pro Forma Financial Data................................................. 35
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 38
Description of the Exchange Notes........................................ 53
Other Indebtedness....................................................... 88
Plan of Distribution..................................................... 90
Legal Matters............................................................ 90
Experts.................................................................. 91
Changes in Accountants................................................... 91
</TABLE>
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$300,000,000
MCLEODUSA
INCORPORATED
9 1/2% SENIOR NOTES
DUE 2008
LOGO
PROSPECTUS
DATED , 1999
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. 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.
The Amended and Restated Certificate of Incorporation of the Company (the
"Restated Certificate") contains provisions that provide that no director of
the Company shall be liable for breach of fiduciary duty as a director except
for (1) any breach of the directors' duty of loyalty to the Company 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. The Restated Certificate contains
provisions that further provide for the indemnification of directors and
officers to the fullest extent permitted by the DGCL. Under the Bylaws of the
Company, the Company 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, the Company has entered into
indemnity agreements with each of its directors pursuant to which the Company
has agreed to indemnify the directors as permitted by the DGCL. The Company
has obtained directors and officers liability insurance against certain
liabilities, including liabilities under the Securities Act.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
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<C> <S>
1.1 Purchase Agreement, dated as of February 26, 1997 among Salomon
Brothers Inc, Morgan Stanley & Co. Incorporated and McLeod, Inc.
(Filed as Exhibit 1.1 to Registration Statement on Form S-4, File
No.333-27647 (the "July 1997 Form S-4"), and incorporated herein by
reference).
1.2 Purchase Agreement, dated as of July 15, 1997 among Salomon Brothers
Inc, Bear, Stearns & Co. Inc., Morgan Stanley Dean Witter and
McLeodUSA Incorporated. (Filed as Exhibit 1.2 to Registration
Statement on Form S-4, File No. 333-34227 (the "November 1997 Form S-
4"), and incorporated herein by reference).
1.3 Purchase Agreement, dated as of March 10, 1998 among Salomon Brothers
Inc, Bear, Stearns & Co. Inc., Morgan Stanley & Co. Incorporated,
Chase Securities Inc. and McLeodUSA Incorporated. (Filed as Exhibit
1.3 to Registration Statement on Form S-4, File No. 333-52793 (the
"May 1998 Form S-4"), and incorporated herein by reference).
</TABLE>
II-1
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
*1.4 Purchase Agreement, dated as of October 22, 1998 among Salomon Smith
Barney Inc., Bear, Stearns & Co. Inc., Morgan Stanley & Co.
Incorporated, Chase Securities Inc. and McLeodUSA Incorporated.
2.1 Agreement and Plan of Reorganization dated April 28, 1995 among
Midwest Capital Group Inc., MWR Telecom, Inc. and McLeod, Inc. (Filed
as Exhibit 2.1 to Registration Statement on Form S-1, File No. 333-
3112 ("Initial Form S-1"), and incorporated herein by reference).
2.2 Agreement and Plan of Reorganization dated as of July 12, 1996 among
Ruffalo, Cody & Associates, Inc., certain shareholders of Ruffalo,
Cody & Associates, Inc. and McLeod, Inc. (Filed as Exhibit 2 to
Current Report on Form 8-K, File No. 0-20763, filed with the
Commission on July 29, 1996 and incorporated herein by reference).
2.3 Agreement and Plan of Reorganization dated as of August 15, 1996
among TelecomwUSA Publishing Group, Inc. and McLeod, Inc. (Filed as
Exhibit 2 to Current Report on Form 8-K, File No. 0-20763, filed with
the Commission on August 26, 1996 and incorporated herein by
reference).
2.4 Agreement and Plan of Reorganization dated as of January 27, 1997
among McLeod, Inc., Digital Communications of Iowa, Inc., Clark E.
McLeod and Mary E. McLeod. (Filed as Exhibit 2 to Current Report on
Form 8-K, File No. 0-20763, filed with the Commission on February 24,
1997 and incorporated herein by reference).
2.5 Asset Purchase Agreement dated as of May 30, 1997 by and among
McLeodUSA Incorporated, ESI/McLeodUSA, Inc., and ESI Communications,
Inc., ESI Communications/ SW, Inc., ESI Communications/West, Inc.,
ESI Communications Downtown, Inc., ESI Communications North, Inc.,
and Michael Reichert, Peter Jones, John Pupkes and Jeff Meehan.
(Filed as Exhibit 2.1 to Current Report on Form 8-K, File No. 0-20763
(the "June 1997 Form 8-K"), filed with the Commission on June 26,
1997 and incorporated herein by reference).
2.6 Agreement and Plan of Reorganization dated as of June 14, 1997 among
McLeodUSA Incorporated, Eastside Acquisition Co. and Consolidated
Communications Inc. (Filed as Exhibit 2.2 to the June 1997 Form 8-K
and incorporated herein by reference).
2.7 Agreement and Plan of Merger dated as of October 27, 1998 among
McLeodUSA Incorporated, West Group Acquisition Co. and Dakota
Telecommunications Group, Inc. (Filed as Exhibit 2.7 to the
Registration Statement on Form S-4, File No. 333-68891 (the "December
1998 Form S-4"), and incorporated herein by reference).
3.1 Amended and Restated Certificate of Incorporation of McLeod, Inc.
(Filed as Exhibit 3.1 to Initial Form S-1 and incorporated herein by
reference).
3.2 Amended and Restated Bylaws of McLeod, Inc. (Filed as Exhibit 3.2 to
Registration Statement on Form S-1, File No. 333-13885 (the "November
1996 Form S-1"), and incorporated herein by reference).
3.3 Certificate of Amendment of Amended and Restated Certificate of
Incorporation of McLeod Inc. (Filed as Exhibit 3.3 to the July 1997
Form S-4 and incorporated herein by reference).
3.4 Certificate of Change of Registered Agent and Registered Office of
McLeodUSA Incorporated. (Filed as Exhibit 3.4 to Annual Report on
Form 10-K, File No. 0-20763, filed with the Commission on March 6,
1998 (the "1997 Form 10-K") and incorporated herein by reference).
4.1 Form of Class A Common Stock Certificate of McLeod, Inc. (Filed as
Exhibit 4.1 to Initial Form S-1 and incorporated herein by
reference).
</TABLE>
II-2
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<TABLE>
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EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
4.2 Indenture dated March 4, 1997 between McLeod, Inc. and United States
Trust Company of New York, as Trustee, relating to the 10 1/2% Senior
Discount Notes Due 2007 of McLeod, Inc. (Filed as Exhibit 4.2 to
Annual Report on Form 10-K, File No. 0-20763, filed with the
Commission on March 31, 1997 (the "1996 Form 10-K") and incorporated
herein by reference).
4.3 Initial Global 10 1/2% Senior Discount Note Due March 1, 2007 of
McLeod, Inc., dated March 4, 1997. (Filed as Exhibit 4.3 to the 1996
Form 10-K and incorporated herein by reference).
4.4 Form of Certificated 10 1/2% Senior Discount Note Due March 1, 2007
of McLeod, Inc. (Filed as Exhibit 4.4 to the 1996 Form 10-K and
incorporated herein by reference).
4.5 Registration Agreement dated March 4, 1997 among McLeod, Inc.,
Salomon Brothers Inc and Morgan Stanley & Co. Incorporated. (Filed as
Exhibit 4.5 to the 1996 Form 10-K and incorporated herein by
reference).
4.6 Investor Agreement dated as of April 1, 1996 among McLeod, Inc., IES
Investments Inc., Midwest Capital Group Inc., MWR Investments Inc.,
Clark and Mary McLeod, and certain other stockholders. (Filed as
Exhibit 4.8 to Initial Form S-1 and incorporated herein by
reference).
4.7 Amendment No. 1 to Investor Agreement dated as of October 23, 1996 by
and among McLeod, Inc., IES Investments Inc., Midwest Capital Group
Inc., MWR Investments Inc., Clark E. McLeod and Mary E. McLeod.
(Filed as Exhibit 4.3 to the November 1996 Form S-1 and incorporated
herein by reference).
4.8 Form of 10 1/2% Senior Discount Exchange Note Due 2007 of McLeodUSA
Incorporated. (Filed as Exhibit 4.8 to the July 1997 Form S-4 and
incorporated herein by reference).
4.9 Indenture dated as of July 21, 1997 between McLeodUSA Incorporated
and United States Trust Company of New York, as Trustee, relating to
the 9 1/4% Senior Notes Due 2007 of McLeodUSA Incorporated. (Filed as
Exhibit 4.9 to the July 1997 Form S-4 and incorporated herein by
reference).
4.10 Form of Initial Global 9 1/4% Senior Note Due 2007 of McLeodUSA
Incorporated. (Filed as Exhibit 4.10 to the July 1997 Form S-4 and
incorporated herein by reference).
4.11 Registration Agreement dated July 21, 1997 among McLeodUSA
Incorporated, Salomon Brothers Inc, Morgan Stanley Dean Witter and
Bear, Stearns & Co. Inc. (Filed as Exhibit 4.11 to the July 1997 Form
S-4 and incorporated herein by reference).
4.12 Stockholders' Agreement dated June 14, 1997 among McLeodUSA
Incorporated, IES Investments Inc., Midwest Capital Group, Inc., MWR
Investments Inc., Clark E. McLeod, Mary E. McLeod and Richard A.
Lumpkin on behalf of each of the shareholders of Consolidated
Communications Inc. listed on Schedule 1 of the Stockholders'
Agreement. (Filed as Exhibit 4.12 to the July 1997 Form S-4 and
incorporated herein by reference).
4.13 Amendment No. 1 to Stockholders' Agreement dated as of September 19,
1997 by and among McLeodUSA Incorporated, IES Investments Inc.,
Midwest Capital Group, Inc., MWR Investments Inc., Clarke E. McLeod,
Mary E. McLeod and Richard A. Lumpkin on behalf of each of the
shareholders of Consolidated Communications Inc. listed in Schedule I
thereto. (Filed as Exhibit 4.1 to the Quarterly Report on Form 10-Q,
File No. 0-20763, filed with the Commission on November 14, 1997 and
incorporated herein by reference).
4.14 Form of 9 1/4% Senior Exchange Note Due 2007 of McLeodUSA
Incorporated. (Filed as Exhibit 4.14 to the 1997 Form 10-K and
incorporated herein by reference).
</TABLE>
II-3
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EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
4.15 Indenture dated as of March 16, 1998 between McLeodUSA Incorporated
and United States Trust Company of New York, as Trustee, relating to
the 8 3/8% Senior Notes Due 2008 of McLeodUSA Incorporated. (Filed as
Exhibit 4.15 to the May 1998 Form S-4 and incorporated herein by
reference).
4.16 Form of Global 8 3/8% Senior Note Due 2008 of McLeodUSA Incorporated
(contained in the Indenture filed as Exhibit 4.15).
4.17 Registration Agreement dated March 16, 1998 among McLeodUSA
Incorporated, Salomon Brothers Inc, Bear, Stearns & Co. Inc., Morgan
Stanley & Co. Incorporated and Chase Securities Inc. (Filed as
Exhibit 4.17 to the May 1998 Form S-4 and incorporated herein by
reference.)
4.18 Stockholders' Agreement dated as of November 18, 1998 by and among
McLeodUSA Incorporated, IES Investments Inc., Clarke E. McLeod, Mary
E. McLeod and Richard A. Lumpkin, Gail G. Lumpkin and certain of the
former shareholders of Consolidated Communications Inc. ("CCI") and
certain permitted transferees of the former CCI shareholders in each
case who are listed in schedule I thereto. (Filed as Exhibit 99.1 to
the Current Report on Form 8-K, File No. 0-20763, filed with the
Commission on November 19, 1998 and incorporated herein by
reference).
*4.19 Indenture dated as of October 30, 1998 between McLeodUSA Incorporated
and United States Trust Company of New York, as Trustee, relating to
the 9 1/2% Senior Notes Due 2008 of McLeodUSA Incorporated.
*4.20 Form of Global 9 1/2% Senior Note Due 2008 of McLeodUSA Incorporated
(contained in the Indenture filed as Exhibit 4.19).
*4.21 Registration Agreement dated October 30, 1998 among McLeodUSA
Incorporated, Salomon Smith Barney Inc., Bear, Stearns & Co. Inc.,
Morgan Stanley & Co. Incorporated and Chase Securities Inc.
*5.1 Opinion of Hogan & Hartson L.L.P.
10.1 Credit Agreement dated as of May 16, 1994 among McLeod, Inc., McLeod
Network Services, Inc., McLeod Telemanagement, Inc., McLeod
Telecommunications, Inc. and The First National Bank of Chicago.
(Filed as Exhibit 10.1 to Initial Form S-1 and incorporated herein by
reference).
10.2 First Amendment to Credit Agreement dated as of June 17, 1994 among
McLeod, Inc., McLeod Network Services, Inc., McLeod Telemanagement,
Inc., McLeod Telecommunications, Inc. and The First National Bank of
Chicago. (Filed as Exhibit 10.2 to Initial Form S-1 and incorporated
herein by reference).
10.3 Second Amendment to Credit Agreement dated as of December 1, 1994
among McLeod, Inc., McLeod Network Services, Inc., McLeod
Telemanagement, Inc., McLeod Telecommunications, Inc. and The First
National Bank of Chicago. (Filed as Exhibit 10.3 to Initial Form S-1
and incorporated herein by reference).
10.4 Third Amendment to Credit Agreement dated as of May 31, 1995 among
McLeod, Inc., McLeod Network Services, Inc., McLeod Telemanagement,
Inc., McLeod Telecommunications, Inc., MWR Telecom, Inc. and The
First National Bank of Chicago. (Filed as Exhibit 10.4 to Initial
Form S-1 and incorporated herein by reference).
10.5 Fourth Amendment to Credit Agreement dated as of July 28, 1995 among
McLeod, Inc., McLeod Network Services, Inc., McLeod Telemanagement,
Inc., McLeod Telecommunications, Inc., MWR Telecom, Inc. and The
First National Bank of Chicago. (Filed as Exhibit 10.5 to Initial
Form S-1 and incorporated herein by reference).
</TABLE>
II-4
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
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<C> <S>
10.6 Fifth Amendment to Credit Agreement dated as of October 18, 1995
among McLeod, Inc., McLeod Network Services, Inc., McLeod
Telemanagement, Inc., McLeod Telecommunications, Inc., MWR Telecom,
Inc. and The First National Bank of Chicago. (Filed as Exhibit 10.6
to Initial Form S-1 and incorporated herein by reference).
10.7 Sixth Amendment to Credit Agreement dated as of March 29, 1996 among
McLeod, Inc., McLeod Network Services, Inc., McLeod
Telecommunications, Inc., MWR Telecom, Inc. and The First National
Bank of Chicago. (Filed as Exhibit 10.7 to Initial Form S-1 and
incorporated herein by reference).
10.8 Security Agreement dated as of May 16, 1994 among McLeod, Inc.,
McLeod Network Services, Inc., McLeod Telemanagement, Inc., McLeod
Telecommunications, Inc. and The First National Bank of Chicago.
(Filed as Exhibit 10.8 to Initial Form S-1 and incorporated herein by
reference).
10.9 First Amendment to Security Agreement dated as of December 1, 1994
among McLeod, Inc., McLeod Network Services, Inc., McLeod
Telemanagement, Inc., McLeod Telecommunications, Inc. and The First
National Bank of Chicago. (Filed as Exhibit 10.9 to Initial Form S-1
and incorporated herein by reference).
10.10 Support Agreement dated as of December 1, 1994 among IES Diversified
Inc., McLeod, Inc., McLeod Network Services, Inc., McLeod
Telemanagement, Inc., McLeod Telecommunications, Inc. and The First
National Bank of Chicago. (Filed as Exhibit 10.10 to Form S-1 and
incorporated herein by reference).
10.11 Agreement Regarding Support Agreement dated December 1994 between
McLeod, Inc. and IES Diversified Inc. (Filed as Exhibit 10.11 to
Initial Form S-1 and incorporated herein by reference).
10.12 Agreement Regarding Guarantee dated May 16, 1994 between McLeod, Inc.
and IES Diversified Inc. (Filed as Exhibit 10.12 to Initial Form S-1
and incorporated herein by reference).
10.13 Joinder to and Assumption of Credit Agreement dated as of April 28,
1995 between McLeod Merging Co. and The First National Bank of
Chicago. (Filed as Exhibit 10.13 to Initial Form S-1 and incorporated
herein by reference).
10.14 Joinder to and Assumption of Security Agreement dated as of April 28,
1995 between McLeod Merging Co. and The First National Bank of
Chicago. (Filed as Exhibit 10.14 to Initial Form S-1 and incorporated
herein by reference).
10.15 Letter from The First National Bank of Chicago to James L. Cram dated
April 28, 1995 regarding extension of the termination date under the
Credit Agreement. (Filed as Exhibit 10.15 to Initial Form S-1 and
incorporated herein by reference).
10.16 Credit Agreement dated as of March 29, 1996 among McLeod, Inc.,
McLeod Network Services, Inc., McLeod Telemanagement, Inc., McLeod
Telecommunications, Inc. MWR Telecom, Inc. and The First National
Bank of Chicago. (Filed as Exhibit 10.16 to Initial Form S-1 and
incorporated herein by reference).
10.17 Agreement for Construction Related Services dated as of October 17,
1995 between City Signal Fiber Services, Inc. and McLeod Network
Services, Inc. (Filed as Exhibit 10.17 to Initial Form S-1 and
incorporated herein by reference).
10.18 Construction Services Agreement dated March 27, 1996 between City
Signal Fiber Services, Inc. and McLeod Network Services, Inc. (Filed
as Exhibit 10.18 to Initial Form S-1 and incorporated herein by
reference).
</TABLE>
II-5
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
10.19 Fiber Optic Use Agreement dated as of February 14, 1996 between
McLeod Network Services, Inc. and Galaxy Telecom, L.P. (Filed as
Exhibit 10.19 to Initial Form S-1 and incorporated herein by
reference).
10.20 Agreement dated as of July 11, 1994 between McLeod Network Services,
Inc. and KLK Construction. (Filed as Exhibit 10.20 to Initial Form S-
1 and incorporated herein by reference).
10.21 Lease Agreement dated September 5, 1995 between State of Iowa and MWR
Telecom, Inc. (Filed as Exhibit 10.21 to Initial Form S-1 and
incorporated herein by reference).
10.22 Lease Agreement dated September 5, 1995 between State of Iowa and
McLeod Network Services, Inc. (Filed as Exhibit 10.22 to Initial Form
S-1 and incorporated herein by reference).
10.23 Contract dated September 5, 1995 between Iowa Telecommunications and
Technology Commission and MWR Telecom, Inc. (Filed as Exhibit 10.23
to Initial Form S-1 and incorporated herein by reference).
10.24 Contract dated June 27, 1995 between Iowa National Guard and McLeod
Network Services, Inc. (Filed as Exhibit 10.24 to Initial Form S-1
and incorporated herein by reference).
10.25 Addendum Number One to Contract dated September 5, 1995 between Iowa
National Guard and McLeod Network Services, Inc. (Filed as Exhibit
10.25 to Initial Form S-1 and incorporated herein by reference).
10.26 U S WEST Centrex Plus Service Rate Stability Plan dated October 15,
1993 between McLeod Telemanagement, Inc. and U S WEST Communications,
Inc. (Filed as Exhibit 10.26 to Initial Form S-1 and incorporated
herein by reference).
10.27 U S WEST Centrex Plus Service Rate Stability Plan dated July 17, 1993
between McLeod Telemanagement, Inc. and U S WEST Communications, Inc.
(Filed as Exhibit 10.27 to Initial Form S-1 and incorporated herein
by reference).
10.28 Ameritech Centrex Service Confirmation of Service Orders dated
various dates in 1994, 1995 and 1996 between McLeod Telemanagement,
Inc. and Ameritech Information Industry Services. (Filed as Exhibit
10.28 to Initial Form S-1 and incorporated herein by reference).
10.29 Lease Agreement dated as of December 28, 1993 between 2060
Partnership and McLeod Telemanagement, Inc., as amended by Amendments
First to Ninth dated as of July 3, 1994, March 25, 1994, June 22,
1994, August 12, 1994, September 12, 1994, September 20, 1994,
November 16, 1994, September 20, 1995 and January 6, 1996,
respectively. (Filed as Exhibit 10.29 to Initial Form S-1 and
incorporated herein by reference).
10.30 Lease Agreement dated as of May 24, 1995 between 2060 Partnership and
McLeod Telemanagement, Inc. (Filed as Exhibit 10.30 to Initial Form
S-1 and incorporated herein by reference).
10.31 Lease Agreement dated October 31, 1995 between I.R.F.B. Joint Venture
and McLeod Telemanagement, Inc. (Filed as Exhibit 10.31 to Initial
Form S-1 and incorporated herein by reference).
10.32 First Amendment to Lease Agreement dated as of November 20, 1995
between I.R.F.B. Joint Venture and McLeod Telemanagement, Inc. (Filed
as Exhibit 10.32 to Initial Form S-1 and incorporated herein by
reference).
10.33 Uniform Purchase Agreement dated July 22, 1993 between McLeod, Inc.
and Hill's Maple Crest Farms Partnership. (Filed as Exhibit 10.33 to
Initial Form S-1 and incorporated herein by reference).
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
10.34 Master Right-of-Way Agreement dated July 27, 1994 between McLeod
Network Services, Inc. and IES Industries Inc. (Filed as Exhibit
10.34 to Initial Form S-1 and incorporated herein by reference).
10.35 Master Right-of-Way and Tower Use Agreement dated February 13, 1996
between IES Industries Inc. and McLeod, Inc. (Filed as Exhibit 10.35
to Initial Form S-1 and incorporated herein by reference).
10.36 Master Pole, Duct and Tower Use Agreement dated February 20, 1996
between MidAmerican Energy Company and McLeod, Inc. (Iowa and South
Dakota). (Filed as Exhibit 10.36 to Initial Form S-1 and incorporated
herein by reference).
10.37 Master Pole, Duct and Tower Use Agreement dated February 20, 1996
between MidAmerican Energy Company and McLeod, Inc. (Illinois).
(Filed as Exhibit 10.37 to Initial Form S-1 and incorporated herein
by reference).
10.38 Settlement Agreement dated March 18, 1996 between U S WEST
Communications, Inc. and McLeod Telemanagement, Inc. (Filed as
Exhibit 10.38 to Initial Form S-1 and incorporated herein by
reference).
10.39 Agreement dated August 4, 1995 between Vadacom, Inc. and McLeod
Telemanagement, Inc. (Filed as Exhibit 10.39 to Initial Form S-1 and
incorporated herein by reference).
10.40 McLeod Telecommunications, Inc. 1992 Incentive Stock Option Plan.
(Filed as Exhibit 10.40 to Initial Form S-1 and incorporated herein
by reference).
10.41 McLeod, Inc. 1993 Incentive Stock Option Plan. (Filed as Exhibit
10.41 to Initial Form S-1 and incorporated herein by reference).
10.42 McLeod, Inc. 1995 Incentive Stock Option Plan. (Filed as Exhibit
10.42 to Initial Form S-1 and incorporated herein by reference).
10.43 McLeod Telecommunications, Inc. Director Stock Option Plan. (Filed as
Exhibit 10.43 to Initial Form S-1 and incorporated herein by
reference).
10.44 Promissory Note dated July 18, 1995 between Kirk E. Kaalberg and
McLeod, Inc. (Filed as Exhibit 10.44 to Initial Form S-1 and
incorporated herein by reference).
10.45 Promissory Note dated March 29, 1996 between Stephen K. Brandenburg
and McLeod, Inc. (Filed as Exhibit 10.45 to Initial Form S-1 and
incorporated herein by reference).
10.46 Agreement dated April 28, 1995 among McLeod, Inc., McLeod
Telecommunications, Inc., McLeod Telemanagement, Inc., McLeod Network
Services, Inc. and Clark E. McLeod. (Filed as Exhibit 10.46 to
Initial Form S-1 and incorporated herein by reference).
**10.47 Telecommunications Services Agreement dated March 14, 1994 between
WilTel, Inc. and McLeod Telemanagement, Inc., as amended. (Filed as
Exhibit 10.47 to Initial Form S-1 and incorporated herein by
reference).
10.48 Amendment to Contract Addendum A to Contract No. 2102 dated March 31,
1993 between the Iowa Department of General Services and McLeod
Telecommunications, Inc. (Filed as Exhibit 10.48 to Initial Form S-1
and incorporated herein by reference).
10.49 Construction Services Agreement dated June 30, 1995 between MFS
Network Technologies, Inc. and MWR Telecom, Inc. (Filed as Exhibit
10.49 to Initial Form S-1 and incorporated herein by reference).
10.50 First Amendment to Agreement Regarding Support Agreement dated May
14, 1996 among McLeod, Inc., IES Diversified Inc. and IES Investments
Inc. (Filed as Exhibit 10.50 to Initial Form S-1 and incorporated
herein by reference).
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
10.51 First Amendment to Agreement Regarding Guarantee dated May 14, 1996
among McLeod, Inc., IES Diversified Inc. and IES Investments Inc.
(Filed as Exhibit 10.51 to Initial Form S-1 and incorporated herein
by reference).
10.52 Amended and Restated Directors Stock Option Plan of McLeod, Inc.
(Filed as Exhibit 10.52 to Initial Form S-1 and incorporated herein
by reference).
10.53 Forms of Employment, Confidentiality and Non-Competition Agreement
between McLeod, Inc. and certain employees of McLeod, Inc. (Filed as
Exhibit 10.53 to Initial Form S-1 and incorporated herein by
reference).
10.54 Form of Change-of-Control Agreement between McLeod, Inc. and certain
employees of McLeod, Inc. (Filed as Exhibit 10.54 to Initial Form S-1
and incorporated herein by reference).
10.55 McLeod, Inc. 1996 Employee Stock Option Plan, as amended. (Filed as
Exhibit 10.55 to the November 1996 Form S-1 and incorporated herein
by reference).
10.56 McLeod, Inc. Employee Stock Purchase Plan, as amended. (Filed as
Exhibit 10.56 to the 1996 Form 10-K and incorporated herein by
reference).
10.57 Form of Indemnity Agreement between McLeod, Inc. and certain officers
and directors of McLeod, Inc. (Filed as Exhibit 10.57 to Initial Form
S-1 and incorporated herein by reference).
10.58 License Agreement dated April 24, 1996 between PageMart, Inc. and MWR
Telecom, Inc. (Filed as Exhibit 10.58 to Initial Form S-1 and
incorporated herein by reference).
10.59 Assignment of Purchase Agreement dated August 15, 1996 between Ryan
Properties, Inc. and McLeod, Inc. (Filed as Exhibit 10.59 to the
November 1996 Form S-1 and incorporated herein by reference).
10.60 Assignment of Purchase Agreement dated August 14, 1996 between Ryan
Properties, Inc. and McLeod, Inc. (Filed as Exhibit 10.60 to the
November 1996 Form S-1 and incorporated herein by reference).
10.61 Asset Purchase Agreement dated September 4, 1996 between Total
Communication Services, Inc. and McLeod Telemanagement, Inc. (Filed
as Exhibit 10.61 to the November 1996 Form S-1 and incorporated
herein by reference).
10.62 First Amendment to Asset Purchase Agreement dated September 30, 1996
between Total Communication Services, Inc. and McLeod Telemanagement,
Inc. (Filed as Exhibit 10.62 to the November 1996 Form S-1 and
incorporated herein by reference).
10.63 McLeod, Inc. Incentive Plan. (Filed as Exhibit 10.63 to the November
1996 Form S-1 and incorporated herein by reference).
10.64 Amended and Restated Credit Agreement dated as of May 5, 1996 among
TelecomUSA Publishing Group, Inc., TelecomUSA Publishing Company and
TelecomUSA Neighborhood Directories, Inc. and Norwest Bank Iowa,
National Association. (Filed as Exhibit 10.64 to the November 1996
Form S-1 and incorporated herein by reference).
10.65 First Amendment to Amended and Restated Credit Agreement dated as of
January 31, 1996 by and between TelecomUSA Publishing Group, Inc.,
TelecomUSA Publishing Company and TelecomUSA Neighborhood
Directories, Inc. and Norwest Bank Iowa, National Association. (Filed
as Exhibit 10.65 to the November 1996 Form S-1 and incorporated
herein by reference).
10.66 Lease Agreement dated as of September 26, 1994 between Ryan
Properties, Inc. and Ruffalo, Cody & Associates, Inc. (Filed as
Exhibit 10.66 to the November 1996 Form S-1 and incorporated herein
by reference).
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
10.67 First Lease Amendment dated as of April 12, 1995 between Ryan
Properties, Inc. and Ruffalo, Cody & Associates, Inc. (Filed as
Exhibit 10.67 to the November 1996 Form S-1 and incorporated herein
by reference).
10.68 Lease Agreement dated as of July 18, 1995 between 2060 Partnership,
L.P. and TelecomUSA Publishing Company. (Filed as Exhibit 10.68 to
the November 1996 Form S-1 and incorporated herein by reference).
10.69 Lease Agreement dated April 26, 1995 by and between A.M. Henderson
and TelecomUSA Publishing Company. (Filed as Exhibit 10.69 to the
November 1996 Form S-1 and incorporated herein by reference).
10.70 License Agreement dated as of April 19, 1994, between Ameritech
Information Industry Services and TelecomUSA Publishing Company.
(Filed as Exhibit 10.70 to the November 1996 Form S-1 and
incorporated herein by reference).
10.71 License Agreement dated September 13, 1993 between U S WEST
Communications, Inc. and TelecomUSA Publishing Company. (Filed as
Exhibit 10.71 to the November 1996 Form S-1 and incorporated herein
by reference).
10.72 Form of McLeod, Inc. Directors Stock Option Plan Option Agreement.
(Filed as Exhibit 10.72 to the November 1996 Form S-1 and
incorporated herein by reference).
10.73 Forms of McLeod, Inc. 1996 Employee Stock Option Plan Incentive Stock
Option Agreement. (Filed as Exhibit 10.73 to the November 1996 Form
S-1 and incorporated herein by reference).
10.74 Forms of McLeod, Inc. 1996 Employee Stock Option Plan Non-Incentive
Stock Option Agreement. (Filed as Exhibit 10.74 to the November 1996
Form S-1 and incorporated herein by reference).
10.75 Option Agreement dated April 27, 1995 between Fronteer Directory
Company, Inc. and TelecomUSA Publishing Company. (Filed as Exhibit
10.75 to the November 1996 Form S-1 and incorporated herein by
reference).
10.76 Promissory Note dated May 5, 1995 between TelecomUSA Publishing
Company and Fronteer Directory Company, Inc. (Filed as Exhibit 10.76
to the November 1996 Form S-1 and incorporated herein by reference).
10.77 Security Agreement dated May 5, 1995 between TelecomUSA Publishing
Company and Fronteer Directory Company, Inc. (Filed as Exhibit 10.77
to the November 1996 Form S-1 and incorporated herein by reference).
10.78 Design/Build Construction Contract dated September 17, 1996 between
Ryan Construction Company of Minnesota, Inc. and McLeod, Inc. (Filed
as Exhibit 10.78 to the November 1996 Form S-1 and incorporated
herein by reference).
10.79 Guaranty Agreement dated as of October 17, 1996 by McLeod, Inc. in
favor of Kirkwood Community College. (Filed as Exhibit 10.79 to the
November 1996 Form S-1 and incorporated herein by reference).
10.80 Industrial New Jobs Training Agreement dated as of October 31, 1996
between Kirkwood Community College and McLeod Telemanagement, Inc.
(Filed as Exhibit 10.80 to the November 1996 Form S-1 and
incorporated herein by reference).
10.81 Industrial New Jobs Training Agreement dated as of October 31, 1996
between Kirkwood Community College and McLeod Telecommunications,
Inc. (Filed as Exhibit 10.81 to the November 1996 Form S-1 and
incorporated herein by reference).
</TABLE>
II-9
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
10.82 Industrial New Jobs Training Agreement dated as of October 31, 1996
between Kirkwood Community College and McLeod Network Services, Inc.
(Filed as Exhibit 10.82 to the November 1996 Form S-1 and
incorporated herein by reference).
10.83 Industrial New Jobs Training Agreement dated as of October 31, 1996
between Kirkwood Community College and McLeod, Inc. (Filed as Exhibit
10.83 to the November 1996 Form S-1 and incorporated herein by
reference).
10.84 Change Order No. 1 to the Construction Services Agreement dated
November 22, 1995 by and between MWR Telecom, Inc. and MFS Network
Technologies, Inc. (Filed as Exhibit 10.84 to the November 1996 Form
S-1 and incorporated herein by reference).
10.85 Change Order No. 2 to the Construction Services Agreement dated
August 14, 1996 between MWR Telecom, Inc. and MFS Network
Technologies, Inc. (Filed as Exhibit 10.85 to the November 1996 Form
S-1 and incorporated herein by reference).
10.86 Change Order No. 3 to the Construction Services Agreement dated
October 31, 1996 between MWR Telecom, Inc. and MFS Network
Technologies, Inc. (Filed as Exhibit 10.86 to the November 1996 Form
S-1 and incorporated herein by reference).
10.87 Independent Contractor Sales Agreement dated May, 1995 between Sprint
Communications Company L.P. and Ruffalo, Cody & Associates, Inc.
(Filed as Exhibit 10.87 to the November 1996 Form S-1 and
incorporated herein by reference).
10.88 Second Amendment to Asset Purchase Agreement dated October 31, 1996
between Total Communication Services, Inc. and McLeod Telemanagement,
Inc. (Filed as Exhibit 10.88 to the November 1996 Form S-1 and
incorporated herein by reference).
10.89 Escrow Agreement dated July 15, 1996 among McLeod, Inc., certain
shareholders of Ruffalo, Cody & Associates, Inc., Albert P. Ruffalo
and Norwest Bank N.A. (Filed as Exhibit 10.89 to the November 1996
Form S-1 and incorporated herein by reference).
10.90 Sale and Purchase Agreement dated January 27, 1997 among McLeodUSA
Publishing Company, Fronteer Financial Holdings, Ltd., Classified
Directories, Inc., Larry A. Scott, James Greff, Randall L. Gowin and
Edwin Dressler and certain directors, officers and shareholders of
Fronteer Financial Holdings, Ltd. (Filed as Exhibit 10.90 to the 1996
Form 10-K and incorporated herein by reference).
10.91 Sale and Purchase Agreement dated February 27, 1997 among McLeodUSA
Publishing Company, Indiana Directories, Inc., John Morgan, Hank
Meijer, Jack Hendricks, Brad Nelson and Talking Directories, Inc.
(Filed as Exhibit 10.91 to the 1996 Form 10-K and incorporated herein
by reference).
10.92 Amendment to Sale and Purchase Agreement dated February 28, 1997
between McLeodUSA Publishing Company and Indiana Directories, Inc.
(Filed as Exhibit 10.92 to the 1996 Form 10-K and incorporated herein
by reference).
10.93 Ameritech Centrex Service Confirmation of Service Orders dated August
21, 1996 between McLeod Telemanagement, Inc. and Ameritech
Information Industry Services. (Filed as Exhibit 10.93 to the 1996
Form 10-K and incorporated herein by reference).
**10.94 Amended and Restated Program Enrollment Terms dated November 1, 1996
between WorldCom Network Services, Inc. d/b/a WilTel and McLeod
Telemanagement, Inc. (Filed as Exhibit 10.94 to Annual Report on Form
10-K/A, File No. 0-20763, filed with the Commission on April 8, 1997
and incorporated herein by reference).
10.95 Letter Agreement dated April 15, 1997 between U S WEST Communications
and McLeodUSA Network Services, Inc. (Filed as Exhibit 10.1 to
Quarterly Report on Form 10-Q, File No. 0-20763, filed with the
Commission on May 14, 1997 and incorporated herein by reference).
</TABLE>
II-10
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
10.96 Network Agreement dated April 7, 1997, between Wisconsin Power and
Light Company and McLeodUSA Telecommunications Services, Inc. (Filed
as Exhibit 10.96 to the July 1997 Form S-4 and incorporated herein by
reference).
10.97 Agreement dated July 7, 1997 between McLeodUSA Telecommunications
Services, Inc. and U S WEST Communications, Inc. (Filed as Exhibit
10.97 to the July 1997 Form S-4 and incorporated herein by
reference).
10.98 Agreement dated August 14, 1997 between McLeodUSA Incorporated and
Taylor Ball, Inc. (Filed as Exhibit 10.98 to the November 1997 Form
S-4 and incorporated herein by reference).
10.99 Interconnection Agreement Under Sections 251 and 252 of the
Telecommunications Act of 1996 dated as of October 28, 1996 between
Ameritech Information Industry Services and Consolidated
Communications Telecom Services Inc. (Filed as Exhibit 10.99 to the
November 1997 Form S-4 and incorporated herein by reference).
10.100 Interconnection Agreement Under Sections 251 and 252 of the
Telecommunications Act of 1996 dated as of July 17, 1997 between
Ameritech Information Industry Services and Consolidated
Communications Telecom Services Inc. (Filed as Exhibit 10.100 to the
November 1997 Form S-4 and incorporated herein by reference).
11.1 Statement regarding Computation of Per Share Earnings (Filed as
Exhibit 11.1 to the Quarterly Report on Form 10-Q, File No. 0-20763,
filed with the Commission on May 13, 1998 and incorporated herein by
reference).
16.1 Letter regarding Change in Certifying Accountant (Filed as Exhibit
16.1 to the 1997 Form 10-K and incorporated herein by reference).
21.1 Subsidiaries of McLeodUSA Incorporated (Filed as Exhibit 21.1 to the
1997 Form 10-K and incorporated herein by reference).
23.1 Consent of Hogan & Hartson L.L.P. (included in Exhibit 5.1).
*23.2 Consent of Arthur Andersen LLP.
24.1 Power of attorney (included on signature page).
*24.2 Statement on Form T-1 of Eligibility of Trustee.
27.1 Financial Data Schedule (Filed as Exhibit 27.1 to the Quarterly
Report on Form 10-Q, File No. 0-20763, filed with the Commission on
May 13, 1998 and incorporated herein by reference).
99.1 Purchase Agreement dated as of August 15, 1996 between Iowa Land and
Building Company and Ryan Properties, Inc. (Filed as Exhibit 99.1 to
the November Form S-1 and incorporated herein by reference).
99.2 Purchase Agreement dated as of June 28, 1996 between Donald E.
Zvacek, Dennis E. Zvacek and Robert J. Zvacek and Ryan Properties,
Inc. (Filed as Exhibit 99.2 to the November Form S-1 and incorporated
herein by reference).
*99.3 Form of Letter of Transmittal.
*99.4 Form of Notice of Guaranteed Delivery.
*99.5 Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies
and other Nominees.
*99.6 Form of Letter to Clients.
</TABLE>
- --------
* Filed herewith
** Confidential treatment has been granted. The copy filed as an exhibit omits
the information subject to the confidential treatment request.
II-11
<PAGE>
(b) Financial Statement Schedules.
The following financial statement schedule was filed with the Company's
Annual Report on Form 10-K (File No. 0-20763), filed with the Commission on
March 9, 1998, and is incorporated herein by reference:
Schedule II--Valuation and Qualifying Accounts
Schedules not listed above have been omitted because they are inapplicable
or the information required to be set forth therein is contained, or
incorporated by reference, in the Consolidated Financial Statements of the
Company or notes thereto.
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, 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 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 and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of this Registration Statement through
the date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in
this Registration Statement when it became effective.
The undersigned registrant hereby undertakes 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 (the "Securities Act");
(ii) to reflect in the prospectus any facts or events arising after the
effective date of this Registration Statement (or the most recent post-
effective amendment hereof) which, individually or in the aggregate,
represents 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 Securities and
Exchange Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in this Registration Statement when it becomes
effective; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or any
material change to such information in this Registration Statement.
II-12
<PAGE>
The undersigned registrant hereby undertakes that, for the purpose of
determining any liability under the Securities Act, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes 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.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-13
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECURITIES ACT, THE COMPANY HAS DULY CAUSED
THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF CEDAR RAPIDS, IOWA, ON THIS 18TH DAY
OF DECEMBER, 1998.
McLeodUSA Incorporated
/s/ Clark E. McLeod
By: _________________________________
CLARK E. MCLEOD
CHAIRMAN AND CHIEF EXECUTIVE
OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Clark E. McLeod, Stephen C. Gray and Blake O.
Fisher, Jr., jointly and severally, each in his own capacity, his true and
lawful attorneys-in-fact, with full power of substitution, for him and his
name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents with full power and authority to do so
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorneys-
in-fact, or their substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS, IN THE CAPACITIES
INDICATED BELOW, ON THIS 18TH DAY OF DECEMBER, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Clark E. McLeod Chairman, Chief Executive Officer
______________________________________ and Director (Principal Executive
CLARK E. MCLEOD Officer)
/s/ Richard A. Lumpkin Vice Chairman and Director
______________________________________
RICHARD A. LUMPKIN
/s/ Stephen C. Gray President, Chief Operating Officer
______________________________________ and Director
STEPHEN C. GRAY
/s/ Blake O. Fisher, Jr. Group Vice President and Director
______________________________________
BLAKE O. FISHER, JR.
/s/ J. Lyle Patrick Group Vice President, Chief
______________________________________ Financial Officer and Treasurer
J. LYLE PATRICK (Principal Financial Officer)
</TABLE>
II-14
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Joseph H. Ceryanec Vice President, Finance, Corporate
______________________________________ Controller and Principal Accounting
JOSEPH H. CERYANEC Officer (Principal Accounting
Officer)
/s/ Thomas M. Collins Director
______________________________________
THOMAS M. COLLINS
Director
______________________________________
ROBERT J. CURREY
/s/ Lee Liu Director
______________________________________
LEE LIU
/s/ Paul D. Rhines Director
______________________________________
PAUL D. RHINES
Director
______________________________________
RONALD W. STEPIEN
</TABLE>
II-15
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
1.1 Purchase Agreement, dated as of February 26, 1997 among Salomon
Brothers Inc, Morgan Stanley & Co. Incorporated and McLeod, Inc.
(Filed as Exhibit 1.1 to Registration Statement on Form S-4, File No.
333-27647 (the "July 1997 Form S-4"), and incorporated herein by
reference).
1.2 Purchase Agreement, dated as of July 15, 1997 among Salomon Brothers
Inc, Bear, Stearns & Co. Inc., Morgan Stanley Dean Witter and
McLeodUSA Incorporated. (Filed as Exhibit 1.2 to Registration
Statement on Form S-4, File No. 333-34227 (the "November 1997 Form S-
4"), and incorporated herein by reference).
1.3 Purchase Agreement, dated as of March 10, 1998 among Salomon Brothers
Inc, Bear, Stearns & Co. Inc., Morgan Stanley & Co. Incorporated,
Chase Securities Inc. and McLeodUSA Incorporated. (Filed as Exhibit
1.3 to Registration Statement on Form S-4, File No. 333-52793 (the
"May 1998 Form S-4"), and incorporated herein by reference).
*1.4 Purchase Agreement, dated as of October 22, 1998 among Salomon Smith
Barney Inc., Bear, Stearns & Co. Inc., Morgan Stanley & Co.
Incorporated, Chase Securities Inc. and McLeodUSA Incorporated.
2.1 Agreement and Plan of Reorganization dated April 28, 1995 among
Midwest Capital Group Inc., MWR Telecom, Inc. and McLeod, Inc. (Filed
as Exhibit 2.1 to Registration Statement on Form S-1, File No. 333-
3112 ("Initial Form S-1"), and incorporated herein by reference).
2.2 Agreement and Plan of Reorganization dated as of July 12, 1996 among
Ruffalo, Cody & Associates, Inc., certain shareholders of Ruffalo,
Cody & Associates, Inc. and McLeod, Inc. (Filed as Exhibit 2 to
Current Report on Form 8-K, File No. 0-20763, filed with the
Commission on July 29, 1996 and incorporated herein by reference).
2.3 Agreement and Plan of Reorganization dated as of August 15, 1996 among
TelecomwUSA Publishing Group, Inc. and McLeod, Inc. (Filed as Exhibit
2 to Current Report on Form 8-K, File No. 0-20763, filed with the
Commission on August 26, 1996 and incorporated herein by reference).
2.4 Agreement and Plan of Reorganization dated as of January 27, 1997
among McLeod, Inc., Digital Communications of Iowa, Inc., Clark E.
McLeod and Mary E. McLeod. (Filed as Exhibit 2 to Current Report on
Form 8-K, File No. 0-20763, filed with the Commission on February 24,
1997 and incorporated herein by reference).
2.5 Asset Purchase Agreement dated as of May 30, 1997 by and among
McLeodUSA Incorporated, ESI/McLeodUSA, Inc., and ESI Communications,
Inc., ESI Communications/ SW, Inc., ESI Communications/West, Inc., ESI
Communications Downtown, Inc., ESI Communications North, Inc., and
Michael Reichert, Peter Jones, John Pupkes and Jeff Meehan. (Filed as
Exhibit 2.1 to Current Report on Form 8-K, File No. 0-20763 (the "June
1997 Form 8-K"), filed with the Commission on June 26, 1997 and
incorporated herein by reference).
2.6 Agreement and Plan of Reorganization dated as of June 14, 1997 among
McLeodUSA Incorporated, Eastside Acquisition Co. and Consolidated
Communications Inc. (Filed as Exhibit 2.2 to the June 1997 Form 8-K
and incorporated herein by reference).
2.7 Agreement and Plan of Merger dated as of October 27, 1998 among
McLeodUSA Incorporated, West Group Acquisition Co. and Dakota
Telecommunications Group, Inc. (Filed as Exhibit 2.7 to the
Registration Statement on Form S-4, File No. 333-68891 (the "December
1998 Form S-4"), and incorporated herein by reference).
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
3.1 Amended and Restated Certificate of Incorporation of McLeod, Inc.
(Filed as Exhibit 3.1 to Initial Form S-1 and incorporated herein by
reference).
3.2 Amended and Restated Bylaws of McLeod, Inc. (Filed as Exhibit 3.2 to
Registration Statement on Form S-1, File No. 333-13885 (the "November
1996 Form S-1"), and incorporated herein by reference).
3.3 Certificate of Amendment of Amended and Restated Certificate of
Incorporation of McLeod Inc. (Filed as Exhibit 3.3 to the July 1997
Form S-4 and incorporated herein by reference).
3.4 Certificate of Change of Registered Agent and Registered Office of
McLeodUSA Incorporated. (Filed as Exhibit 3.4 to Annual Report on Form
10-K, File No. 0-20763, filed with the Commission on March 6, 1998
(the "1997 Form 10-K") and incorporated herein by reference).
4.1 Form of Class A Common Stock Certificate of McLeod, Inc. (Filed as
Exhibit 4.1 to Initial Form S-1 and incorporated herein by reference).
4.2 Indenture dated March 4, 1997 between McLeod, Inc. and United States
Trust Company of New York, as Trustee, relating to the 10 1/2% Senior
Discount Notes Due 2007 of McLeod, Inc. (Filed as Exhibit 4.2 to
Annual Report on Form 10-K, File No. 0-20763, filed with the
Commission on March 31, 1997 (the "1996 Form 10-K") and incorporated
herein by reference).
4.3 Initial Global 10 1/2% Senior Discount Note Due March 1, 2007 of
McLeod, Inc., dated March 4, 1997. (Filed as Exhibit 4.3 to the 1996
Form 10-K and incorporated herein by reference).
4.4 Form of Certificated 10 1/2% Senior Discount Note Due March 1, 2007 of
McLeod, Inc. (Filed as Exhibit 4.4 to the 1996 Form 10-K and
incorporated herein by reference).
4.5 Registration Agreement dated March 4, 1997 among McLeod, Inc., Salomon
Brothers Inc and Morgan Stanley & Co. Incorporated. (Filed as Exhibit
4.5 to the 1996 Form 10-K and incorporated herein by reference).
4.6 Investor Agreement dated as of April 1, 1996 among McLeod, Inc., IES
Investments Inc., Midwest Capital Group Inc., MWR Investments Inc.,
Clark and Mary McLeod, and certain other stockholders. (Filed as
Exhibit 4.8 to Initial Form S-1 and incorporated herein by reference).
4.7 Amendment No. 1 to Investor Agreement dated as of October 23, 1996 by
and among McLeod, Inc., IES Investments Inc., Midwest Capital Group
Inc., MWR Investments Inc., Clark E. McLeod and Mary E. McLeod. (Filed
as Exhibit 4.3 to the November 1996 Form S-1 and incorporated herein
by reference).
4.8 Form of 10 1/2% Senior Discount Exchange Note Due 2007 of McLeodUSA
Incorporated. (Filed as Exhibit 4.8 to the July 1997 Form S-4 and
incorporated herein by reference).
4.9 Indenture dated as of July 21, 1997 between McLeodUSA Incorporated and
United States Trust Company of New York, as Trustee, relating to the 9
1/4% Senior Notes Due 2007 of McLeodUSA Incorporated. (Filed as
Exhibit 4.9 to the July 1997 Form S-4 and incorporated herein by
reference).
4.10 Form of Initial Global 9 1/4% Senior Note Due 2007 of McLeodUSA
Incorporated. (Filed as Exhibit 4.10 to the July 1997 Form S-4 and
incorporated herein by reference).
4.11 Registration Agreement dated July 21, 1997 among McLeodUSA
Incorporated, Salomon Brothers Inc, Morgan Stanley Dean Witter and
Bear, Stearns & Co. Inc. (Filed as Exhibit 4.11 to the July 1997 Form
S-4 and incorporated herein by reference).
4.12 Stockholders' Agreement dated June 14, 1997 among McLeodUSA
Incorporated, IES Investments Inc., Midwest Capital Group, Inc., MWR
Investments Inc., Clark E. McLeod, Mary E. McLeod and Richard A.
Lumpkin on behalf of each of the shareholders of Consolidated
Communications Inc. listed on Schedule 1 of the Stockholders'
Agreement. (Filed as Exhibit 4.12 to the July 1997 Form S-4 and
incorporated herein by reference).
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
4.13 Amendment No. 1 to Stockholders' Agreement dated as of September 19,
1997 by and among McLeodUSA Incorporated, IES Investments Inc.,
Midwest Capital Group, Inc., MWR Investments Inc., Clarke E. McLeod,
Mary E. McLeod and Richard A. Lumpkin on behalf of each of the
shareholders of Consolidated Communications Inc. listed in Schedule I
thereto. (Filed as Exhibit 4.1 to the Quarterly Report on Form 10-Q,
File No. 0-20763, filed with the Commission on November 14, 1997 and
incorporated herein by reference). (Filed as Exhibit 4.15 to the May
1998 Form S-4 and incorporated herein by reference.)
4.14 Form of 9 1/4% Senior Exchange Note Due 2007 of McLeodUSA
Incorporated. (Filed as Exhibit 4.14 to the 1997 Form 10-K and
incorporated herein by reference).
4.15 Indenture dated as of March 16, 1998 between McLeodUSA Incorporated
and United States Trust Company of New York, as Trustee, relating to
the 8- 3/8% Senior Notes Due 2008 of McLeodUSA Incorporated. (Filed as
Exhibit 4.15 to the May 1998 Form S-4 and incorporated herein by
reference.)
4.16 Form of Global 8- 3/8% Senior Note Due 2008 of McLeodUSA Incorporated
(contained in the Indenture filed as Exhibit 4.15).
4.17 Registration Agreement dated March 16, 1998 among McLeodUSA
Incorporated, Salomon Brothers Inc, Bear, Stearns & Co. Inc., Morgan
Stanley & Co. Incorporated and Chase Securities Inc. (Filed as Exhibit
4.17 to the May 1998 Form S-4 and incorporated herein by reference.)
4.18 Stockholders' Agreement dated as of November 18, 1998 by and among
McLeodUSA Incorporated, IES Investments Inc., Clarke E. McLeod, Mary
E. McLeod and Richard A. Lumpkin, Gail G. Lumpkin and certain of the
former shareholders of Consolidated Communications Inc. ("CCI") and
certain permitted transferees of the former CCI shareholders in each
case who are listed in schedule I thereto. (Filed as Exhibit 99.1 to
the Current Report on Form 8-K, File No. 0-20763, filed with the
Commission on November 19, 1998 and incorporated herein by reference).
*4.19 Indenture dated as of October 30, 1998 between McLeodUSA Incorporated
and United States Trust Company of New York, as Trustee, relating to
the 9 1/2% Senior Notes Due 2008 of McLeodUSA Incorporated.
*4.20 Form of Global 9 1/2% Senior Note Due 2008 of McLeodUSA Incorporated
(contained in the Indenture filed as Exhibit 4.19).
*4.21 Registration Agreement dated October 30, 1998 among McLeodUSA
Incorporated, Salomon Smith Barney Inc., Bear, Stearns & Co. Inc.,
Morgan Stanley & Co. Incorporated and Chase Securities Inc.
*5.1 Opinion of Hogan & Hartson L.L.P.
10.1 Credit Agreement dated as of May 16, 1994 among McLeod, Inc., McLeod
Network Services, Inc., McLeod Telemanagement, Inc., McLeod
Telecommunications, Inc. and The First National Bank of Chicago.
(Filed as Exhibit 10.1 to Initial Form S-1 and incorporated herein by
reference).
10.2 First Amendment to Credit Agreement dated as of June 17, 1994 among
McLeod, Inc., McLeod Network Services, Inc., McLeod Telemanagement,
Inc., McLeod Telecommunications, Inc. and The First National Bank of
Chicago. (Filed as Exhibit 10.2 to Initial Form S-1 and incorporated
herein by reference).
10.3 Second Amendment to Credit Agreement dated as of December 1, 1994
among McLeod, Inc., McLeod Network Services, Inc., McLeod
Telemanagement, Inc., McLeod Telecommunications, Inc. and The First
National Bank of Chicago. (Filed as Exhibit 10.3 to Initial Form S-1
and incorporated herein by reference).
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
10.4 Third Amendment to Credit Agreement dated as of May 31, 1995 among
McLeod, Inc., McLeod Network Services, Inc., McLeod Telemanagement,
Inc., McLeod Telecommunications, Inc., MWR Telecom, Inc. and The First
National Bank of Chicago. (Filed as Exhibit 10.4 to Initial Form S-1
and incorporated herein by reference).
10.5 Fourth Amendment to Credit Agreement dated as of July 28, 1995 among
McLeod, Inc., McLeod Network Services, Inc., McLeod Telemanagement,
Inc., McLeod Telecommunications, Inc., MWR Telecom, Inc. and The First
National Bank of Chicago. (Filed as Exhibit 10.5 to Initial Form S-1
and incorporated herein by reference).
10.6 Fifth Amendment to Credit Agreement dated as of October 18, 1995 among
McLeod, Inc., McLeod Network Services, Inc., McLeod Telemanagement,
Inc., McLeod Telecommunications, Inc., MWR Telecom, Inc. and The First
National Bank of Chicago. (Filed as Exhibit 10.6 to Initial Form S-1
and incorporated herein by reference).
10.7 Sixth Amendment to Credit Agreement dated as of March 29, 1996 among
McLeod, Inc., McLeod Network Services, Inc., McLeod
Telecommunications, Inc., MWR Telecom, Inc. and The First National
Bank of Chicago. (Filed as Exhibit 10.7 to Initial Form S-1 and
incorporated herein by reference).
10.8 Security Agreement dated as of May 16, 1994 among McLeod, Inc., McLeod
Network Services, Inc., McLeod Telemanagement, Inc., McLeod
Telecommunications, Inc. and The First National Bank of Chicago.
(Filed as Exhibit 10.8 to Initial Form S-1 and incorporated herein by
reference).
10.9 First Amendment to Security Agreement dated as of December 1, 1994
among McLeod, Inc., McLeod Network Services, Inc., McLeod
Telemanagement, Inc., McLeod Telecommunications, Inc. and The First
National Bank of Chicago. (Filed as Exhibit 10.9 to Initial Form S-1
and incorporated herein by reference).
10.10 Support Agreement dated as of December 1, 1994 among IES Diversified
Inc., McLeod, Inc., McLeod Network Services, Inc., McLeod
Telemanagement, Inc., McLeod Telecommunications, Inc. and The First
National Bank of Chicago. (Filed as Exhibit 10.10 to Form S-1 and
incorporated herein by reference).
10.11 Agreement Regarding Support Agreement dated December 1994 between
McLeod, Inc. and IES Diversified Inc. (Filed as Exhibit 10.11 to
Initial Form S-1 and incorporated herein by reference).
10.12 Agreement Regarding Guarantee dated May 16, 1994 between McLeod, Inc.
and IES Diversified Inc. (Filed as Exhibit 10.12 to Initial Form S-1
and incorporated herein by reference).
10.13 Joinder to and Assumption of Credit Agreement dated as of April 28,
1995 between McLeod Merging Co. and The First National Bank of
Chicago. (Filed as Exhibit 10.13 to Initial Form S-1 and incorporated
herein by reference).
10.14 Joinder to and Assumption of Security Agreement dated as of April 28,
1995 between McLeod Merging Co. and The First National Bank of
Chicago. (Filed as Exhibit 10.14 to Initial Form S-1 and incorporated
herein by reference).
10.15 Letter from The First National Bank of Chicago to James L. Cram dated
April 28, 1995 regarding extension of the termination date under the
Credit Agreement. (Filed as Exhibit 10.15 to Initial Form S-1 and
incorporated herein by reference).
10.16 Credit Agreement dated as of March 29, 1996 among McLeod, Inc., McLeod
Network Services, Inc., McLeod Telemanagement, Inc., McLeod
Telecommunications, Inc. MWR Telecom, Inc. and The First National Bank
of Chicago. (Filed as Exhibit 10.16 to Initial Form S-1 and
incorporated herein by reference).
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
10.17 Agreement for Construction Related Services dated as of October 17,
1995 between City Signal Fiber Services, Inc. and McLeod Network
Services, Inc. (Filed as Exhibit 10.17 to Initial Form S-1 and
incorporated herein by reference).
10.18 Construction Services Agreement dated March 27, 1996 between City
Signal Fiber Services, Inc. and McLeod Network Services, Inc. (Filed
as Exhibit 10.18 to Initial Form S-1 and incorporated herein by
reference).
10.19 Fiber Optic Use Agreement dated as of February 14, 1996 between McLeod
Network Services, Inc. and Galaxy Telecom, L.P. (Filed as Exhibit
10.19 to Initial Form S-1 and incorporated herein by reference).
10.20 Agreement dated as of July 11, 1994 between McLeod Network Services,
Inc. and KLK Construction. (Filed as Exhibit 10.20 to Initial Form S-1
and incorporated herein by reference).
10.21 Lease Agreement dated September 5, 1995 between State of Iowa and MWR
Telecom, Inc. (Filed as Exhibit 10.21 to Initial Form S-1 and
incorporated herein by reference).
10.22 Lease Agreement dated September 5, 1995 between State of Iowa and
McLeod Network Services, Inc. (Filed as Exhibit 10.22 to Initial Form
S-1 and incorporated herein by reference).
10.23 Contract dated September 5, 1995 between Iowa Telecommunications and
Technology Commission and MWR Telecom, Inc. (Filed as Exhibit 10.23 to
Initial Form S-1 and incorporated herein by reference).
10.24 Contract dated June 27, 1995 between Iowa National Guard and McLeod
Network Services, Inc. (Filed as Exhibit 10.24 to Initial Form S-1 and
incorporated herein by reference).
10.25 Addendum Number One to Contract dated September 5, 1995 between Iowa
National Guard and McLeod Network Services, Inc. (Filed as Exhibit
10.25 to Initial Form S-1 and incorporated herein by reference).
10.26 U S WEST Centrex Plus Service Rate Stability Plan dated October 15,
1993 between McLeod Telemanagement, Inc. and U S WEST Communications,
Inc. (Filed as Exhibit 10.26 to Initial Form S-1 and incorporated
herein by reference).
10.27 U S WEST Centrex Plus Service Rate Stability Plan dated July 17, 1993
between McLeod Telemanagement, Inc. and U S WEST Communications, Inc.
(Filed as Exhibit 10.27 to Initial Form S-1 and incorporated herein by
reference).
10.28 Ameritech Centrex Service Confirmation of Service Orders dated various
dates in 1994, 1995 and 1996 between McLeod Telemanagement, Inc. and
Ameritech Information Industry Services. (Filed as Exhibit 10.28 to
Initial Form S-1 and incorporated herein by reference).
10.29 Lease Agreement dated as of December 28, 1993 between 2060 Partnership
and McLeod Telemanagement, Inc., as amended by Amendments First to
Ninth dated as of July 3, 1994, March 25, 1994, June 22, 1994, August
12, 1994, September 12, 1994, September 20, 1994, November 16, 1994,
September 20, 1995 and January 6, 1996, respectively. (Filed as
Exhibit 10.29 to Initial Form S-1 and incorporated herein by
reference).
10.30 Lease Agreement dated as of May 24, 1995 between 2060 Partnership and
McLeod Telemanagement, Inc. (Filed as Exhibit 10.30 to Initial Form S-
1 and incorporated herein by reference).
10.31 Lease Agreement dated October 31, 1995 between I.R.F.B. Joint Venture
and McLeod Telemanagement, Inc. (Filed as Exhibit 10.31 to Initial
Form S-1 and incorporated herein by reference).
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
10.32 First Amendment to Lease Agreement dated as of November 20, 1995
between I.R.F.B. Joint Venture and McLeod Telemanagement, Inc. (Filed
as Exhibit 10.32 to Initial Form S-1 and incorporated herein by
reference).
10.33 Uniform Purchase Agreement dated July 22, 1993 between McLeod, Inc.
and Hill's Maple Crest Farms Partnership. (Filed as Exhibit 10.33 to
Initial Form S-1 and incorporated herein by reference).
10.34 Master Right-of-Way Agreement dated July 27, 1994 between McLeod
Network Services, Inc. and IES Industries Inc. (Filed as Exhibit 10.34
to Initial Form S-1 and incorporated herein by reference).
10.35 Master Right-of-Way and Tower Use Agreement dated February 13, 1996
between IES Industries Inc.and McLeod, Inc. (Filed as Exhibit 10.35 to
Initial Form S-1 and incorporated herein by reference).
10.36 Master Pole, Duct and Tower Use Agreement dated February 20, 1996
between MidAmerican Energy Company and McLeod, Inc. (Iowa and South
Dakota). (Filed as Exhibit 10.36 to Initial Form S-1 and incorporated
herein by reference).
10.37 Master Pole, Duct and Tower Use Agreement dated February 20, 1996
between MidAmerican Energy Company and McLeod, Inc. (Illinois). (Filed
as Exhibit 10.37 to Initial Form S-1 and incorporated herein by
reference).
10.38 Settlement Agreement dated March 18, 1996 between U S WEST
Communications, Inc. and McLeod Telemanagement, Inc. (Filed as Exhibit
10.38 to Initial Form S-1 and incorporated herein by reference).
10.39 Agreement dated August 4, 1995 between Vadacom, Inc. and McLeod
Telemanagement, Inc. (Filed as Exhibit 10.39 to Initial Form S-1 and
incorporated herein by reference).
10.40 McLeod Telecommunications, Inc. 1992 Incentive Stock Option Plan.
(Filed as Exhibit 10.40 to Initial Form S-1 and incorporated herein by
reference).
10.41 McLeod, Inc. 1993 Incentive Stock Option Plan. (Filed as Exhibit 10.41
to Initial Form S-1 and incorporated herein by reference).
10.42 McLeod, Inc. 1995 Incentive Stock Option Plan. (Filed as Exhibit 10.42
to Initial Form S-1 and incorporated herein by reference).
10.43 McLeod Telecommunications, Inc. Director Stock Option Plan. (Filed as
Exhibit 10.43 to Initial Form S-1 and incorporated herein by
reference).
10.44 Promissory Note dated July 18, 1995 between Kirk E. Kaalberg and
McLeod, Inc. (Filed as Exhibit 10.44 to Initial Form S-1 and
incorporated herein by reference).
10.45 Promissory Note dated March 29, 1996 between Stephen K. Brandenburg
and McLeod, Inc. (Filed as Exhibit 10.45 to Initial Form S-1 and
incorporated herein by reference).
10.46 Agreement dated April 28, 1995 among McLeod, Inc., McLeod
Telecommunications, Inc., McLeod Telemanagement, Inc., McLeod Network
Services, Inc. and Clark E. McLeod. (Filed as Exhibit 10.46 to Initial
Form S-1 and incorporated herein by reference).
**10.47 Telecommunications Services Agreement dated March 14, 1994 between
WilTel, Inc. and McLeod Telemanagement, Inc., as amended. (Filed as
Exhibit 10.47 to Initial Form S-1 and incorporated herein by
reference).
10.48 Amendment to Contract Addendum A to Contract No. 2102 dated March 31,
1993 between the Iowa Department of General Services and McLeod
Telecommunications, Inc. (Filed as Exhibit 10.48 to Initial Form S-1
and incorporated herein by reference).
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
10.49 Construction Services Agreement dated June 30, 1995 between MFS
Network Technologies, Inc. and MWR Telecom, Inc. (Filed as Exhibit
10.49 to Initial Form S-1 and incorporated herein by reference).
10.50 First Amendment to Agreement Regarding Support Agreement dated May 14,
1996 among McLeod, Inc., IES Diversified Inc. and IES Investments Inc.
(Filed as Exhibit 10.50 to Initial Form S-1 and incorporated herein by
reference).
10.51 First Amendment to Agreement Regarding Guarantee dated May 14, 1996
among McLeod, Inc., IES Diversified Inc. and IES Investments Inc.
(Filed as Exhibit 10.51 to Initial Form S-1 and incorporated herein by
reference).
10.52 Amended and Restated Directors Stock Option Plan of McLeod, Inc.
(Filed as Exhibit 10.52 to Initial Form S-1 and incorporated herein by
reference).
10.53 Forms of Employment, Confidentiality and Non-Competition Agreement
between McLeod, Inc. and certain employees of McLeod, Inc. (Filed as
Exhibit 10.53 to Initial Form S-1 and incorporated herein by
reference).
10.54 Form of Change-of-Control Agreement between McLeod, Inc. and certain
employees of McLeod, Inc. (Filed as Exhibit 10.54 to Initial Form S-1
and incorporated herein by reference).
10.55 McLeod, Inc. 1996 Employee Stock Option Plan, as amended. (Filed as
Exhibit 10.55 to the November 1996 Form S-1 and incorporated herein by
reference).
10.56 McLeod, Inc. Employee Stock Purchase Plan, as amended. (Filed as
Exhibit 10.56 to the 1996 Form 10-K and incorporated herein by
reference).
10.57 Form of Indemnity Agreement between McLeod, Inc. and certain officers
and directors of McLeod, Inc. (Filed as Exhibit 10.57 to Initial Form
S-1 and incorporated herein by reference).
10.58 License Agreement dated April 24, 1996 between PageMart, Inc. and MWR
Telecom, Inc. (Filed as Exhibit 10.58 to Initial Form S-1 and
incorporated herein by reference).
10.59 Assignment of Purchase Agreement dated August 15, 1996 between Ryan
Properties, Inc. and McLeod, Inc. (Filed as Exhibit 10.59 to the
November 1996 Form S-1 and incorporated herein by reference).
10.60 Assignment of Purchase Agreement dated August 14, 1996 between Ryan
Properties, Inc. and McLeod,Inc. (Filed as Exhibit 10.60 to the
November 1996 Form S-1 and incorporated herein by reference).
10.61 Asset Purchase Agreement dated September 4, 1996 between Total
Communication Services, Inc. and McLeod Telemanagement, Inc. (Filed as
Exhibit 10.61 to the November 1996 Form S-1 and incorporated herein by
reference).
10.62 First Amendment to Asset Purchase Agreement dated September 30, 1996
between Total Communication Services, Inc. and McLeod Telemanagement,
Inc. (Filed as Exhibit 10.62 to the November 1996 Form S-1 and
incorporated herein by reference).
10.63 McLeod, Inc. Incentive Plan. (Filed as Exhibit 10.63 to the November
1996 Form S-1 and incorporated herein by reference).
10.64 Amended and Restated Credit Agreement dated as of May 5, 1996 among
TelecomUSA Publishing Group, Inc., TelecomUSA Publishing Company and
TelecomUSA Neighborhood Directories, Inc. and Norwest Bank Iowa,
National Association. (Filed as Exhibit 10.64 to the November 1996
Form S-1 and incorporated herein by reference).
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
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<C> <S>
10.65 First Amendment to Amended and Restated Credit Agreement dated as of
January 31, 1996 by and between TelecomUSA Publishing Group, Inc.,
TelecomUSA Publishing Company and TelecomUSA Neighborhood Directories,
Inc. and Norwest Bank Iowa, National Association. (Filed as Exhibit
10.65 to the November 1996 Form S-1 and incorporated herein by
reference).
10.66 Lease Agreement dated as of September 26, 1994 between Ryan
Properties, Inc. and Ruffalo, Cody & Associates, Inc. (Filed as
Exhibit 10.66 to the November 1996 Form S-1 and incorporated herein by
reference).
10.67 First Lease Amendment dated as of April 12, 1995 between Ryan
Properties, Inc. and Ruffalo, Cody & Associates, Inc. (Filed as
Exhibit 10.67 to the November 1996 Form S-1 and incorporated herein by
reference).
10.68 Lease Agreement dated as of July 18, 1995 between 2060 Partnership,
L.P. and TelecomUSA Publishing Company. (Filed as Exhibit 10.68 to the
November 1996 Form S-1 and incorporated herein by reference).
10.69 Lease Agreement dated April 26, 1995 by and between A.M. Henderson and
TelecomUSA Publishing Company. (Filed as Exhibit 10.69 to the November
1996 Form S-1 and incorporated herein by reference).
10.70 License Agreement dated as of April 19, 1994, between Ameritech
Information Industry Services and TelecomUSA Publishing Company.
(Filed as Exhibit 10.70 to the November 1996 Form S-1 and incorporated
herein by reference).
10.71 License Agreement dated September 13, 1993 between U S WEST
Communications, Inc. and TelecomUSA Publishing Company. (Filed as
Exhibit 10.71 to the November 1996 Form S-1 and incorporated herein by
reference).
10.72 Form of McLeod, Inc. Directors Stock Option Plan Option Agreement.
(Filed as Exhibit 10.72 to the November 1996 Form S-1 and incorporated
herein by reference).
10.73 Forms of McLeod, Inc. 1996 Employee Stock Option Plan Incentive Stock
Option Agreement. (Filed as Exhibit 10.73 to the November 1996 Form S-
1 and incorporated herein by reference).
10.74 Forms of McLeod, Inc. 1996 Employee Stock Option Plan Non-Incentive
Stock Option Agreement. (Filed as Exhibit 10.74 to the November 1996
Form S-1 and incorporated herein by reference).
10.75 Option Agreement dated April 27, 1995 between Fronteer Directory
Company, Inc. and TelecomUSA Publishing Company. (Filed as Exhibit
10.75 to the November 1996 Form S-1 and incorporated herein by
reference).
10.76 Promissory Note dated May 5, 1995 between TelecomUSA Publishing
Company and Fronteer Directory Company, Inc. (Filed as Exhibit 10.76
to the November 1996 Form S-1 and incorporated herein by reference).
10.77 Security Agreement dated May 5, 1995 between TelecomUSA Publishing
Company and Fronteer Directory Company, Inc. (Filed as Exhibit 10.77
to the November 1996 Form S-1 and incorporated herein by reference).
10.78 Design/Build Construction Contract dated September 17, 1996 between
Ryan Construction Company of Minnesota, Inc. and McLeod, Inc. (Filed
as Exhibit 10.78 to the November 1996 Form S-1 and incorporated herein
by reference).
10.79 Guaranty Agreement dated as of October 17, 1996 by McLeod, Inc. in
favor of Kirkwood Community College. (Filed as Exhibit 10.79 to the
November 1996 Form S-1 and incorporated herein by reference).
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
10.80 Industrial New Jobs Training Agreement dated as of October 31, 1996
between Kirkwood Community College and McLeod Telemanagement, Inc.
(Filed as Exhibit 10.80 to the November 1996 Form S-1 and
incorporated herein by reference).
10.81 Industrial New Jobs Training Agreement dated as of October 31, 1996
between Kirkwood Community College and McLeod Telecommunications,
Inc. (Filed as Exhibit 10.81 to the November 1996 Form S-1 and
incorporated herein by reference).
10.82 Industrial New Jobs Training Agreement dated as of October 31, 1996
between Kirkwood Community College and McLeod Network Services, Inc.
(Filed as Exhibit 10.82 to the November 1996 Form S-1 and
incorporated herein by reference).
10.83 Industrial New Jobs Training Agreement dated as of October 31, 1996
between Kirkwood Community College and McLeod, Inc. (Filed as Exhibit
10.83 to the November 1996 Form S-1 and incorporated herein by
reference).
10.84 Change Order No. 1 to the Construction Services Agreement dated
November 22, 1995 by and between MWR TeIecom, Inc. and MFS Network
Technologies, Inc. (Filed as Exhibit 10.84 to the November 1996 Form
S-1 and incorporated herein by reference).
10.85 Change Order No. 2 to the Construction Services Agreement dated
August 14, 1996 between MWR Telecom, Inc. and MFS Network
Technologies, Inc. (Filed as Exhibit 10.85 to the November 1996 Form
S-1 and incorporated herein by reference).
10.86 Change Order No. 3 to the Construction Services Agreement dated
October 31, 1996 between MWR Telecom, Inc. and MFS Network
Technologies, Inc. (Filed as Exhibit 10.86 to the November 1996 Form
S-1 and incorporated herein by reference).
10.87 Independent Contractor Sales Agreement dated May, 1995 between Sprint
Communications Company L.P. and Ruffalo, Cody & Associates, Inc.
(Filed as Exhibit 10.87 to the November 1996 Form S-1 and
incorporated herein by reference).
10.88 Second Amendment to Asset Purchase Agreement dated October 31, 1996
between Total Communication Services, Inc. and McLeod Telemanagement,
Inc. (Filed as Exhibit 10.88 to the November 1996 Form S-1 and
incorporated herein by reference)
10.89 Escrow Agreement dated July 15, 1996 among McLeod, Inc., certain
shareholders of Ruffalo, Cody & Associates, Inc., Albert P. Ruffalo
and Norwest Bank N.A. (Filed as Exhibit 10.89 to the November 1996
Form S-1 and incorporated herein by reference).
10.90 Sale and Purchase Agreement dated January 27, 1997 among McLeodUSA
Publishing Company, Fronteer Financial Holdings, Ltd., Classified
Directories, Inc., Larry A. Scott, James Greff, Randall L.Gowin and
Edwin Dressler and certain directors, officers and shareholders of
Fronteer Financial Holdings, Ltd. (Filed as Exhibit 10.90 to the 1996
Form 10-K and incorporated herein by reference).
10.91 Sale and Purchase Agreement dated February 27, 1997 among McLeodUSA
Publishing Company, Indiana Directories, Inc., John Morgan, Hank
Meijer, Jack Hendricks, Brad Nelson and Talking Directories, Inc.
(Filed as Exhibit 10.91 to the 1996 Form 10-K and incorporated herein
by reference).
10.92 Amendment to Sale and Purchase Agreement dated February 28, 1997
between McLeodUSA Publishing Company and Indiana Directories, Inc.
(Filed as Exhibit 10.92 to the 1996 Form 10-K and incorporated herein
by reference).
10.93 Ameritech Centrex Service Confirmation of Service Orders dated August
21, 1996 between McLeod Telemanagement, Inc. and Ameritech
Information Industry Services. (Filed as Exhibit 10.93 to the 1996
Form 10-K and incorporated herein by reference).
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
**10.94 Amended and Restated Program Enrollment Terms dated November 1, 1996
between WorldCom Network Services, Inc. d/b/a WilTel and McLeod
Telemanagement, Inc. (Filed as Exhibit 10.94 to Annual Report on Form
10-K/A, File No. 0-20763, filed with the Commission on April 8, 1997
and incorporated herein by reference).
10.95 Letter Agreement dated April 15, 1997 between U S WEST Communications
and McLeodUSA Network Services, Inc. (Filed as Exhibit 10.1 to
Quarterly Report on Form 10-Q, File No. 0-20763, filed with the
Commission on May 14, 1997 and incorporated herein by reference).
10.96 Network Agreement dated April 7, 1997, between Wisconsin Power and
Light Company and McLeodUSA Telecommunications Services, Inc. (Filed
as Exhibit 10.96 to the July 1997 Form S-4 and incorporated herein by
reference).
10.97 Agreement dated July 7, 1997 between McLeodUSA Telecommunications
Services, Inc. and U S WEST Communications, Inc. (Filed as Exhibit
10.97 to the July 1997 Form S-4 and incorporated herein by
reference).
10.98 Agreement dated August 14, 1997 between McLeodUSA Incorporated and
Taylor Ball, Inc. (Filed as Exhibit 10.98 to the November 1997 Form
S-4 and incorporated herein by reference).
10.99 Interconnection Agreement Under Sections 251 and 252 of the
Telecommunications Act of 1996 dated as of October 28, 1996 between
Ameritech Information Industry Services and Consolidated
Communications Telecom Services Inc. (Filed as Exhibit 10.99 to the
November 1997 Form S-4 and incorporated herein by reference).
10.100 Interconnection Agreement Under Sections 251 and 252 of the
Telecommunications Act of 1996 dated as of July 17, 1997 between
Ameritech Information Industry Services and Consolidated
Communications Telecom Services Inc. (Filed as Exhibit 10.100 to the
November 1997 Form S-4 and incorporated herein by reference).
11.1 Statement regarding Computation of Per Share Earnings (Filed as
Exhibit 11.1 to the Quarterly Report on Form 10-Q, File No. 0-20763,
filed with the Commission on May 13, 1998 and incorporated herein by
reference).
16.1 Letter regarding Change in Certifying Accountant (Filed as Exhibit
16.1 to the 1997 Form 10-K and incorporated herein by reference).
21.1 Subsidiaries of McLeodUSA Incorporated (Filed as Exhibit 21.1 to the
1997 Form 10-K and incorporated herein by reference).
23.1 Consent of Hogan & Hartson L.L.P. (included in Exhibit 5.1).
*23.2 Consent of Arthur Andersen LLP.
24.1 Power of attorney (included on signature page).
*24.2 Statement on Form T-1 of Eligibility of Trustee.
27.1 Financial Data Schedule (Filed as Exhibit 27.1 to the Quarterly
Report on Form 10-Q, File No. 0-20763, filed with the Commission on
May 13, 1998 and incorporated herein by reference).
99.1 Purchase Agreement dated as of August 15, 1996 between Iowa Land and
Building Company and Ryan Properties, Inc. (Filed as Exhibit 99.1 to
the November Form S-1 and incorporated herein by reference).
99.2 Purchase Agreement dated as of June 28, 1996 between Donald E.
Zvacek, Dennis E. Zvacek and Robert J. Zvacek and Ryan Properties,
Inc. (Filed as Exhibit 99.2 to the November Form S-1 and incorporated
herein by reference).
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
*99.3 Form of Letter of Transmittal.
*99.4 Form of Notice of Guaranteed Delivery.
*99.5 Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies
and other Nominees.
*99.6 Form of Letter to Clients.
</TABLE>
- --------
* Filed herewith
** Confidential treatment has been granted. The copy filed as an exhibit
omits the information subject to the confidential treatment request.
11
<PAGE>
Exhibit 1.4
MCLEODUSA INCORPORATED
$300,000,000 9 1/2% Senior Notes Due 2008
PURCHASE AGREEMENT
New York, New York
October 22, 1998
Salomon Smith Barney Inc.
Bear, Stearns & Co. Inc
Morgan Stanley & Co. Incorporated
Chase Securities Inc.
c/o Salomon Smith Barney Inc
Seven World Trade Center
New York, New York 10048
Dear Ladies and Gentlemen:
McLeodUSA Incorporated, a Delaware corporation (the "Company"), proposes to
issue and sell to you (the "Purchasers") $300,000,000 principal amount of its 9
1/2% Senior Notes Due 2008 (the "Securities"), to be issued under an indenture
(the "Indenture") to be dated as of October 30, 1998, between the Company and
United States Trust Company of New York, as trustee (the "Trustee").
The sale of the Securities to you will be made without registration of the
Securities under the Securities Act of 1933, as amended (the "Act"), in reliance
upon the exemption from the registration requirements of the Act provided by
Section 4(2) thereof. You have advised the Company that you will make an
offering of the Securities purchased by you hereunder in accordance with Section
4 hereof on the terms set forth in Exhibit D and as will be described in the
Final Memorandum (as defined below), as soon as you deem advisable after this
Agreement has been executed and delivered, solely to persons who you reasonably
believe to be (i) "qualified institutional buyers" as defined in Rule 144A under
the Act ("QIBs") and (ii) persons who are not "U.S. persons," in offers and
sales outside the United States made in reliance on Regulation S under the Act
("Regulation S"), that make certain representations and agreements in the form
of Exhibit A hereto (each, a "Foreign Purchaser") (such persons specified in
clause (i) and (ii) being referred to herein as the "Eligible Purchasers").
<PAGE>
In connection with the sale of the Securities, the Company will prepare a
final offering memorandum, to be dated October 22, 1998 (the "Final
Memorandum"). The Final Memorandum will set forth certain information
concerning the Company and the Securities. The Company hereby confirms that it
has authorized the use of the Final Memorandum in connection with the offering
and resale by the Purchasers of the Securities. Any references herein to the
Final Memorandum shall be deemed to include all exhibits thereto.
I. Representations and Warranties. The Company represents and
------------------------------
warrants to, and agrees with, the Purchasers as set forth below in this Section
1.
(a)(i) The Final Memorandum as of its date did not, and the Final
Memorandum (as the same may have been amended or supplemented) as of the
Closing Date (as defined below) will not, contain or incorporate by
reference any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
--------
however, that the Company makes no representations or warranties as to the
-------
information contained in or omitted from the Final Memorandum (and any
amendment or supplement thereof or thereto) in reliance upon and in
conformity with information furnished in writing to the Company by or on
behalf of any Purchaser specifically for inclusion in the Final Memorandum
(and any amendment or supplement thereof or thereto).
(ii) The Prospectus dated May 26, 1998, used in connection with the
Company's exchange offer for its 8-3/8% Senior Notes due March 15, 2008
(including incorporated documents filed prior to the Execution Time and
excluding incorporated documents filed after the Execution Time, the
"Exchange Offer Prospectus") does not contain or incorporate by reference
any untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.
(b) The Company has not taken and will not take, directly or
indirectly, any action prohibited by Regulation M under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), in connection with
the offering of the Securities.
(c) The documents filed by the Company under the Exchange Act at the
time they were filed with the Commission, complied in all material respects
with the requirements of the Exchange Act and the rules and regulations of
the Securities and Exchange Commission (the "Commission") thereunder and
did not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein, in light of the circumstances
under which they were made, or necessary to make the statements therein not
misleading; and any further documents so filed, when such documents are
filed with the Commission, will conform in all material respects with the
requirements of the Exchange Act and the rules and regulations thereunder
and will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein, in light of the
2
<PAGE>
circumstances under which they were made, or necessary to make the
statements therein not misleading.
(d) Neither the Company nor any affiliate (as defined in Rule 501(b)
of Regulation D under the Act ("Regulation D")) of the Company has
directly, or through any agent (provided that no representation is made as
--------
to the Purchasers or any person acting on their behalf), (i) sold, offered
for sale, solicited offers to buy or otherwise negotiated in respect of,
any security (as defined in the Act) which is or will be integrated with
the sale of the Securities in a manner that would require the registration
of the Securities under the Act or (ii) engaged in any form of general
solicitation or general advertising (within the meaning of Regulation D) in
connection with the offering of the Securities.
(e) It is not necessary in connection with the offer, sale and
delivery of the Securities to the Purchasers in the manner contemplated by
this Agreement to register the Securities under the Act or to qualify the
Indenture under the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act").
(f) Assuming (i) that the representations and warranties of the
Purchasers in Section 4 are true, and (ii) compliance by the Purchasers
with their covenants set forth in Section 4, it is not necessary in
connection with the initial resale of the Securities by the Purchasers in
the manner contemplated by this Agreement to register the Securities under
the Act.
(g) None of the Company, its affiliates or any person acting on behalf
of the Company or its affiliates has engaged in any directed selling
efforts (as that term is defined in Regulation S) with respect to the
Securities, and the Company and its affiliates and any person acting on its
or their behalf have complied with the offering restrictions requirement of
Regulation S (provided that no representation is made as to the Purchasers
--------
or any person acting on their behalf).
(h) The Securities satisfy the requirements set forth in Rule
144A(d)(3) under the Act.
(i) Since the date of the most recent financial statements included or
incorporated by reference in the Exchange Offer Prospectus, there has been
no material adverse change, or any development which could reasonably be
expected to result in a material adverse change, in the condition
(financial or other), earnings, business, prospects or properties of the
Company and its subsidiaries, whether or not arising from transactions in
the ordinary course of business, except as set forth in the Exchange Offer
Prospectus; and, since the respective dates as of which information is
given or incorporated by reference in the Exchange Offer Prospectus, there
has not been any change in the capital stock (other than grants of options
and issuances of common stock in connection with the Company's acquisition
of QST Communications, Inc. or pursuant to existing employee stock option
plans, 401(k) plans, stock ownership plans or stock purchase plans,
repurchases by the
3
<PAGE>
Company of its common stock in the ordinary course of business or
conversions of outstanding convertible securities) of the Company or any of
its subsidiaries or long-term debt (other than changes as a result of
borrowings of the Company or any of its subsidiaries in the ordinary course
of business not exceeding $12,000,000, maturities, regularly scheduled
payments and payments contemplated as a result of the application of
proceeds of the offering of the Securities as described in the Final
Memorandum, amortization of debt discount or currency fluctuations) of the
Company or any of its subsidiaries.
(j) Each of (a) the Company, and (b) McLeodUSA Telecommunications
Services, Inc., McLeodUSA Network Services, Inc., McLeodUSA Publishing
Company, McLeodUSA Media Group, Inc., McLeodUSA Diversified, Inc., Ruffalo,
Cody & Associates, Inc., Consolidated Communications Inc., Illinois
Consolidated Telephone Company, Consolidated Communications Directories,
Inc., Consolidated Communications Operator Services Inc., Consolidated
Market Response Inc., Consolidated Communications Public Services Inc., and
CCD/Scripps, L.L.C. (individually a "Subsidiary" and collectively the
"Subsidiaries") has been duly incorporated or organized and is validly
existing as a corporation or, as applicable, limited liability company in
good standing under the laws of the jurisdiction in which it is chartered
or organized, with full corporate or organizational power and authority to
own its properties and conduct its business as described in or incorporated
by reference in the Exchange Offer Prospectus and the Final Memorandum, and
is duly qualified to do business as a foreign corporation or, as
applicable, limited liability company and is in good standing under the
laws of each jurisdiction which requires such qualification, except where
the failure to be so qualified could not reasonably be expected to have a
material adverse effect on the Company and the subsidiaries. Except for the
Subsidiaries, the Company has no subsidiaries which, considered in the
aggregate as a single subsidiary, would constitute a "significant
subsidiary" as defined in Rule 1-02(w) of Regulation S-X promulgated under
the Act.
(k) All the outstanding shares of capital stock of each Subsidiary
have been duly and validly authorized and issued and are fully paid and
nonassessable, and, except as otherwise set forth or incorporated by
reference in the Exchange Offer Prospectus and the Final Memorandum, each
considered separately, all outstanding shares of capital stock of the
Subsidiaries are owned by the Company, either directly or through wholly
owned subsidiaries free and clear of any security interests, claims, liens
or encumbrances.
(l) The Company's authorized equity capitalization is as set forth or
incorporated by reference in the Exchange Offer Prospectus and the Final
Memorandum, each considered separately, and the outstanding shares of
capital stock of the Company have been duly and validly authorized and
issued and are fully paid and nonassessable.
(m) Except as disclosed or incorporated by reference in the Exchange
Offer Prospectus and the Final Memorandum, each considered separately,
there is no pending or, to the Company's knowledge, threatened action, suit
or proceeding before any court or governmental agency, authority or body or
any arbitrator involving the Company or any of
4
<PAGE>
its subsidiaries which, if finally determined adversely to the Company or
any of its subsidiaries, would have a material adverse effect on the
condition (financial or other), earnings, business, prospects or properties
of the Company and its subsidiaries; and the statements in or incorporated
by reference in the Exchange Offer Prospectus and the Final Memorandum,
each considered separately, under the headings "Risk Factors -Dependence on
Regional Bell Operating Companies; US West Centrex Action," "Risk Factors -
Refusal of US WEST to Improve its Processing of Service Orders" and
"Business - Legal Proceedings" fairly summarize the actions, suits and
proceedings therein described except for such changes with respect to such
actions, suits and proceedings which could not have a material adverse
effect on the Company and the statements in or incorporated by reference in
the Final Memorandum under the heading "Management - Investor Agreement and
Stockholders' Agreement" fairly summarize the franchises, contracts or
other documents therein described except for such changes with respect to
such franchises, contracts or other documents which could not have a
material adverse effect on the Company.
(n) This Agreement has been duly authorized, executed and delivered by
the Company.
(o) The Indenture has been duly authorized, and, when duly executed by
the proper officer of the Company and delivered by the Company (assuming
due execution and delivery thereof by the Trustee), will constitute a valid
and binding agreement of the Company enforceable against the Company in
accordance with its terms, subject to the effects of bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other
similar laws relating to or affecting creditors' rights generally and
general equitable principles (whether considered in a proceeding in equity
or at law).
(p) The registration agreement, to be dated as of the Closing Date,
between the Company and the Purchasers (the "Registration Agreement") has
been duly authorized and when executed by the proper officer of the Company
and delivered by the Company will be duly executed.
(q) The Securities have been duly authorized and, when executed and
authenticated in accordance with the provisions of the Indenture and
delivered to and paid for by the Purchasers pursuant to this Agreement,
will constitute valid and binding obligations of the Company entitled to
the benefits of the Indenture and will be enforceable in accordance with
their terms, subject to the effects of bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws relating to
or affecting creditors' rights generally and general equitable principles
(whether considered in a proceeding in equity or at law) and the Securities
are accurately summarized in all material respects in the Final Memorandum.
(r) No consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation by the Company
of the transactions contemplated herein, except for the declaration of
effectiveness of the Exchange Offer
5
<PAGE>
Registration Statement and/or the Shelf Registration Statement (as such
terms are defined in the Registration Agreement) and except such as may be
required under all applicable state securities and blue sky laws of any
jurisdiction in connection with the purchase and distribution of the
Securities by the Purchasers and such other approvals as have been
obtained.
(s) Neither the issue and sale of the Securities, the execution and
performance of the Indenture or the Registration Agreement, the
consummation of any other of the transactions herein or therein
contemplated nor the fulfillment of the terms hereof, in each case by the
Company, will conflict with, result in a breach or violation of, or
constitute a default under the charter or by-laws of the Company or the
terms of any indenture or other agreement or instrument to which the
Company or any of its Subsidiaries is a party or bound or (assuming
compliance with all applicable state securities and blue sky laws and that
the Exchange Offer Registration Statement and/or Shelf Registration
Statement has been declared effective) any law, rule or regulation
applicable to the Company or any of the Subsidiaries or any judgement,
order or decree applicable to the Company or any of its Subsidiaries of any
court, regulatory body, administrative agency, governmental body or
arbitrator having jurisdiction over the Company or any of its Subsidiaries.
(t) Arthur Andersen LLP, who have reported upon the audited financial
statements incorporated by reference in the Exchange Offer Prospectus and
the Final Memorandum, are independent public accountants within the meaning
of the Act and the rules and regulations of the Commission thereunder.
(u) The consolidated financial statements of the Company and of
certain Subsidiaries included or incorporated by reference in the Exchange
Offer Prospectus and the Final Memorandum, each considered separately,
present fairly the financial position of the Company and its subsidiaries
and such Subsidiaries as of the dates indicated and the consolidated
results of the operations and cash flows of the Company and its
subsidiaries and such Subsidiaries for the periods specified. Such
financial statements (except as disclosed in the notes thereto or otherwise
stated therein) have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis throughout the entire
period involved. The financial statement schedules, if any, included or
incorporated by reference in the Exchange Offer Prospectus and the Final
Memorandum, each considered separately, present fairly the information
stated therein. The selected financial data included or incorporated by
reference in the Exchange Prospectus and the Final Memorandum, each
considered separately, present fairly the information shown therein and
have been compiled on a basis consistent with that of the audited
consolidated financial statements included or incorporated by reference in
the Exchange Offer Prospectus and the Final Memorandum, each considered
separately. The pro forma financial statements and other pro forma
financial information included or incorporated by reference in the Exchange
Offer Prospectus and the Final Memorandum, each considered separately,
present fairly the information shown therein, have been prepared in
accordance with the Commission's rules and guidelines with respect to pro
forma financial statements, have been properly compiled
6
<PAGE>
on the pro forma bases described therein, and, in the opinion of the
Company, the assumptions used in the preparation thereof are reasonable and
the adjustments used therein are appropriate to give effect to the
transactions or circumstances referred to therein.
(v) Neither the Company nor any of the Subsidiaries is in violation of
its charter or in default in the performance or observance of any
obligation, agreement, covenant or condition contained in any indenture or
other agreement or instrument to which the Company or any of the
Subsidiaries is a party or by which it or any of them may be bound, or to
which any of the property or assets of the Company or any of the
Subsidiaries is subject, other than defaults (considered in the aggregate)
which could not reasonably be expected to have a material adverse effect on
the condition (financial or other), earnings, business, prospects or
properties of the Company and its subsidiaries.
(w) The Company and the Subsidiaries possess adequate certificates,
authorities or permits issued by the appropriate state, federal or foreign
regulatory agencies or bodies necessary to conduct the business now
operated by them and are in compliance in all material respects with all
such certificates, authorities and permits. Neither the Company nor any of
its subsidiaries has received any notice of proceedings relating to the
revocation or modification of any such certificate, authority or permit,
other than any such revocation or modification that could not reasonably be
expected to, singly or in the aggregate, have a material adverse effect on
the condition (financial or other), earnings, business, prospects or
properties of the Company and its subsidiaries.
(x) The Company and its subsidiaries have timely filed all United
States federal income tax returns and all other material tax returns which
are required to be filed by them and have paid all taxes due and payable
(other than taxes, the payment of which are being contested in good faith),
and no tax liens have been filed and no claims are being asserted with
respect to any such taxes, which could reasonably be expected to have a
material adverse effect on the condition (financial or other), earnings,
business, prospects or properties of the Company and its subsidiaries. The
provisions for taxes on the books of the Company are adequate in all
material respects for all open years and for its current fiscal period.
(y) The Company and the Subsidiaries (A) are in compliance with all
applicable federal, state, local and foreign and other laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), (B) have received all permits, licenses and other
approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (C) are in compliance with all terms and
conditions of any such permit, license and approval, except, in each case,
where such noncompliance with Environmental Law, failure to receive
required permits, licenses or other approvals or failure to comply with the
terms and conditions of such permits, licenses or approvals could not
reasonably be expected, singly or in the aggregate, to have a material
adverse effect on the
7
<PAGE>
condition (financial or other), earnings, business, prospects or properties
of the Company and its subsidiaries.
(z) The Company and the Subsidiaries have good and marketable title to
all real property and good and valid title to all personal property owned
by them, in each case free and clear of all liens, encumbrances and
defects, and any real property and buildings held under lease by the
Company and the Subsidiaries are held by them under valid, subsisting and
enforceable leases, except, in each case, for such exceptions as are set
forth in the Exchange Offer Prospectus and the Final Memorandum, each
considered separately, or which could not reasonably be expected to have a
material adverse effect on the condition (financial or other), earnings,
business, prospects or properties of the Company and its subsidiaries.
(aa) The Company together with its subsidiaries own and possess all
right, title and interest in and to, or have duly licensed from third
parties a valid, enforceable right to use, all patents, patent rights,
licenses, inventions, copyrights, know-how (including trade secrets and
other unpatented or unpatentable proprietary or confidential information,
systems or procedures), trademarks, service marks and trade names currently
employed by the Company and its subsidiaries in connection with the
business conducted by them (collectively, "Patent and Proprietary Rights")
and neither the Company nor any of its subsidiaries has received notice of
infringement or misappropriation of or conflict with asserted rights of
others with respect to any Patent and Proprietary Rights, or of any facts
which would render any Patent and Proprietary Rights invalid or inadequate
to protect the interest of the Company or of its subsidiaries therein, and
which infringement, misappropriation or conflict or invalidity or
inadequacy, individually or in the aggregate, could reasonably be expected
to result in a material adverse effect on the condition (financial or
other), earnings, business, prospects or properties of the Company and its
subsidiaries.
(bb) The Company has complied with all provisions of Section 1 of Laws
of Florida, Chapter 92-198 Securities-Business with Cuba.
2. Purchase and Sale. Subject to the terms and conditions and in
-----------------
reliance upon the representations and warranties herein set forth, the Company
agrees to sell to the Purchasers, and the Purchasers agree to purchase from the
Company, at a purchase price of 97.625% of the principal amount thereof, plus
accrued interest, if any, from October 30, 1998 to the Closing Date, the
principal amount of the Securities.
3. Delivery and Payment. Delivery of and payment for the Securities
--------------------
shall be made at 10:00 AM, New York City time, on October 30, 1998, or such
later date (not later than November __, 1998) as the Purchasers designate, which
date and time may be postponed by agreement between the Purchasers and the
Company or as provided in Section 9 hereof (such date and time of delivery and
payment for the Securities being herein called the "Closing Date"). Delivery of
the Securities shall be made to the Purchasers against payment by the Purchasers
of the
8
<PAGE>
purchase price thereof to or upon the order of the Company by certified or
official bank check or checks drawn on or by a New York Clearing House bank and
payable in same day funds or by wire transfer of same day funds to an account or
accounts specified by the Company at least one business day prior to the Closing
Date. Delivery of the Securities shall be made at such location as the
Purchasers shall reasonably designate at least one business day in advance of
the Closing Date and payment for the Securities shall be made at the office of
Hogan & Hartson L.L.P., 555 Thirteenth Street, N.W., Washington, D.C. 20004.
Certificates for the Securities shall be registered in such names and in such
denominations as the Purchasers may request not less than two business days in
advance of the Closing Date.
The Company agrees to have the Securities available for inspection,
checking and packaging by the Purchasers in New York, New York, not later than
1:00 PM on the business day prior to the Closing Date.
4. Offering of Securities; Restrictions on Transfer. The Purchasers
------------------------------------------------
acknowledge that they are purchasing the Securities pursuant to a private
sale exemption from registration under the Act, and that the Securities
have not been registered under the Act and may not be offered or sold
within the United States or to, or for the account or benefit of, U.S.
persons except pursuant to an exemption from the registration requirements
of the Act. Each Purchaser represents and warrants to and agrees with the
Company that (i) it, its affiliates and any person acting on its or its
affiliates behalf, have not solicited and will not solicit any offer to buy
or offer to sell the Securities by means of any form of general
solicitation or general advertising (within the meaning of Regulation D) or
in any manner involving a public offering within the meaning of Section
4(2) of the Act or, with respect to Securities to be sold in reliance on
Regulation S, by means of any directed selling efforts and (ii) it has
solicited and willsolicit offers to buy the Securities only from, and has
offered and will offer, sell or deliver the Securities only to, (A) persons
who it reasonably believes to be QIBs or, if any such person is buying for
one or more institutional accounts for which such person is acting as
fiduciary or agent, only when such person has represented to it that each
such account is a QIB, to whom notice has been given that such sale or
delivery is being made in reliance on Rule 144A, and, in each case, in
transactions under Rule 144A and (B) Foreign Purchasers to whom, and under
circumstances which, it reasonably believes offers and sales of Securities
may be made without registration of the Securities under the Act in
reliance upon Regulation S thereunder and who provide to it a letter (a
"Regulation S Letter") in the form of Exhibit A hereto. Each Purchaser
agrees, with respect to resales made in reliance on Rule 144A, other than
through the National Association of Securities Dealers, Inc. PORTAL Market,
of any Securities purchased from the Company hereunder, to deliver either
with the confirmation of such resale or otherwise prior to settlement of
such resale a notice to the effect that the resale of such Securities has
been made in reliance upon the exemption from the registration requirements
of the Act provided by Rule 144A. Each Purchaser agrees, with respect to
resales made in reliance on Regulation S, to deliver either with the
confirmation of such resale or otherwise prior to settlement of such resale
a notice substantially to the following effect:
9
<PAGE>
"The Securities covered hereby have not been registered under the U.S.
Securities Act of 1933, as amended (the "Securities Act") and may not
be offered and sold within the United States or to, or for the account
or benefit of, U.S. persons (i) as part of the distribution thereof at
any time or (ii) otherwise until 40 days after the later of the date
of commencement of the offering and the latest closing date, except in
either case in accordance with Regulation S under the Securities Act.
Terms used above have the meaning given them by Regulation S."
(b) The Purchasers represent and warrant that (i) they have not
offered or sold, and will not offer or sell, in the United Kingdom, by
means of any document, any Securities other than to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances which have not resulted and will not result in
an offer to the public in the United Kingdom within the meaning of the
Public Offers of Securities Regulations 1995; (ii) they have complied and
will comply with all applicable provisions of the Financial Services Act
1986 and the Public Offers of Securities Regulations of 1995 of the United
Kingdom with respect to anything done by them in relation to the Securities
in, from or otherwise involving the United Kingdom and (iii) they have only
issued or passed on, and will only issue or pass on, in the United Kingdom
any document received by them in connection with the issue of the
Securities to a person who is of the kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order
1996 or is a person to whom the document may otherwise lawfully be issued
or passed on.
(c) Each Purchaser represents and warrants that it is a QIB and that
it will offer the Securities for resale only upon the terms and conditions
set forth in this Agreement and in the Final Memorandum.
5. Agreements. The Company agrees with the Purchasers that:
----------
(a) The Company will furnish to the Purchasers, without charge, during
the period mentioned in paragraph (c) below, as many copies of the Final
Memorandum and any supplements and amendments thereof or thereto as the
Purchasers may reasonably request. The Company will pay the expenses of
printing or other production of all documents relating to the offering.
(b) The Company will not distribute, amend or supplement the Final
Memorandum without prior consent of Salomon Smith Barney Inc., which
consent shall not be unreasonably withheld.
(c) If, at any time prior to the completion of the sale of the
Securities by the Purchasers, any event occurs as a result of which the
Final Memorandum as then amended or supplemented would include any untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein in the light of the circumstances under
10
<PAGE>
which they were made not misleading, or if it shall be necessary to amend
or supplement the Final Memorandum to comply with applicable law, the
Company promptly will notify the Purchasers of the same and will prepare
and provide to the Purchasers pursuant to paragraph (a) of this Section 5
an amendment or supplement which will correct such statement or omission or
effect such compliance.
(d) The Company will use its best efforts to qualify the Securities
for sale under the laws of such jurisdictions as the Purchasers may
reasonably designate, will use its best efforts to maintain such
qualifications in effect so long as required for the sale of the Securities
and will arrange for the determination of the legality of the Securities
for purchase by institutional investors under the laws of such
jurisdictions as the Purchasers may reasonably request. The Company will
promptly advise the Purchasers of the receipt by the Company of any
notification with respect to the suspension of the qualification of the
Securities for sale in any jurisdiction or the initiation or threatening of
any proceeding for such purpose. Notwithstanding the foregoing, the Company
shall not be obligated to qualify as a foreign corporation in any
jurisdiction in which it is not so qualified or to file a general consent
to service of process in any jurisdiction.
(e) Neither the Company nor any affiliate (as defined in Rule 501(b)
of Regulation D) of the Company will solicit any offer to buy or offer or
sell the Securities by means of any form of general solicitation or general
advertising (within the meaning of Regulation D).
(f) None of the Company, its affiliates nor any person acting on
behalf of the Company or its affiliates will engage in any directed selling
efforts with respect to the Securities within the meaning of Regulation S,
and the Company, its affiliates and each such person acting on its or their
behalf will comply with the offering restrictions requirement of Regulation
S.
(g) The Company shall, during any period in the two years after the
Closing Date in which the Company is not subject to Section 13 or 15(d) of
the Exchange Act, make available, upon request, to any holder of such
Securities in connection with any sale thereof and any prospective
purchaser of Securities from such holder the information ("Rule 144A
Information") specified in Rule 144A(d)(4) under the Act.
(h) The Company will not, and will not permit any of its affiliates
(as defined in Rule 501(b) of Regulation D) to, resell any Securities which
constitute "restricted securities" under Rule 144 that have been acquired
by any of them, otherwise than pursuant to an effective registration
statement under the Act.
(i) Neither the Company nor any affiliate (as defined in Rule 501(b)
of Regulation D) will sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in the Act) the
offering of which security will be integrated with
11
<PAGE>
the sale of the Securities in a manner which would require the registration
of the Securities under the Act.
(j) The Company shall use its best efforts in cooperation with the
Purchasers to permit the Securities to be eligible for clearance and
settlement through The Depository Trust Company.
(k) The Company will not, for a period of 90 days following the date
and time that this Agreement is executed and delivered by the parties
hereto (the "Execution Time"), without prior written consent of Salomon
Smith Barney Inc, offer, sell or contract to sell, or otherwise dispose of,
directly or indirectly, or announce the offering of, any debt securities
issued or guaranteed by the Company (other than the securities offered
pursuant to an Exchange Offer Registration Statement for the Securities).
(l) The Company shall include information substantially in the form
set forth in Exhibit B in each Final Memorandum.
6. Conditions to the Obligations of the Purchasers. The obligations
-----------------------------------------------
of the Purchasers to purchase the Securities shall be subject to the accuracy of
the representations and warranties on the part of the Company contained herein
as of the Execution Time and the Closing Date, to the accuracy of the statements
of the Company made in any certificates pursuant to the provisions hereof, to
the performance by the Company of its obligations hereunder and to the following
additional conditions:
(a) The Company shall have furnished to the Purchasers the opinion of
counsel for the Company, dated the Closing Date, substantially in the form
of Exhibit C.
(b) The Company shall have furnished to the Purchasers the opinion of
Swidler Berlin Shereff Friedman, LLP, special counsel to the Company on
regulatory matters, dated the Closing Date, to the effect that:
(i) the statements in or incorporated by reference in the Final
Memorandum under the headings "Risk Factors - Wireline Competition,"
"Risk Factors -Wireless Competition," "Risk Factors - PCS System
Implementation Risks," "Risk Factors- Relocation of Fixed Microwave
Licensees," "Risk Factors - Regulation," "Business - Business
Strategy," "Business - Market Potential," "Business -Expansion of
Certain Facilities-based Services," "Business - Wireless Services,"
"Business - Competition" and "Business - Regulation" fairly and
accurately summarize the laws, case law, rules, regulations and orders
of the Federal Communications Commission ("FCC") and the comparable
state regulatory agencies or bodies with direct regulatory
jurisdiction over telecommunications matters in the states in which
the Company and any of the Subsidiaries provide intrastate services
(the "State Regulatory Agencies") except for such changes with respect
to such laws, case law, rules, regulations and orders which could not
have a material adverse effect
12
<PAGE>
on the Company and, to the best knowledge of such counsel, the
statements in or incorporated by reference in the Final Memorandum
under the headings "Risk Factors - Dependence on Regional Bell
Operating Companies; US West Centrex Action," "Risk Factors - Refusal
of US West to Improve its Processing of Service Orders," "Business-
Current Products and Services" and "Business - Legal Proceedings"
fairly and accurately summarize the legal proceedings set forth
therein with respect to the US West Centrex Action (as defined in or
incorporated by reference in the Final Memorandum) and the action
against US West Communications, Inc. concerning the processing of
orders except for such changes with respect to such legal proceedings
and action which could not have a material adverse effect on the
Company;
(ii) the Company and the Subsidiaries possess all material
certificates, authorities and permits required by the FCC and State
Regulatory Agencies for the provision of the telecommunications
services currently provided by the Company and the Subsidiaries,
except where the failure to possess such certificates, authorities or
permits could not reasonably be expected to have a material adverse
effect on the Company and its subsidiaries; and the Company and the
Subsidiaries are in compliance in all material respects with such
certificates, authorities and permits;
(iii) to the best knowledge of such counsel, neither the Company
nor any of the Subsidiaries is subject to any pending or threatened
action, suit or proceeding before the FCC or any State Regulatory
Agency or (with respect to federal or state telecommunications laws)
any court which could reasonably be expected to have a material
adverse effect on the Company and its subsidiaries, except as
disclosed in the Final Memorandum;
(iv) no consent, approval, authorization or order of the FCC or
any State Regulatory Agency is required for the issuance and sale of
the Securities or the consummation of the transactions contemplated
hereby; and
(v) neither the issuance and sale of the Securities nor the
consummation of the transactions contemplated hereby will result in a
breach or violation of any law, rule, regulation, judgment, order or
decree of the FCC or any State Regulatory Agency applicable to the
Company or any of the Subsidiaries.
In rendering such opinion, such counsel may rely as to matters of fact, to
the extent they deem proper and reasonable, on certificates of public
officials and responsible officers of the Company, including certificates
that define the scope of the telecommunications services provided by the
Company and the Subsidiaries.
(c) The Purchasers shall have received from Mayer, Brown & Platt,
counsel for the Purchasers, such opinion or opinions, dated the Closing
Date, with respect to the issuance and sale of the Securities, the
Indenture, the Final Memorandum (together with any
13
<PAGE>
amendment or supplement thereof or thereto) and other related matters as
the Purchasers may reasonably require, and the Company shall have furnished
to such counsel such documents as they request for the purpose of enabling
them to pass upon such matters.
(d) The Company shall have furnished to the Purchasers a certificate
of the Company, signed by the Chairman of the Board or the President and
the principal financial or accounting officer of the Company, dated the
Closing Date, to the effect that the signers of such certificate have
carefully examined the Final Memorandum, any amendment or supplement to the
Final Memorandum and this Agreement and that:
(i) the representations and warranties of the Company in this
Agreement are true and correct in all material respects on and as of
the Closing Date with the same effect as if made on the Closing Date
and the Company has complied with all the agreements and satisfied all
the conditions on its part to be performed or satisfied at or prior to
the Closing Date; and
(ii) since the date of the most recent financial statements
included or incorporated by reference in the Exchange Offer
Prospectus, there has been no material adverse change in the condition
(financial or other), earnings, business or properties of the Company
and its subsidiaries, whether or not arising from transactions in the
ordinary course of business, except as set forth, incorporated by
reference or contemplated in the Exchange Offer Prospectus.
(e) At the Closing Date, Arthur Andersen LLP shall have furnished to
the Purchasers a letter or letters, dated as of the Closing Date, in form
and substance satisfactory to the Purchasers, confirming that they are
independent accountants within the meaning of Rule 101 of the American
Institute of Certified Public Accountants' Code of Professional Conduct and
its interpretations and rulings and stating in effect that:
(i) in their opinion the audited financial statements and
financial statement schedules, if any, included or incorporated by
reference in the Final Memorandum and reported on by them, as
applicable, comply in form in all material respects with the
applicable accounting requirements of the Act and the Exchange Act and
the related published rules and regulations;
(ii) on the basis of a reading of the latest unaudited financial
statements made available by the Company and its subsidiaries;
carrying out certain specified procedures (but not an examination in
accordance with generally accepted auditing standards) which would not
necessarily reveal matters of significance with respect to the
comments set forth in such letter; a reading of the minutes of the
meetings of the stockholders, directors and the Audit and Compensation
Committee of the Company and the Subsidiaries; and inquiries of
certain officials of the Company who have responsibility for financial
and accounting matters of the Company and its
14
<PAGE>
subsidiaries as to transactions and events subsequent to December 31,
1997, nothing came to their attention which caused them to believe
that:
(1) to the extent applicable, any unaudited financial
statements included or incorporated by reference in the Final
Memorandum do not comply in form in all material respects with
applicable accounting requirements and with the published rules
and regulations of the Commission with respect to financial
statements included or incorporated in quarterly reports on Form
10-Q under the Exchange Act; and said unaudited financial
statements are not in conformity with generally accepted
accounting principles applied on a basis substantially consistent
with that of the audited financial statements included or
incorporated by reference in the Final Memorandum; or
(2) with respect to the period subsequent to June 30, 1998,
there were any changes, at a specified date not more than five
business days prior to the date of the letter, in the long-term
debt of the Company and its subsidiaries or capital stock of the
Company or decreases in the stockholders' equity of the Company
and its subsidiaries as compared with the amounts shown on the
June 30, 1998 consolidated balance sheet included or incorporated
by reference in the Final Memorandum, or for the period from July
1, 1998 to such specified date as compared with the corresponding
period in the preceding year, there were any decreases in revenue
or increases in operating loss or net loss of the Company and its
subsidiaries, except in all instances for changes, decreases or
increases set forth in such letter, in which case the letter
shall be accompanied by an explanation by the Company as to the
significance thereof unless said explanation is not deemed
necessary by the Purchasers;
(iii) they have performed certain other specified procedures as a
result of which they determined that certain information of an
accounting, financial or statistical nature (which is limited to
accounting, financial or statistical information derived from the
general accounting records of the Company and its subsidiaries) set
forth in or incorporated by reference the Final Memorandum, including
the information set forth under the captions "Selected Consolidated
Financial Data", "Pro Forma Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" in the Final Memorandum, agrees with the accounting
records of the Company and its subsidiaries, excluding any questions
of legal interpretation; and
(iv) on the basis of a reading of the unaudited pro forma
financial statements included or incorporated by reference in the
Final Memorandum (the "pro forma financial statements"); carrying out
certain specified procedures; inquiries of certain officials of the
Company who have responsibility for financial and accounting
15
<PAGE>
matters; and proving the arithmetic accuracy of the application of the
pro forma adjustments to the historical amounts in the pro forma
financial statements, nothing came to their attention which caused
them to believe that the pro forma financial statements do not comply
in form in all material respects with the applicable accounting
requirements of Rule 11-02 of Regulation S-X or that the pro forma
adjustments have not been properly applied to the historical amounts
in the compilation of such statements.
References to the Final Memorandum in this paragraph (e) include any
amendment or supplement thereof or thereto at the date of the letter.
(f) Subsequent to the Execution Time or, if earlier, the dates as of
which information is given in the Final Memorandum (exclusive of any
amendment or supplement thereof or thereto), there shall not have been (i)
any change or decrease specified in the letter or letters referred to in
paragraph (e)(ii)(2) of this Section 6 or (ii) any change, or any
development involving a prospective change, in or affecting the business or
properties of the Company and its subsidiaries the effect of which, in any
case referred to in clause (i) or (ii) above, is, in the judgment of the
Purchasers, so material and adverse as to make it impractical or
inadvisable to market the Securities as contemplated by the Final
Memorandum (exclusive of any amendment or supplement thereof or thereto).
(g) As of the Closing Date the Securities shall be rated not lower
than B by Standard & Poor's Corporation and B-3 by Moody's Investors
Service, Inc. Subsequent to the Execution Time, there shall not have been
any decrease in the rating of any of the Company's debt securities by any
"nationally recognized statistical rating organization" (as defined for
purposes of Rule 436(g) under the Act) or any notice given of any intended
or potential decrease in any such rating or of a possible change in any
such rating that does not indicate the direction of the possible change.
(h) Prior to the Closing Date, the Company shall have furnished to the
Purchasers such further information, certificates and documents as the
Purchasers may reasonably request.
If any of the conditions specified in this Section 6 shall not have been
fulfilled in all material respects when and as provided in this Agreement, or if
any of the opinions and certificates mentioned above or elsewhere in this
Agreement shall not be in all material respects reasonably satisfactory in form
and substance to the Purchasers and counsel for the Purchasers, this Agreement
and all obligations of the Purchasers hereunder may be canceled at, or at any
time prior to, the Closing Date by the Purchasers. Notice of such cancellation
shall be given to the Company in writing or by telephone or telegraph confirmed
in writing.
The documents required to be delivered by this Section 6 shall be delivered
at the office of Hogan & Hartson L.L.P., Columbia Square, 555 Thirteenth Street,
N.W., Washington, DC 20004, counsel for the Company, at 9:00 a.m., on the
Closing Date.
16
<PAGE>
7. Reimbursement of Purchasers' Expenses. If the sale of the
-------------------------------------
Securities provided for herein is not consummated because any condition to the
obligations of the Purchasers set forth in Section 6 hereof is not satisfied,
because of any termination pursuant to Section 9(i) hereof due to suspension of
trading in the Company's class A common stock or because of any refusal,
inability or failure on the part of the Company to perform any agreement herein
or comply with any provision hereof other than by reason of a default by the
Purchasers, the Company will reimburse the Purchasers upon demand for all
out-of-pocket expenses (including reasonable fees and disbursements of counsel)
that shall have been incurred by it in connection with the proposed purchase and
sale of the Securities.
8. Indemnification and Contribution. The Company agrees to indemnify
--------------------------------
and hold harmless the Purchasers, the directors, officers, employees and
agents of each Purchaser and each person who controls any Purchaser within
the meaning of either the Act or the Exchange Act against any and all
losses, claims, damages or liabilities, joint or several, to which they or
any of them may become subject under the Act, the Exchange Act or other
Federal or state statutory law or regulation, at common law or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained or incorporated by
reference in the Final Memorandum or any Rule 144A Information provided by
the Company to any holder or prospective purchaser of Securities pursuant
to Section 5(g), or in any amendment thereof or supplement thereto, or
arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and agrees to reimburse each such
indemnified party, as incurred, for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such
loss, claim, damage, liability or action; provided, however, that the
-------- -------
Company will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon any such
untrue statement or alleged untrue statement or omission or alleged
omission made in the Final Memorandum, or in any amendment thereof or
supplement thereto, in reliance upon and in conformity with written
information furnished to the Company by or on behalf of the Purchasers
specifically for inclusion therein; and provided, further, that the
-------- -------
foregoing indemnity agreement with respect to the Final Memorandum shall
not inure to the benefit of the Purchasers from whom the person asserting
or causing any such losses, claims, damages or liabilities purchased
Securities (or to the benefit of any person controlling any Purchaser or
any directors, officers, employees and agents of any Purchaser), if a copy
of the Final Memorandum (or the Final Memorandum as amended or
supplemented) (if the Company shall have timely furnished the Purchasers
with sufficient copies thereof) was not sent or given by or on behalf of
the Purchasers to such person at or prior to the written confirmation of
the sale of the Securities to such person and if the Final Memorandum (or
the Final Memorandum as amended or supplemented) would have cured the
defect giving rise to such loss, claim, damage or liability. This indemnity
agreement will be in addition to any liability which the Company may
otherwise have.
17
<PAGE>
(b) The Purchasers agree to indemnify and hold harmless the Company,
its directors, its officers, and each person who controls the Company
within the meaning of either the Act or the Exchange Act, to the same
extent as the foregoing indemnity from the Company to the Purchasers, but
only with reference to written information relating to the Purchasers
furnished to the Company by or on behalf of the Purchasers specifically for
inclusion in the Final Memorandum or in any amendment thereof or supplement
thereto. This indemnity agreement will be in addition to any liability
which the Purchasers may otherwise have. The Company acknowledges that the
statements set forth in the last paragraph of the cover page and under the
heading "Plan of Distribution" (excluding the fourth paragraph immediately
following the table contained under the heading "Plan of Distribution") in
the Final Memorandum constitute the only information furnished in writing
by or on behalf of the Purchasers for inclusion in the Final Memorandum.
(c) Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against the indemnifying party
under this Section 8, notify the indemnifying party in writing of the
commencement thereof; but the failure so to notify the indemnifying party
(i) will not relieve it from liability under paragraph (a) or (b) above
unless and to the extent it did not otherwise learn of such action and such
failure results in the forfeiture by the indemnifying party of substantial
rights and defenses and (ii) will not, in any event, relieve the
indemnifying party from any obligations to any indemnified party other than
the indemnification obligation provided in paragraph (a) or (b) above. The
indemnifying party shall be entitled to appoint counsel of the indemnifying
party's choice at the indemnifying party's expense to represent the
indemnified party in any action for which indemnification is sought (in
which case the indemnifying party shall not thereafter be responsible for
the fees and expenses of any separate counsel retained by the indemnified
party or parties except as set forth below); provided, however, that such
-------- -------
counsel shall be reasonably satisfactory to the indemnified party.
Notwithstanding the indemnifying party's election to appoint counsel to
represent the indemnified party in an action, the indemnified party shall
have the right to employ separate counsel (including local counsel), and
the indemnifying party shall bear the reasonable fees, costs and expenses
of such separate counsel if (i) the use of counsel chosen by the
indemnifying party to represent the indemnified party would present such
counsel with a conflict of interest, (ii) the actual or potential
defendants in, or targets of, any such action include both the indemnified
party and the indemnifying party and the indemnified party shall have
reasonably concluded that there may be legal defenses available to it
and/or other indemnified parties which are different from or additional to
those available to the indemnifying party, (iii) the indemnifying party
shall not have employed counsel satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice of
the institution of such action or (iv) the indemnifying party shall
authorize the indemnified party to employ separate counsel at the expense
of the indemnifying party. An indemnifying party will not, without the
prior written consent of the indemnified parties, settle or compromise or
consent to the entry of any judgment with respect to any pending or
threatened claim, action, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or
18
<PAGE>
potential parties to such claim or action) unless such settlement,
compromise or consent includes an unconditional release of each indemnified
party from all liability arising out of such claim, action, suit or
proceeding.
(d) In the event that the indemnity provided in paragraph (a) or (b)
of this Section 8 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, the Company and the Purchasers agree to
contribute to the aggregate losses, claims, damages and liabilities
(including legal or other expenses reasonably incurred in connection with
investigating or defending same) (collectively "Losses") to which the
Company and the Purchasers may be subject in such proportion as is
appropriate to reflect the relative benefits received by the Company and by
the Purchasers from the offering of the Securities; provided, however, that
-------- -------
in no case shall the Purchasers be responsible for any amount in excess of
the purchase discount or commission applicable to the Securities purchased
by the Purchasers hereunder. If the allocation provided by the immediately
preceding sentence is unavailable for any reason, the Company and the
Purchasers shall contribute in such proportion as is appropriate to reflect
not only such relative benefits but also the relative fault of the Company
and of the Purchasers in connection with the statements or omissions which
resulted in such Losses as well as any other relevant equitable
considerations. Benefits received by the Company shall be deemed to be
equal to the total net proceeds from the offering (before deducting
expenses), and benefits received by the Purchasers shall be deemed to be
equal to the total purchase discounts and commissions, in each case as set
forth on the cover page of the Final Memorandum. Relative fault shall be
determined by reference to whether any alleged untrue statement or omission
relates to information provided by the Company or the Purchasers. The
Company and the Purchasers agree that it would not be just and equitable if
contribution were determined by pro rata allocation or any other method of
allocation which does not take account of the equitable considerations
referred to above. Notwithstanding the provisions of this paragraph (d), no
person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. For purposes of
this Section 8, each person who controls any Purchaser within the meaning
of either the Act or the Exchange Act and each director, officer, employee
and agent of any Purchaser shall have the same rights to contribution as
each Purchaser, and each person who controls the Company within the meaning
of either the Act or the Exchange Act and each officer and director of the
Company shall have the same rights to contribution as the Company, subject
in each case to the applicable terms and conditions of this paragraph (d).
9. Termination. This Agreement shall be subject to termination in
-----------
the absolute discretion of the Purchasers, by notice given to the Company prior
to delivery of and payment for the Securities, if prior to such time (i) trading
in the Company's class A common stock shall have been suspended by the
Commission or the Nasdaq National Market or trading in securities generally on
the New York Stock Exchange shall have been suspended or limited or minimum
prices shall have been established on either of such Exchange or Market, (ii) a
banking moratorium shall have been declared either by Federal or New York State
authorities or (iii) there shall have occurred any outbreak or escalation of
hostilities, declaration by the United States of a national emergency or war
19
<PAGE>
or other calamity or crisis the effect of which on financial markets is such as
to make it, in the judgment of the Purchasers, impracticable or inadvisable to
proceed with the offering or delivery of the Securities as contemplated by the
Final Memorandum (exclusive of any amendment or supplement thereof or thereto).
10. Representations and Indemnities to Survive. The respective
------------------------------------------
agreements, representations, warranties, indemnities and other statements of the
Company or its officers and of the Purchasers set forth in or made pursuant to
this Agreement will remain in full force and effect, regardless of any
investigation made by or on behalf of the Purchasers or the Company or any of
the officers, directors or controlling persons referred to in Section 8 hereof,
and will survive delivery of and payment for the Securities. The provisions of
Sections 7 and 8 hereof shall survive the termination or cancellation of this
Agreement.
11. Notices. All communications hereunder will be in writing and
-------
effective only on receipt, and, if sent to the Purchasers, will be mailed,
delivered or sent by facsimile transmission and confirmed to them at Salomon
Smith Barney Inc, Seven World Trade Center, New York, New York, 10048; or, if
sent to the Company, will be mailed, delivered or sent by facsimile transmission
and confirmed to it at McLeodUSA Incorporated, McLeodUSA Technology Park, 6400 C
Street, SW, P.O. Box 3177, Cedar Rapids, Iowa 52406, attention legal
department.
12. Successors. This Agreement will inure to the benefit of and be
----------
binding upon the parties hereto and their respective successors and the officers
and directors and controlling persons referred to in Section 8 hereof, and no
other person will have any right or obligation hereunder.
13. Applicable Law. This Agreement will be governed by and construed
--------------
in accordance with the laws of the State of New York.
20
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us the enclosed duplicate hereof, whereupon this
letter and your acceptance shall represent a binding agreement between the
Company and the Purchasers.
Very truly yours,
MCLEODUSA INCORPORATED
By: _________________________
Name:
Title:
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
Salomon Smith Barney Inc.
By: _________________________
Name:
Title:
Bear, Stearns & Co. Inc.
By: _________________________
Name:
Title:
Morgan Stanley & Co. Incorporated
By: _________________________
Name:
Title:
Chase Securities Inc.
By: _________________________
Name:
Title:
<PAGE>
EXHIBIT A
Form of Investment Letter for
-----------------------------
Foreign Purchasers
------------------
Salomon Smith Barney Inc
Bear, Stearns & Co. Inc.
Morgan Stanley & Co. Incorporated
Chase Securities, Inc.
c/o Salomon Smith Barney Inc
Seven World Trade Center
New York, New York 10048
Dear Sirs:
In connection with our proposed purchase of $300,000,000 aggregate
principal amount of the 9 1/2% Senior Notes Due 2008 (the "Notes") of McLeodUSA
Incorporated, a Delaware corporation (the "Company"), we confirm that:
1. We understand that the Notes have not been registered under the Securities
Act of 1933, as amended (the "Securities Act"), and may not be sold except as
permitted in the following sentence. We agree, on our own behalf and on behalf
of any accounts for which we are acting as hereinafter stated, that if we should
resell, pledge or otherwise transfer such Notes within two years after the
original issuance of the Notes or if at the proposed date of such transfer or
during the three months preceding the proposed date of transfer we were an
Affiliate of the Company, such Notes may be resold, pledged or transferred only
(i) to the Company, (ii) so long as such Notes are eligible for resale pursuant
to Rule 144A under the Securities Act ("Rule 144A"), to a person whom we
reasonably believe is a "qualified institutional buyer" (as defined in Rule
144A) ("QIB") that purchases for its own account or for the account of a QIB, to
whom notice is given that the resale, pledge or transfer is being made in
reliance on Rule 144A (as indicated by the box checked by the transferor on the
Certificate of Transfer on the reverse of the certificate for the Notes), (iii)
in an offshore transaction in accordance with Regulation S under the Securities
Act (as indicated by the box checked by the transferor on the Certificate of
Transfer on the reverse of the certificate for the Notes), or (iv) to an
institution that is an "Accredited Investor" as defined in Rule 501(a)(1), (2),
(3) or (7) under the Securities Act (as indicated by the box checked by the
transferor on the Certificate of Transfer on the reverse of the certificate for
the Notes) that is acquiring the Notes for investment purposes and not for
distribution and a Certificate in the form hereof is delivered to the Company
and to the Trustee under the Indenture relating to the Notes by such Accredited
Investor, in each case in accordance with any applicable securities laws of any
state of the United States, and we will notify any purchaser of the Notes from
us of the above resale restrictions, if then applicable. We
<PAGE>
2
further understand that in connection with any transfer of the Notes by us that
the Company and the Trustee may request, and if so requested we will furnish,
such certificates and other information as they may reasonably require to
confirm that any such transfer complies with the foregoing restrictions.
2. We are not a "U.S. Person" as defined in Rule 902 of Regulation S under
the Securities Act and are acquiring (which acquisition is not for the account
or benefit of a U.S. Person) the Notes in an offshore transaction complying with
the provisions of Rule 904 of Regulation S under the Securities Act.
3. You and the Company are entitled to rely upon this letter and you and the
Company are irrevocably authorized to produce this letter or a copy hereof to
any interested party in any administrative or legal proceeding or official
inquiry with respect to the matters covered hereby.
Very truly yours,
_______________________________
(Name of Purchaser)
By:____________________________
Date:__________________________
<PAGE>
EXHIBIT B
NOTICE TO INVESTORS
[To Come]
<PAGE>
EXHIBIT C
[form of opinion of Hogan & Hartson LLP]
<PAGE>
Exhibit 4.19
================================================================================
McLeodUSA Incorporated
$300,000,000
9 1/2% SENIOR NOTES DUE 2008
________________
INDENTURE
Dated as of October 30, 1998
________________
United States Trust Company of New York,
Trustee
================================================================================
<PAGE>
CROSS-REFERENCE TABLE
Reconciliation and tie between the Trust Indenture Act of 1939, as amended, and
the Indenture, dated as of October 30, 1998
Trust
Indenture
Act Indenture
Section Section
- -------- -------
(S)310(a)(1)......................................... 7.10
(a)(2)......................................... 7.10
(a)(3)......................................... N.A.
(a)(4)......................................... N.A.
(a)(5)......................................... 7.10
(b)............................................ 7.08; 7.10
(c)............................................ N.A.
(S)311(a)............................................ 7.11
(b)............................................ 7.11
(c)............................................ N.A.
(S)312(a)............................................ 7.06(a); 7.06(b)
(b)............................................ 7.06(c)
(c)............................................ 7.06(d)
(S)313(a)............................................ 7.06(e)
(b)............................................ N.A.
(c)............................................ 7.06(e); 7.06(f)
(d)............................................ 7.06
(S)314(a)............................................ 4.18; 4.19
(b)............................................ N.A.
(c)(1)......................................... 10.03
(c)(2)......................................... 10.03
(c)(3)......................................... N.A.
(d)............................................ N.A.
(e)............................................ 10.04
(f)............................................ 4.19
(S)315(a)............................................ 7.01(b)
(b)............................................ 7.05(a)
(c)............................................ 7.01(a)
(d)............................................ 7.01(c)
(e)............................................ 6.10
(S)316(a)............................................ 2.10
(a)(1)(A)...................................... 6.05
(a)(1)(B)...................................... 6.04
(a)(2)......................................... N.A.
(b)............................................ 6.07
(c)............................................ 9.05
(S)317(a)(1)N.A.
(a)(2)......................................... 6.08
(b)............................................ 2.07
(S)318(a)............................................ 10.01
Note: This reconciliation and tie shall not, for any purpose, be deemed to
be part of the Indenture.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
ARTICLE I.
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
<S> <C>
SECTION 1.01. Definitions................................................ 1
SECTION 1.02. Incorporation by Reference of Trust Indenture Act.......... 23
SECTION 1.03. Rules of Construction...................................... 23
SECTION 1.04. Form of Documents Delivered to Trustee..................... 24
SECTION 1.05. Acts of Holders............................................ 24
SECTION 1.06. Satisfaction and Discharge................................. 25
ARTICLE II.
THE NOTES
SECTION 2.01. Form and Dating............................................ 26
SECTION 2.02. Form of Face of Note....................................... 27
SECTION 2.03. Form of Reverse of Note.................................... 31
SECTION 2.04. Form of Trustee's Certificate of Authentication............ 37
SECTION 2.06. Note Registrar and Paying Agent............................ 38
SECTION 2.07. Paying Agent to Hold Money in Trust........................ 39
SECTION 2.08. Registration, Registration of Transfer and Exchange........ 40
SECTION 2.09. Replacement Notes.......................................... 46
SECTION 2.10. Outstanding Notes.......................................... 47
SECTION 2.11. Temporary Notes............................................ 47
SECTION 2.12. Cancellation............................................... 48
SECTION 2.13. Payment of Interest; Interest Rights Preserved............. 48
SECTION 2.14. Authorized Denominations................................... 49
SECTION 2.15. Computation of Interest.................................... 49
SECTION 2.16. Persons Deemed Owners...................................... 49
SECTION 2.17. CUSIP Numbers.............................................. 49
SECTION 2.18. Holder Lists............................................... 50
ARTICLE III.
REDEMPTION
SECTION 3.01. Notice to Trustee.......................................... 50
SECTION 3.02. Selection of Notes to be Redeemed.......................... 50
SECTION 3.03. Notice of Redemption....................................... 50
SECTION 3.04. Effect of Notice of Redemption............................. 51
SECTION 3.05. Deposit of Redemption Price................................ 52
SECTION 3.06. Notes Redeemed in Part..................................... 52
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
ARTICLE IV.
COVENANTS
<S> <C>
SECTION 4.01. Payment of Notes................................................... 52
SECTION 4.02. Maintenance of Office or Agency.................................... 53
SECTION 4.03. Money for the Note Payments to be Held in Trust.................... 53
SECTION 4.04. Corporate Existence................................................ 53
SECTION 4.05. Maintenance of Property............................................ 54
SECTION 4.06. Payment of Taxes and Other Claims.................................. 54
SECTION 4.07. Repurchase at the Option of Holders upon a Change of Control....... 54
SECTION 4.08. Limitation on Asset Sales.......................................... 56
SECTION 4.09. Limitation on Consolidated Indebtedness............................ 59
SECTION 4.10. Limitation on Indebtedness and Preferred Stock of Restricted
Subsidiaries...................................................... 62
SECTION 4.11. Limitation on Restricted Payments.................................. 64
SECTION 4.12. Limitation on Liens................................................ 67
SECTION 4.13. Limitation on Sale and Leaseback Transactions...................... 68
SECTION 4.14. Limitation on Dividends and Other Payment Restrictions
Affecting Subsidiaries............................................ 69
SECTION 4.15. Limitation on Issuance and Sale of Capital Stock of
Restricted Subsidiaries........................................... 70
SECTION 4.16. Transactions with Affiliates....................................... 71
SECTION 4.17. Restricted and Unrestricted Subsidiaries........................... 72
SECTION 4.18. Reports............................................................ 73
SECTION 4.19. Compliance Certificate; Notice of Default or Event of Default...... 73
ARTICLE V.
CONSOLIDATION, MERGER, CONVEYANCE, LEASE OR TRANSFER
SECTION 5.01. Merger, Consolidation or Sale of Assets........................... 74
SECTION 5.02. Successor Corporation Substituted................................. 75
ARTICLE VI.
DEFAULTS AND REMEDIES
SECTION 6.01. Events of Default................................................. 75
SECTION 6.02. Acceleration...................................................... 77
SECTION 6.03. Other Remedies.................................................... 79
SECTION 6.04. Waiver of Past Defaults........................................... 79
SECTION 6.05. Control by Majority............................................... 79
SECTION 6.06. Limitation on Suits............................................... 80
SECTION 6.07. Rights of Holders to Receive Payment.............................. 80
SECTION 6.08. Trustee May File Proofs of Claim.................................. 81
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
SECTION 6.09. Priorities................................................. 81
SECTION 6.10. Undertaking for Costs...................................... 82
SECTION 6.11. Waiver of Stay or Extension Laws........................... 82
SECTION 6.12. Trustee May Enforce Claims Without Possession of the Notes. 82
SECTION 6.13. Restoration of Rights and Remedies......................... 83
SECTION 6.14. Rights and Remedies Cumulative............................. 83
SECTION 6.15. Delay or Omission Not Waiver............................... 83
ARTICLE VII.
TRUSTEE
SECTION 7.01. Duties of Trustee.......................................... 83
SECTION 7.02. Rights of Trustee.......................................... 84
SECTION 7.03. Individual Rights of Trustee............................... 85
SECTION 7.04. Trustee's Disclaimer....................................... 85
SECTION 7.05. Notice of Defaults......................................... 85
SECTION 7.06. Preservation of Information; Reports by Trustee to Holders. 86
SECTION 7.07. Compensation and Indemnity................................. 87
SECTION 7.08. Replacement of Trustee..................................... 87
SECTION 7.09. Successor Trustee by Merger................................ 90
SECTION 7.10. Eligibility; Disqualification.............................. 90
SECTION 7.11. Preferential Collection of Claims Against Company.......... 91
ARTICLE VIII.
DEFEASANCE
SECTION 8.01. Company's Option to Effect Legal Defeasance or Covenant
Defeasance.............................................. 91
SECTION 8.02. Legal Defeasance and Discharge............................. 91
SECTION 8.03. Covenant Defeasance........................................ 92
SECTION 8.04. Conditions to Defeasance or Covenant Defeasance............ 92
SECTION 8.05. Deposited Money and U.S. Government Obligations to be
Held in Trust; Miscellaneous Provisions................. 94
ARTICLE IX.
AMENDMENTS
SECTION 9.01. Without Consent of Holders................................. 95
SECTION 9.02. With Consent of Holders.................................... 96
SECTION 9.03. Effect of Supplemental Indentures.......................... 96
SECTION 9.04. Compliance with Trust Indenture Act........................ 97
SECTION 9.05. Revocation and Effect of Consents and Waivers.............. 97
SECTION 9.06. Notation on or Exchange of Notes........................... 97
SECTION 9.07. Trustee to Execute Supplemental Indentures................. 97
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
ARTICLE X.
MISCELLANEOUS
<S> <C>
SECTION 10.01. Trust Indenture Act Controls............................. 98
SECTION 10.02. Notices.................................................. 98
SECTION 10.03. Certificate and Opinion as to Conditions Precedent....... 98
SECTION 10.04. Statements Required in Certificate or Opinion............ 98
SECTION 10.05. Rules by Trustee, Paying Agent and Note Registrar........ 99
SECTION 10.06. Payments on Business Days................................ 99
SECTION 10.07. Governing Law............................................ 99
SECTION 10.08. No Recourse Against Others............................... 99
SECTION 10.09. Successors............................................... 99
SECTION 10.10. Counterparts............................................. 99
SECTION 10.11. Table of Contents; Headings.............................. 99
SECTION 10.12. Severability............................................. 100
SECTION 10.13. Further Instruments and Acts............................. 100
</TABLE>
ANNEX A FORM OF REGULATION S CERTIFICATE
ANNEX B FORM OF RESTRICTED SECURITIES CERTIFICATE
ANNEX C FORM OF UNRESTRICTED SECURITIES CERTIFICATE
iv
<PAGE>
INDENTURE, dated as of October 30, 1998, between MCLEODUSA INCORPORATED, a
Delaware corporation (the "Company"), having its principal office at 6400 C
Street, S.W., Cedar Rapids, Iowa 52406, and UNITED STATES TRUST COMPANY OF NEW
YORK, a bank and trust company organized under the New York banking law, as
trustee hereunder (the "Trustee"), having its Corporate Trust Office at 114 West
47th Street, New York, New York 10031.
RECITALS OF THE COMPANY
The Company has duly authorized the creation and issue of its 9 1/2% Senior
Notes Due 2008 (the "Notes") of substantially the tenor and amount hereinafter
set forth, and to provide therefor the Company has duly authorized the execution
and delivery of this Indenture.
All things necessary to make the Notes, when executed by the Company and
authenticated and delivered by the Trustee hereunder and duly issued by the
Company, the valid obligations of the Company, and to make this Indenture a
valid instrument of the Company, in accordance with their respective terms, have
been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH, that, for and in consideration of
the premises and the purchase of the Original Notes by the Holders thereof, it
is mutually covenanted and agreed, for the equal and proportionate benefit of
all Holders of the Notes, as follows:
ARTICLE I.
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 1.01 Definitions. For all purposes of this Indenture, except as
-----------
otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular; and
(b) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP.
"Acquired Indebtedness" means, with respect to any specified Person,
---------------------
Indebtedness of any other Person existing at the time such other Person merged
with or into or became a Subsidiary of such specified Person; provided that such
Indebtedness was not incurred in connection with, or in anticipation or
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, but excluding Indebtedness which is
extinguished, retired or repaid in connection with such other Person merging
with or into or becoming a Subsidiary of such specified Person.
<PAGE>
"Act" when used with respect to any Holder, has the meaning set forth in
---
Section 1.05 hereof.
"Affiliate" means, as to any Person, any other Person which directly or
---------
indirectly controls, or is under common control with, or is controlled by, such
Person; provided that each Unrestricted Subsidiary shall be deemed to be an
Affiliate of the Company and of each other Subsidiary of the Company; provided,
further, that neither the Company nor any of its Restricted Subsidiaries shall
be deemed to be Affiliates of each other. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling," "under
common control with" and "controlled by"), as used with respect to any Person,
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of such Person, whether
through the ownership of Voting Stock, by agreement or otherwise.
"Affiliate Transaction" has the meaning set forth in Section 4.16 hereof.
---------------------
"Agent Member" means any member of, or participant in, the Depositary.
------------
"Applicable Procedures" means, with respect to any transfer or transaction
---------------------
involving a Global Security or beneficial interest therein, the rules and
procedures of the Depositary for such Note, Euroclear and Cedel, in each case to
the extent applicable to such transaction and as in effect from time to time.
"Asset Sale" by any Person means any transfer, conveyance, sale, lease or
----------
other disposition by such Person or any of its Restricted Subsidiaries
(including a consolidation or merger or other sale of any such Restricted
Subsidiary with, into or to another Person in a transaction in which such
Restricted Subsidiary ceases to be a Restricted Subsidiary of the specified
Person, but excluding a disposition by a Restricted Subsidiary of such Person to
such Person or a Wholly-Owned Restricted Subsidiary of such Person or by such
Person to a Wholly-Owned Restricted Subsidiary of such Person) of (i) shares of
Capital Stock or other ownership interests of a Restricted Subsidiary of such
Person (other than as permitted by the provisions of Section 4.10 hereof), (ii)
substantially all of the assets of such Person or any of its Restricted
Subsidiaries representing a division or line of business (other than as part of
a Permitted Investment) or (iii) other assets or rights of such Person or any of
its Restricted Subsidiaries outside of the ordinary course of business and, in
each case, that is not governed by Article V hereof; provided that "Asset Sale"
shall not include (i) sales or other dispositions of inventory, receivables and
other current assets in the ordinary course of business, (ii) simultaneous
exchanges by the Company or any Restricted Subsidiary of Telecommunications
Assets for other Telecommunications Assets in the ordinary course of business;
provided that the applicable Telecommunications Assets received by the Company
or such Restricted Subsidiary have at least substantially equal Fair Market
Value to the Company or such Restricted Subsidiary (as determined by the Board
of Directors whose good faith determination shall be conclusive and evidenced by
a Board Resolution), and (iii) sales
2
<PAGE>
or other dispositions of assets with a Fair Market Value (as certified in an
Officers' Certificate) not in excess of $1 million.
"Asset Sale Offer" has the meaning set forth in Section 4.08(c) hereof.
----------------
"Asset Sale Payment Date" has the meaning set forth in Section 4.08(d)(ii)
-----------------------
hereof.
"Asset Sale Purchase Price" has the meaning set forth in Section 4.08(c)
-------------------------
hereof.
"Attributable Indebtedness" means, with respect to any Sale and Leaseback
-------------------------
Transaction of any Person, as at the time of determination, the greater of (i)
the capitalized amount in respect of such transaction that would appear on the
balance sheet of such Person in accordance with GAAP and (ii) the present value
(discounted at a rate consistent with accounting guidelines, as determined in
good faith by the responsible accounting officer of such Person) of the payments
during the remaining term of the lease (including any period for which such
lease has been extended or may, at the option of the lessor, be extended) or
until the earliest date on which the lessee may terminate such lease without
penalty or upon payment of a penalty (in which case the rental payments shall
include such penalty).
"Average Life" means, as of any date, with respect to any debt security or
------------
Disqualified Stock, the quotient obtained by dividing (i) the sum of the
products of (x) the number of years from such date to the dates of each
scheduled principal payment or redemption payment (including any sinking fund or
mandatory redemption payment requirements) of such debt security or Disqualified
Stock multiplied in each case by (y) the amount of such principal or redemption
payment, by (ii) the sum of all such principal or redemption payments.
"Board of Directors" means the Board of Directors of the Company or any
------------------
committee thereof duly authorized to act on behalf of the Board of Directors.
"Board Resolution" means a duly adopted resolution of the Board of Directors
----------------
in full force and effect at the time of determination.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
------------
that is not a day on which banking institutions in The City of New York are
authorized or obligated by law, executive order or regulation to close.
"Capital Lease Obligation" of any Person means the obligation to pay rent or
------------------------
other payment amounts under a lease of (or other Indebtedness arrangement
conveying the right to use) real or personal property of such Person which is
required to be classified and accounted for as a capital lease or a liability on
the face of a balance sheet of such Person prepared in accordance with GAAP, and
the stated maturity thereof shall be the date of the last payment of rent or any
amount due under such lease prior to the first date upon which such lease may be
terminated by the lessee without payment of a penalty.
3
<PAGE>
"Capital Stock" in any Person means any and all shares, interests,
-------------
participations or other equivalents in the equity interest (however designated)
in such Person and any rights (other than Indebtedness convertible into an
equity interest), warrants or options to subscribe for or acquire an equity
interest in such Person.
"Cash Proceeds" means, with respect to any Asset Sale or issuance or sale of
-------------
Capital Stock by any Person, the aggregate consideration received in respect of
such sale or issuance by such Person in the form of cash and Eligible Cash
Equivalents.
"Cedel" means Cedel Bank, S.A. (or any successor securities clearing
-----
agency).
"Change of Control shall be deemed to occur if (i) the sale, conveyance,
-----------------
transfer or lease of all or substantially all of the assets of the Company to
any "Person" or "group" (within the meaning of Sections 13(d)(3) and 14(d)(2) of
the Exchange Act or any successor provision to either of the foregoing,
including any group acting for the purpose of acquiring, holding or disposing of
securities within the meaning of Rule 13d-5(b)(i) under the Exchange Act), other
than any Permitted Holder or any Restricted Subsidiary of the Company, shall
have occurred; or (ii) any "Person" or "group" (within the meaning of Sections
13(d)(3) and 14(d)(2) of the Exchange Act or any successor provision to either
of the foregoing, including any group acting for the purpose of acquiring,
holding or disposing of securities within the meaning of Rule 13d-5(b)(i) under
the Exchange Act), other than any Permitted Holder, becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act) of more than 35 percent
of the total voting power of all classes of the Voting Stock of the Company
(including any warrants, options or rights to acquire such Voting Stock),
calculated on a fully diluted basis, and such voting power percentage is greater
than or equal to the total voting power percentage then beneficially owned by
the Permitted Holders in the aggregate; or (iii) during any period of two
consecutive years, individuals who at the beginning of such period constituted
the Board of Directors (together with any directors whose election or
appointment by the Board of Directors or whose nomination for election by the
stockholders of the Company was approved by a vote of a majority of the
directors then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors then in office.
"Change of Control Offer" has the meaning set forth in Section 4.07(a)
-----------------------
hereof.
"Change of Control Payment Date" has the meaning set forth in Section
------------------------------
4.07(b)(ii) hereof.
"Change of Control Purchase Price" has the meaning set forth in Section
--------------------------------
4.07(a) hereof.
"clearing agency" has the meaning set forth in Section 3(a)(23) of the
---------------
Exchange Act.
4
<PAGE>
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Commission" means the United States Securities and Exchange Commission, as
----------
from time to time constituted, created under the Exchange Act, or, if at any
time after the execution of this Indenture such commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act, the body
performing such duties at such time.
"Common Stock" means Capital Stock other than Preferred Stock.
------------
"Company" means the party named as such in the preamble to this Indenture
-------
until a successor replaces it pursuant to the applicable provisions hereof and,
thereafter, means such successor.
"Company Order" means a written order signed in the name of the Company by
-------------
(i) its Chairman of the Board, President, a Vice Chairman or a Vice President,
and (ii) its Treasurer, an Assistant Treasurer, its Secretary or an Assistant
Secretary.
"Consolidated Capital Ratio" of any Person as of any date means the ratio of
--------------------------
(i) the aggregate consolidated principal amount of Indebtedness of such Person
then outstanding to (ii) the aggregate consolidated paid-in capital of such
Person as of such date.
"Consolidated Cash Flow Available for Fixed Charges" for any period means
--------------------------------------------------
the Consolidated Net Income of the Company and its Restricted Subsidiaries for
such period increased by the sum of (i) Consolidated Interest Expense of the
Company and its Restricted Subsidiaries for such period, plus (ii) Consolidated
Income Tax Expense of the Company and its Restricted Subsidiaries for such
period, plus (iii) the consolidated depreciation and amortization expense
included in the income statement of the Company and its Restricted Subsidiaries
for such period, plus (iv) any non-cash expense related to the issuance to
employees of the Company or any Restricted Subsidiary of the Company of options
to purchase Capital Stock of the Company or such Restricted Subsidiary, plus (v)
any charge related to any premium or penalty paid in connection with redeeming
or retiring any Indebtedness prior to its stated maturity; and plus (vi) any
non-cash expense related to a purchase accounting adjustment not requiring an
accrual or reserve and separately disclosed in the Company's Consolidated Income
Statement, and decreased by the amount of any non-cash item that increases such
Consolidated Net Income, all as determined on a consolidated basis in accordance
with GAAP; provided that there shall be excluded therefrom the Consolidated Cash
Flow Available for Fixed Charges (if positive) of any Restricted Subsidiary of
the Company (calculated separately for such Restricted Subsidiary in the same
manner as provided above for the Company) that is subject to a restriction which
prevents the payment of dividends or the making of distributions to the Company
or another Restricted Subsidiary of the Company to the extent of such
restriction.
5
<PAGE>
"Consolidated Income Tax Expense" for any period means the aggregate amounts
-------------------------------
of the provisions for income taxes of the Company and its Restricted
Subsidiaries for such period calculated on a consolidated basis in accordance
with GAAP.
"Consolidated Interest Expense" means for any period the interest expense
-----------------------------
included in a consolidated income statement (excluding interest income) of the
Company and its Restricted Subsidiaries for such period in accordance with GAAP,
including without limitation or duplication (or, to the extent not so included,
with the addition of), (i) the amortization of Indebtedness discount; (ii) any
payments or fees with respect to letters of credit, bankers' acceptances or
similar facilities; (iii) fees with respect to interest rate swap or similar
agreements or foreign currency hedge, exchange or similar agreements; (iv)
Preferred Stock dividends of the Company and its Restricted Subsidiaries (other
than dividends paid in shares of Preferred Stock that is not Disqualified Stock)
declared and paid or payable; (v) accrued Disqualified Stock dividends of the
Company and its Restricted Subsidiaries, whether or not declared or paid; (vi)
interest on Indebtedness guaranteed by the Company and its Restricted
Subsidiaries; and (vii) the portion of any Capital Lease Obligation paid during
such period that is allocable to interest expense in accordance with GAAP.
"Consolidated Net Income" of any Person means, for any period, the aggregate
-----------------------
net income (or net loss) of such Person and its Restricted Subsidiaries for such
period on a consolidated basis determined in accordance with GAAP; provided that
there shall be excluded therefrom, without duplication (i) all items classified
as extraordinary, (ii) any net income (or net loss) of any Person other than
such Person and its Restricted Subsidiaries, except to the extent of the amount
of dividends or other distributions actually paid to such Person or its
Restricted Subsidiaries by such other Person during such period, (iii) the net
income of any Person acquired by such Person or any of its Restricted
Subsidiaries in a pooling-of-interests transaction for any period prior to the
date of the related acquisition, (iv) any gain or loss, net of taxes, realized
on the termination of any employee pension benefit plan, (v) net gains (or net
losses) in respect of Asset Sales by such Person or its Restricted Subsidiaries,
(vi) the net income (or net loss) of any Restricted Subsidiary of such Person to
the extent that the payment of dividends or other distributions to such Person
is restricted by the terms of its charter or any agreement, instrument,
contract, judgment, order, decree, statute, rule, governmental regulation or
otherwise, except for any dividends or distributions actually paid by such
Restricted Subsidiary to such Person, (vii) with regard to a non-wholly owned
Restricted Subsidiary, any aggregate net income (or loss) in excess of such
Person's or such Restricted Subsidiary's pro rata share of such non-wholly owned
Restricted Subsidiary's net income (or loss) and (viii) the cumulative effect of
changes in accounting principles.
"Consolidated Net Worth" of any Person means, at any date of determination,
----------------------
the consolidated stockholders' equity or partners' capital (excluding
Disqualified Stock) of such Person and its subsidiaries, as determined in
accordance with GAAP.
6
<PAGE>
"Consolidated Tangible Assets" of any Person means the total amount of
----------------------------
assets (less applicable reserves and other properly deductible items) which
under GAAP would be included on a consolidated balance sheet of such Person and
its Subsidiaries after deducting therefrom all goodwill, trade names,
trademarks, patents, unamortized debt discount and expense and other like
intangibles, which in each case under GAAP would be included on such
consolidated balance sheet.
"Corporate Trust Office" means the principal office of the Trustee in the
----------------------
Borough of Manhattan, The City of New York, New York which at any particular
time its corporate trust business shall be principally administered, which at
the date hereof is located at 114 West 47th Street, New York, New York 10031.
"Covenant Defeasance" has the meaning set forth in Section 8.03 hereof.
-------------------
"Default" means any event, act or condition, the occurrence of which is, or
-------
after notice or the passage of time or both would be, an Event of Default.
"Default Amount" means an amount equal to one hundred percent (100%) of the
--------------
originally issued principal amount of the Notes.
"Defaulted Interest" has the meaning set forth in Section 2.13 hereof.
------------------
"Defeasance" has the meaning set forth in Section 8.02 hereof.
----------
"Depositary" means, with respect to the Notes issuable or issued in whole or
----------
in part in the form of one or more Global Securities, The Depository Trust
Company for so long as it shall be a clearing agency registered under the
Exchange Act, or such successor as the Company shall designate from time to time
in an Officers' Certificate delivered to the Trustee.
"Disqualified Stock" means any Capital Stock which, by its terms (or by the
------------------
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, or otherwise, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the option of the holder thereof, or is exchangeable for
Indebtedness at any time, in whole or in part, on or prior to the Stated
Maturity of the Notes.
"Eligible Cash Equivalents" means (i) securities issued or directly and
-------------------------
fully guaranteed or insured by the United States of America or any agency or
instrumentality thereof, provided that the full faith and credit of the United
--------
States of America is pledged in support thereof; (ii) time deposits and
certificates of deposit of any commercial bank organized in the United States
having capital and surplus in excess of $500,000,000 with a maturity date not
more than one year from the date of acquisition; (iii) repurchase obligations
with a term of not more than seven days for underlying securities of the types
described in
7
<PAGE>
clause (i) above entered into with any bank meeting the qualifications specified
in clause (ii) above; (iv) direct obligations issued by any state of the United
States of America or any political subdivision of any such state or any public
instrumentality thereof maturing, or subject to tender at the option of the
holder thereof within 270 calendar days after the date of acquisition thereof
and, at the time of acquisition, having a rating of A or better from Standard &
Poor's or A-2 or better from Moody's; (v) commercial paper issued by the parent
corporation of any commercial bank organized in the United States having capital
and surplus in excess of $500,000,000 and commercial paper issued by others
having one of the two highest ratings obtainable from either Standard & Poor's
or Moody's and in each case maturing within 270 calendar days after the date of
acquisition; (vi) overnight bank deposits and bankers' acceptances at any
commercial bank organized in the United States having capital and surplus in
excess of $500,000,000; (vii) deposits available for withdrawal on demand with a
commercial bank organized in the United States having capital and surplus in
excess of $500,000,000; and (viii) investments in money market funds
substantially all of whose assets comprise securities of the types described in
clauses (i) through (vi).
"Euroclear" means the Euroclear Clearance System (or any successor
---------
securities clearing agency).
"Event of Default" has the meaning set forth in Section 6.01 hereof.
----------------
"Excess Proceeds" has the meaning set forth in Section 4.08(b) hereof.
---------------
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
------------
the rules and regulations promulgated thereunder.
"Exchange Note" means any Note issued in exchange for an Original Note or
-------------
Original Notes pursuant to the Registered Exchange Offer or otherwise registered
under the Securities Act and any Note with respect to which the next preceding
Predecessor Note of such Note was an Exchange Note.
"Exchange Offer Registration Statement" has the meaning set forth in the
-------------------------------------
form of the Notes contained in Section 2.02 hereof.
"Existing Indebtedness" means Indebtedness outstanding on the date of this
---------------------
Indenture (other than under any Senior Credit Facility).
"Fair Market Value" means, with respect to any asset or Property, the sale
-----------------
value that would be obtained in an arm's-length transaction between an informed
and willing seller under no compulsion to sell and an informed and willing buyer
under no compulsion to buy, as determined in good faith by the Board of
Directors.
"GAAP" means United States generally accepted accounting principles,
----
consistently applied, as set forth in the opinions and pronouncements of the
Accounting Principles Board
8
<PAGE>
of the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board, or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession of the United States, that are applicable to the
circumstances as of the date of determination; provided that, except as
--------
otherwise specifically provided herein, all calculations made for purposes of
determining compliance with Article IV or Section 5.01 hereof shall utilize GAAP
as in effect on the Issue Date.
"Global Security" or "Global Securities" means the Note or Notes that
--------------- -----------------
evidences all or part of the Notes and bears the legend set forth in Section
2.02 hereof.
"Guarantee" means any direct or indirect obligation, contingent or
---------
otherwise, of a Person guaranteeing or having the economic effect of
guaranteeing any Indebtedness of any other Person in any manner. The terms
"Guaranteed," "Guaranteeing" and "Guarantor" shall have correlative meanings.
"Holder" means (i) in the case of any certificated Note, the Person in whose
------
name such certificated Note is registered in the Note Register and (ii) in the
case of any Global Security, the Depositary.
"Incur" means, with respect to any Indebtedness or other obligation of any
-----
Person, to create, issue, incur (by conversion, exchange or otherwise), assume,
Guarantee or otherwise become liable in respect of such Indebtedness or other
obligation including by acquisition of Subsidiaries or the recording, as
required pursuant to GAAP or otherwise, of any such Indebtedness or other
obligation on the balance sheet of such Person (and "Incurrence," "Incurred,"
"Incurrable" and "Incurring" shall have meanings correlative to the foregoing);
provided that a change in GAAP that results in an obligation of such Person that
exists at such time becoming Indebtedness shall not be deemed an Incurrence of
such Indebtedness and that neither the accrual of interest nor the accretion of
original issue discount shall be deemed an Incurrence of Indebtedness.
Indebtedness otherwise incurred by a Person before it becomes a Subsidiary of
the Company (whether by merger, consolidation, acquisition or otherwise) shall
be deemed to have been incurred at the time at which such Person becomes a
Subsidiary of the Company.
"Indebtedness" means, at any time (without duplication), with respect to any
------------
Person, whether recourse as to all or a portion of the assets of such Person,
and whether or not contingent, (i) any obligation of such Person for money
borrowed, (ii) any obligation of such Person evidenced by bonds, debentures,
notes, Guarantees or other similar instruments, including, without limitation,
any such obligations incurred in connection with the acquisition of Property,
assets or businesses, excluding trade accounts payable made in the ordinary
course of business, (iii) any reimbursement obligation of such Person with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such Person, (iv) any obligation of such Person issued or
assumed as the deferred purchase price of Property or services (but excluding
trade accounts payable or accrued liabilities arising in the ordinary
9
<PAGE>
course of business, which in either case are not more than 60 days overdue or
which are being contested in good faith), (v) any Capital Lease Obligation of
such Person, (vi) the maximum fixed redemption or repurchase price of
Disqualified Stock of such Person and, to the extent held by Persons other than
such Person or its Restricted Subsidiaries, the maximum fixed redemption or
repurchase price of Disqualified Stock of such Person's Restricted Subsidiaries,
at the time of determination, (vii) every obligation under Interest Rate and
Currency Protection Agreements of such Person, (viii) any Attributable
Indebtedness with respect to any Sale and Leaseback Transaction to which such
Person is a party and (ix) any obligation of the type referred to in clauses (i)
through (viii) of this definition of another Person and all dividends and
distributions of another Person the payment of which, in either case, such
Person has Guaranteed or is responsible or liable, directly or indirectly, as
obligor, Guarantor or otherwise. For purposes of the preceding sentence, the
maximum fixed repurchase price of any Disqualified Stock that does not have a
fixed repurchase price shall be calculated in accordance with the terms of such
Disqualified Stock as if such Disqualified Stock were repurchased on any date on
which Indebtedness shall be required to be determined pursuant to this
Indenture; provided that, if such Disqualified Stock is not then permitted to be
repurchased, the repurchase price shall be the book value of such Disqualified
Stock. The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and, with respect to contingent obligations, the maximum liability upon
the occurrence of the contingency giving rise to the obligation; provided that
the amount outstanding at any time of any Indebtedness issued with original
issue discount (including, without limitation, the Senior Discount Notes) is the
face amount of such Indebtedness less the remaining unamortized portion of the
original issue discount of such Indebtedness at such time as determined in
conformity with GAAP.
"Indenture" means this instrument as originally executed or as it may from
---------
time to time be supplemented or amended by one or more indentures supplemental
hereto entered into pursuant to the applicable provisions hereof, including, for
all purposes of this instrument and any such supplemental indenture, the
provisions of the Trust Indenture Act that are deemed to be a part of and govern
this instrument, and any such supplemental indenture, respectively.
"Interest Payment Date" means the Stated Maturity of an installment of
---------------------
interest on the Notes.
"Interest Rate or Currency Protection Agreement" of any Person means any
----------------------------------------------
forward contract, futures contract, swap, option, future option or other
financial agreement or arrangement (including, without limitation, caps, floors,
collars and similar agreements) relating to, or the value of which is dependent
upon, interest rates or currency exchange rates or indices.
"Investment" in any Person means any direct, indirect or contingent (i)
----------
advance or loan to, Guarantee of any Indebtedness of, extension of credit or
capital contribution to such
10
<PAGE>
Person, (ii) the acquisition of any shares of Capital Stock, bonds, notes,
debentures or other securities of such Person, or (iii) the acquisition, by
purchase or otherwise, of all or substantially all of the business, assets or
stock or other evidence of beneficial ownership of such Person; provided that
--------
Investments shall exclude commercially reasonable extensions of trade credit.
The amount of any Investment shall be the original cost of such Investment, plus
----
the cost of all additions thereto and minus the amount of any portion of such
-----
Investment repaid to such Person in cash as a repayment of principal or a return
of capital, as the case may be, but without any other adjustments for increases
or decreases in value, or write-ups, write-downs or write-offs with respect to
such Investment. In determining the amount of any Investment involving a
transfer of any Property other than cash, such Property or asset shall be valued
at its Fair Market Value at the time of such transfer.
"Issue Date" means the date on which the Notes are first authenticated and
----------
delivered under this Indenture.
"Lien" means, with respect to any Property or other asset, any mortgage or
----
deed of trust, pledge, hypothecation, assignment, deposit arrangement, security
interest, lien (statutory or other), charge, easement, encumbrance, preference,
priority or other security or similar agreement or preferential arrangement of
any kind or nature whatsoever on or with respect to such Property or other asset
(including, without limitation, any conditional sale or title retention
agreement having substantially the same economic effect as any of the
foregoing).
"Maturity" means, when used with respect to a Note, the date on which the
--------
principal of such Note becomes due and payable as provided therein or in this
Indenture, whether on the date specified in such Note as the fixed date on which
the principal of such Note is due and payable, on a Change of Control Payment
Date or an Asset Sale Payment Date, or by declaration of acceleration, call for
redemption or otherwise.
"Moody's" means Moody's Investors Service, Inc., or, if Moody's Investors
-------
Service, Inc. shall cease rating the specified debt securities and such ratings
business with respect thereto shall have been transferred to a successor Person,
such successor Person; provided that if Moody's Investors Service, Inc. ceases
rating the specified debt securities and its ratings business with respect
thereto shall not have been transferred to any successor Person or such
successor Person is Standard & Poor's, then "Moody's" shall mean any other
nationally recognized rating agency (other than Standard & Poor's) that rates
the specified debt securities and that shall have been designated by the Company
in an Officers' Certificate.
"NASD" means the National Association of Securities Dealers, Inc.
----
"Net Cash Proceeds" means, with respect to the sale of any Property or
-----------------
assets by any Person or any of its Restricted Subsidiaries, Cash Proceeds
received net of (i) all reasonable out-of-pocket expenses of such Person or such
Restricted Subsidiary incurred in connection
11
<PAGE>
with such sale, including, without limitation, all legal, title and recording
tax expenses, commissions and other fees and expenses incurred (but excluding
any finder's fee or broker's fee payable to any Affiliate of such Person) and
all federal, state, foreign and local taxes arising in connection with such sale
that are paid or required to be accrued as a liability under GAAP by such Person
or its Restricted Subsidiaries; (ii) all payments made or required to be made by
such Person or its Restricted Subsidiaries on any Indebtedness which is secured
by such Properties or other assets in accordance with the terms of any Lien upon
or with respect to such Properties or other assets or which must, by the terms
of such Lien, or in order to obtain a necessary consent to such transaction or
by applicable law, be repaid in connection with such sale; (iii) all
contractually required distributions and other payments made to minority
interest holders (but excluding distributions and payments to Affiliates of such
Person) in Restricted Subsidiaries of such Person as a result of such
transaction; and (iv) appropriate amounts to be provided by such Person or any
Restricted Subsidiary thereof, as the case may be, as a reserve in accordance
with GAAP against any liabilities associated with such assets and retained by
such Person or any Restricted Subsidiary thereof, as the case may be, after such
transaction, including, without limitation, liabilities under any
indemnification obligations and severance and other employee termination costs
associated with such transaction, in each case as determined by the Board of
Directors of such Person, in its reasonable good faith judgment evidenced by a
resolution of the Board of Directors filed with the Trustee; provided that, in
--------
the event that any consideration for a transaction (which would otherwise
constitute Net Cash Proceeds) is required to be held in escrow pending
determination of whether a purchase price adjustment will be made, such
consideration (or any portion thereof) shall become Net Cash Proceeds only at
such time as it is released to such Person or its Restricted Subsidiaries from
escrow; and provided, further, that any non-cash consideration received in
-------- -------
connection with any transaction, which is subsequently converted to cash, shall
be deemed to be Net Cash Proceeds at such time, and shall thereafter be applied
in accordance with the applicable provisions of this Indenture.
"Note Register" and "Note Registrar" have the respective meanings specified
------------- --------------
in Section 2.06 hereof.
"Notes" has the meaning set forth in the Recitals of the Company and more
-----
particularly means any of the Notes authenticated and delivered under this
Indenture, including the Original Notes and the Registered Notes, as the context
may require.
"Officer" means the Chairman of the Board of Directors, a Vice Chairman of
-------
the Board of Directors, the President, a Vice President, the Chief Financial
Officer, the Chief Accounting Officer, the Treasurer, an Assistant Treasurer,
the Secretary or an Assistant Secretary.
"Officers' Certificate" means a certificate signed by (i) the Chairman of
---------------------
the Board of Directors, a Vice Chairman of the Board of Directors, the
President, the Chief Executive Officer or a Vice President, and (ii) the Chief
Financial Officer, the Chief Accounting Officer, the Treasurer, an Assistant
Treasurer, the Secretary or an Assistant Secretary, and
12
<PAGE>
delivered to the Trustee, which certificate shall comply with the provisions of
Section 10.04 hereof; provided that any Officers' Certificate delivered pursuant
to the first paragraph of Section 4.19 hereof shall be signed by the Chief
Executive Officer, the Chief Financial Officer or the Chief Accounting Officer.
"Opinion of Counsel" means a written opinion from legal counsel (who may be
------------------
counsel to the Company or the Trustee) who is acceptable to the Trustee, which
opinion shall comply with the provisions of Section 10.04 hereof.
"Original Notes" means all Notes other than Exchange Notes.
--------------
"Other Notes" means the Notes sold by the Purchasers in the initial offering
-----------
contemplated by the Purchase Agreement in reliance on an exemption from the
registration requirements of the Securities Act other than Rule 144A and
Regulation S.
"Paying Agent" means any Person authorized by the Company to make payments
------------
of principal, premium or interest with respect to the Notes on behalf of the
Company.
"Permitted Holders" means IES Industries Inc. and MidAmerican Energy
-----------------
Holdings Company and their respective successors and assigns, and Clark E. and
Mary E. McLeod and foundations and trusts controlled by them or either of them,
and Affiliates (other than the Company and the Restricted Subsidiaries) of each
of the foregoing.
"Permitted Interest Rate or Currency Protection Agreement" of any Person
--------------------------------------------------------
means any Interest Rate or Currency Protection Agreement entered into with one
or more financial institutions in the ordinary course of business that is
designed to protect such Person against fluctuations in interest rates or
currency exchange rates with respect to Indebtedness Incurred and which shall
have a notional amount no greater than the payments due with respect to the
Indebtedness being hedged thereby and not for purposes of speculation.
"Permitted Investments" means:
---------------------
(i) Eligible Cash Equivalents;
(ii) Investments in Property used in the ordinary course of business;
(iii) Investments in any Person as a result of which such Person
becomes a Restricted Subsidiary in compliance with Section 4.17 hereof;
(iv) Investments pursuant to agreements or obligations of the Company
or a Restricted Subsidiary, in effect on the Issue Date, to make such
Investments;
13
<PAGE>
(v) Investments in prepaid expenses, negotiable instruments held
for collection and lease, utility and workers' compensation, performance and
other similar deposits;
(vi) Permitted Interest Rate or Currency Protection Agreements with
respect to any floating rate Indebtedness that is permitted under Section
4.09 or Section 4.10 hereof to be outstanding;
(vii) bonds, notes, debentures or other debt securities received as a
result of Asset Sales permitted under Section 4.08 hereof;
(viii) Investments in existence at the Issue Date;
(ix) commission, payroll, travel and similar advances to employees
in the ordinary course of business to cover matters that are expected at the
time of such advances ultimately to be treated as expenses in accordance
with GAAP;
(x) stock, obligations or securities received in satisfaction of
judgments; and
(xi) Investments made pursuant to any deferred-compensation plan,
including any Investments made through a trust (including a grantor trust)
established in connection with any such plan, for the benefit of employees
of the Company or of any Restricted Subsidiary.
"Permitted Liens" means (i) Liens for taxes, assessments, governmental
---------------
charges or claims which are not yet delinquent or which are being contested in
good faith by appropriate proceedings, if a reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP shall have been
made therefor; (ii) other Liens incidental to the conduct of the Company's and
its Restricted Subsidiaries' business or the ownership of its property and
assets not securing any Indebtedness, and which do not in the aggregate
materially detract from the value of the Company's and its Restricted
Subsidiaries' property or assets when taken as a whole, or materially impair the
use thereof in the operation of its business; (iii) Liens with respect to assets
of a Restricted Subsidiary granted by such Restricted Subsidiary to the Company
to secure Indebtedness owing to the Company; (iv) pledges and deposits made in
the ordinary course of business in connection with workers' compensation and
unemployment insurance, statutory Liens of landlords, carriers, warehousemen,
mechanics, materialmen, repairmen and other types of statutory obligations; (v)
deposits made to secure the performance of tenders, bids, leases, and other
obligations of like nature incurred in the ordinary course of business
(exclusive of obligations for the payment of borrowed money); (vi) zoning
restrictions, servitudes, easements, rights-of-way, restrictions and other
similar charges or encumbrances incurred in the ordinary course of business
which, in the aggregate, do not materially detract from the value of the
property subject thereto or interfere with the ordinary conduct of the business
of the Company or its
14
<PAGE>
Restricted Subsidiaries; (vii) Liens arising out of judgments or awards against
the Company or any Restricted Subsidiary with respect to which the Company or
such Restricted Subsidiary is prosecuting an appeal or proceeding for review and
the Company or such Restricted Subsidiary is maintaining adequate reserves in
accordance with GAAP; (viii) any interest or title of a lessor in the property
subject to any lease other than a Capital Lease; (ix) Liens (including
extensions and renewals thereof) upon real or personal property acquired after
the Issue Date; provided that (a) such Lien is created solely for the purpose of
securing Indebtedness Incurred, in accordance with Section 4.09 hereof, (1) to
finance the cost (including the cost of improvement or construction) of the item
of property or assets subject thereto and such Lien is created prior to, at the
time of or within six months after the later of the acquisition, the completion
of construction or the commencement of full operation of such property or (2) to
refinance any Indebtedness previously so secured, (b) the principal amount of
the Indebtedness secured by such Lien does not exceed 100% of such cost and (c)
any such Lien shall not extend to or cover any property or assets other than
such item of property or assets and any improvements on such item; (x) leases or
subleases granted to others that do not materially interfere with the ordinary
course of business of the Company and its Restricted Subsidiaries; (xi) Liens
encumbering property or assets under construction arising from progress or
partial payments by a customer of the Company or its Restricted Subsidiaries
relating to such property or assets; (xii) Liens arising from filing
precautionary Uniform Commercial Code financing statements regarding leases;
(xiii) Liens on property of, or on shares of stock or Indebtedness of, any
corporation existing at the time such corporation becomes, or becomes a part of,
any Restricted Subsidiary; provided that such Liens do not extend to or cover
any property or assets of the Company or any Restricted Subsidiary other than
the property or assets acquired; (xiv) Liens in favor of the Company or any
Restricted Subsidiary; (xv) Liens securing reimbursement obligations with
respect to letters of credit that encumber documents and other property relating
to such letters of credit and the products and proceeds thereof; (xvi) Liens in
favor of customs and revenue authorities arising as a matter of law to secure
payment of customs duties in connection with the importation of goods; (xvii)
Liens encumbering customary initial deposits and margin deposits, and other
Liens that are either within the general parameters customary in the industry
and incurred in the ordinary course of business, in each case, securing
Indebtedness under Permitted Interest Rate Agreements and Currency Agreements;
and (xviii) Liens arising out of conditional sale, title retention, consignment
or similar arrangements for the sale of goods entered into by the Company or any
of its Restricted Subsidiaries in the ordinary course of business in accordance
with the past practices of the Company and its Restricted Subsidiaries prior to
the Issue Date.
"Person" means any individual, corporation, limited liability company,
------
partnership, limited liability partnership, joint venture, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"Predecessor Note" of any particular Note means every previous Note
----------------
evidencing all or a portion of the same Indebtedness as that evidenced by such
particular Note; and, for the purposes of this definition, any Note
authenticated and delivered under Section 2.09 hereof in
15
<PAGE>
exchange for or in lieu of a mutilated, destroyed, lost or stolen Note shall be
deemed to evidence the same debt as the mutilated, destroyed, lost or stolen
Note.
"Preferred Stock" of any Person means Capital Stock of such Person of any
---------------
class or classes (however designated) that ranks prior, as to the payment of
dividends or as to the distribution of assets upon any voluntary or involuntary
liquidation, dissolution or winding up of such Person, to shares of Capital
Stock of any other class of such Person.
"pro forma" means, with respect to any calculation made or required to be
---------
made pursuant to the terms hereof, a calculation in accordance with Article 11
of Regulation S-X promulgated under the Securities Act (to the extent
applicable), as interpreted in good faith by the Board of Directors, or
otherwise, a calculation made in good faith by the Board of Directors, as the
case may be.
"Property" means, with respect to any Person, any interest of such Person in
--------
any kind of property or asset, whether real, personal or mixed, or tangible or
intangible, excluding Capital Stock in any other Person.
"Purchase Agreement" means the Purchase Agreement, dated as of October 22,
------------------
1998 between the Company and the Purchasers, as such agreement may be amended
from time to time.
"Purchase Money Indebtedness" means Indebtedness of the Company (including
---------------------------
Acquired Indebtedness and Capital Lease Obligations, mortgage financings and
purchase money obligations) incurred for the purpose of financing all or any
part of the cost of construction, acquisition, development or improvement by the
Company or any Restricted Subsidiary of any Telecommunications Assets of the
Company or any Restricted Subsidiary and including any related notes,
Guarantees, collateral documents, instruments and agreements executed in
connection therewith, as the same may be amended, supplemented, modified or
restated from time to time.
"Purchasers" means Salomon Smith Barney Inc., Bear, Stearns & Co., Inc.,
----------
Morgan Stanley Dean Witter and Chase Securities Inc.
"Qualified Receivable Facility" means Indebtedness of the Company or any
-----------------------------
Subsidiary Incurred from time to time pursuant to either (x) credit facilities
secured by Receivables or (y) receivable purchase facilities, and including any
related notes, Guarantees, collateral documents, instruments and agreements
executed in connection therewith, as the same may be amended, supplemented,
modified or restated from time to time.
"Qualified Receivable Subsidiary" means a Restricted Subsidiary formed
-------------------------------
solely for the purpose of obtaining a Qualified Receivable Facility and
substantially all of the Property of which is Receivables.
16
<PAGE>
"Qualified Stock" of any Person means a class of Capital Stock other than
---------------
Disqualified Stock.
"Receivables" means receivables, chattel paper, instruments, documents or
-----------
intangibles evidencing or relating to the right to payment of money and proceeds
and products thereof in each case generated in the ordinary course of business.
"Redemption Date" means, when used with respect to any Note or part thereof
---------------
to be redeemed hereunder, the date fixed for redemption of such Notes pursuant
to the terms of the Notes and this Indenture.
"Redemption Price" means, when used with respect to any Note or part thereof
----------------
to be redeemed hereunder, the price fixed for redemption of such Note pursuant
to the terms of the Notes and this Indenture, plus accrued and unpaid interest
thereon, if any, to the Redemption Date.
"Registered Exchange Offer" has the meaning set forth in the form of the
-------------------------
Notes contained in Section 2.02 hereof.
"Registered Notes" means the Exchange Notes and all other Notes sold or
----------------
otherwise disposed of pursuant to an effective registration statement under the
Securities Act, together with their respective Successor Notes.
"Regular Record Date" means, for the interest payable on any Interest
-------------------
Payment Date, the date specified in Section 2.13 hereof.
"Regulation S" means Regulation S under the Securities Act (or any successor
------------
provision), as it may be amended from time to time.
"Regulation S Certificate" means a certificate substantially in the form set
------------------------
forth in Annex A hereof.
"Regulation S Global Security" has the meaning specified in Section 2.01
----------------------------
hereof.
"Regulation S Legend" means a legend substantially in the form of the legend
-------------------
required in the form of Note set forth in Section 2.02 hereof to be placed upon
each Regulation S Note.
"Regulation S Notes" means all Notes required pursuant to Section 2.08(c)
------------------
hereof to bear a Regulation S Legend. Such term includes the Regulation S
Global Security.
"Restricted Global Security" has the meaning specified in Section 2.01
--------------------------
hereof.
17
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"Restricted Notes" means all Notes required pursuant to Section 2.08(c)
----------------
hereof to bear any Restricted Notes Legend. Such term includes the Restricted
Global Security.
"Restricted Notes Certificate" means a certificate substantially in the form
----------------------------
set forth in Annex B hereof.
"Restricted Notes Legend" means, collectively, the legends substantially in
-----------------------
the forms of the legends required in the form of Note set forth in Section 2.02
hereof to be placed upon each Restricted Note.
"Restricted Payment" means (i) a dividend or other distribution declared or
------------------
paid on the Capital Stock of the Company or to the Company's stockholders (in
their capacity as such), or declared or paid to any Person other than the
Company or a Restricted Subsidiary of the Company on the Capital Stock of any
Restricted Subsidiary, in each case, other than dividends, distributions or
payments made solely in Qualified Stock of the Company or such Restricted
Subsidiary, (ii) a payment made by the Company or any of its Restricted
Subsidiaries (other than to the Company or any Restricted Subsidiary) to
purchase, redeem, acquire or retire any Capital Stock of the Company or of a
Restricted Subsidiary, (iii) a payment made by the Company or any of its
Restricted Subsidiaries (other than a payment made solely in Qualified Stock of
the Company) to redeem, repurchase, defease (including an in-substance or legal
defeasance) or otherwise acquire or retire for value (including pursuant to
mandatory repurchase covenants), prior to any scheduled maturity, scheduled
sinking fund or mandatory redemption payment, Indebtedness of the Company or
such Restricted Subsidiary which is subordinate (whether pursuant to its terms
or by operation of law) in right of payment to the Notes and which was scheduled
to mature on or after the maturity of the Notes or (iv) an Investment in any
Person, including an Unrestricted Subsidiary or the designation of a Subsidiary
as an Unrestricted Subsidiary, other than (a) a Permitted Investment, (b) an
Investment by the Company in a Wholly-Owned Restricted Subsidiary of the Company
or (c) an Investment by a Restricted Subsidiary in the Company or a Wholly-Owned
Restricted Subsidiary of the Company.
"Restricted Period" means the period of 41 consecutive days beginning on and
-----------------
including the later of (i) the day on which Notes are first offered to persons
other than distributors (as defined in Regulation S) in reliance on Regulation S
and (ii) the original issuance date of the Notes.
"Restricted Subsidiary" means any Subsidiary of the Company that has not
---------------------
been designated as an Unrestricted Subsidiary pursuant to Section 4.17 hereof.
"Rule 144" means Rule 144 under the Securities Act (or any successor
--------
provision), as it may be amended from time to time.
"Rule 144A" means Rule 144A under the Securities Act (including any
---------
successor regulation thereto), as it may be amended from time to time.
18
<PAGE>
"Rule 144A Notes" means the Notes purchased by the Purchasers from the
---------------
Company pursuant to the Purchase Agreement, other than the Other Notes and the
Regulation S Notes.
"Sale and Leaseback Transaction" means, with respect to any Person, any
------------------------------
direct or indirect arrangement pursuant to which Property is sold or transferred
by such Person or a Restricted Subsidiary of such Person and is thereafter
leased back from the purchaser or transferee thereof by such Person or one of
its Restricted Subsidiaries.
"Securities Act" means the Securities Act of 1933, as amended, and the rules
--------------
and regulations promulgated thereunder.
"Securities Act Legend" means a Restricted Note Legend or a Regulation S
---------------------
Legend.
"Senior Credit Facility" means Indebtedness of the Company and its
----------------------
Subsidiaries Incurred from time to time pursuant to one or more credit
agreements or similar facilities made available from time to time to the Company
and its Subsidiaries, whether or not secured, and including any related notes,
Guarantees, collateral documents, instruments and agreements executed in
connection therewith, as the same may be amended, supplemented, modified or
restated from time to time.
"Senior Discount Notes" means the Company's 10 1/2% Senior Discount Notes
---------------------
due March 1, 2007.
"Shelf Registration Statement" has the meaning set forth in the form of the
----------------------------
Notes contained in Section 2.02 hereof.
"Special Interest" has the meaning set forth in the form of Note contained
----------------
in Section 2.02 hereof. Unless the context otherwise requires, references
herein to "interest" on the Notes shall include Special Interest.
"Special Record Date" means a date fixed by the Trustee pursuant to Section
-------------------
2.13 hereof for the payment of Defaulted Interest.
"Standard & Poor's" means Standard & Poor's Ratings Group, a division of
-----------------
McGraw Hill Corporation, or, if Standard & Poor's Ratings Group shall cease
rating the specified debt securities and such ratings business with respect
thereto shall have been transferred to a successor Person, such successor
Person; provided that if Standard & Poor's Ratings Group ceases rating the
specified debt securities and its ratings business with respect thereto shall
not have been transferred to any successor Person or such successor Person is
Moody's, then "Standard & Poor's" shall mean any other nationally recognized
rating agency (other than Moody's) that rates the specified debt securities and
that shall have been designated by the Company in an Officers' Certificate.
19
<PAGE>
"Stated Maturity" means, with respect to any security, the date specified in
---------------
such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred), and, when used with respect
to any installment of interest on such security, the fixed date on which such
installment of interest is due and payable.
"Step-Up" has the meaning set forth in the form of the Note contained in
-------
Section 2.02 hereof.
"Strategic Equity Investment" means an equity investment made by a Strategic
---------------------------
Investor in the Company in an aggregate amount of not less than $25 million.
"Strategic Investor" means a Person (other than the Permitted Holders)
------------------
engaged in one or more Telecommunications Businesses that has, or 80% or more of
the Voting Stock of which is owned by a Person that has, an equity market
capitalization at the time of its initial Investment in the Company in excess of
$2.0 billion.
"Subordinated Indebtedness" means Indebtedness of the Company as to which
-------------------------
the payment of principal of (and premium, if any) and interest and other payment
obligations in respect of such Indebtedness shall be subordinate to the prior
payment in full of the Notes to at least the following extent: (i) no payments
of principal of (or premium, if any) or interest on or otherwise due in respect
of such Indebtedness may be permitted for so long as any default in the payment
of principal (or premium, if any) or interest on the Notes exists; (ii) in the
event that any other default that with the passing of time or the giving of
notice, or both, would constitute an event of default exists with respect to the
Notes, upon notice by 25% or more in principal amount of the Notes to the
Trustee, the Trustee shall give notice to the Company and the holders of such
Indebtedness (or trustees or agents therefor) of a payment blockage, and
thereafter no payments of principal of (or premium, if any) or interest on or
otherwise due in respect of such Indebtedness may be made for a period of 179
days from the date of such notice; and (iii) such Indebtedness may not (x)
provide for payments of principal of such Indebtedness at the stated maturity
thereof or by way of a sinking fund applicable thereto or by way of any
mandatory redemption, defeasance, retirement or repurchase thereof by the
Company (including any redemption, retirement or repurchase which is contingent
upon events or circumstances, but excluding any retirement required by virtue of
acceleration of such Indebtedness upon an event of default thereunder), in each
case prior to the final Stated Maturity of the Notes or (y) permit redemption or
other retirement (including pursuant to an offer to purchase made by the
Company) of such other Indebtedness at the option of the holder thereof prior to
the final Stated Maturity of the Notes, other than a redemption or other
retirement at the option of the holder of such Indebtedness (including pursuant
to an offer to purchase made by the Company) which is conditioned upon a change
of control of the Company pursuant to provisions substantially similar to those
contained in Section 4.07 hereof (and which shall provide that such
20
<PAGE>
Indebtedness will not be repurchased pursuant to such provisions prior to the
Company's repurchase of the Notes required to be repurchased by the Company
pursuant to Section 4.07 hereof).
"Subsidiary" means, with respect to any Person, (i) any corporation more
----------
than 50 percent of the outstanding shares of Voting Stock of which is owned,
directly or indirectly, by such Person, or by one of more other Subsidiaries of
such Person, or by such Person and one or more other Subsidiaries of such
Person, (ii) any general partnership, limited liability company, joint venture
or similar entity, more than 50 percent of the outstanding partnership,
membership or similar interests of which are owned, directly or indirectly, by
such Person, or by one or more other Subsidiaries of such Person, or by such
Person and one or more other Subsidiaries of such Person and (iii) any limited
partnership of which such Person or any Subsidiary of such Person is a general
partner.
"Successor Note" of any particular Note means every Note issued after, and
--------------
evidencing all or a portion of the same Indebtedness as that evidenced by, such
particular Note; and, for the purposes of this definition, any Note
authenticated and delivered under Section 2.09 hereof in exchange for or in lieu
of a mutilated, destroyed, lost or stolen Note shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Note.
"Surviving Entity" has the meaning set forth in Section 5.01(a) hereof.
----------------
"Telecommunications Assets" means all assets, rights (contractual or
-------------------------
otherwise) and properties, whether tangible or intangible, used or intended for
use in connection with a Telecommunications Business.
"Telecommunications Business" means the business of (i) transmitting, or
---------------------------
providing services relating to the transmission of, voice, video or data through
owned or leased wireline or wireless transmission facilities, (ii) creating,
developing, constructing, installing, repairing, maintaining or marketing
communications-related systems, network equipment and facilities, software and
other products, (iii) creating, developing, producing or marketing audiotext or
videotext, (iv) publishing or distributing telephone (including Internet)
directories, whether in paper, electronic, audio or video format, (v) marketing
(including direct marketing and telemarketing), or (vi) evaluating,
participating in or pursuing any other business that is primarily related to
those identified in the foregoing clauses (i), (ii), (iii), (iv) or (v) above
(in the case of clauses (iii), (iv) and (v), however, in a manner consistent
with the Company's manner of business on the Issue Date), and shall, in any
event, include all businesses in which the Company or any of its Subsidiaries
are engaged on the Issue Date; provided that the determination of what
constitutes a Telecommunications Business shall be made in good faith by the
Board of Directors.
"Temporary Notes" has the meaning set forth in Section 2.11 hereof.
---------------
21
<PAGE>
"Trading Day" means, with respect to a security traded on a securities
-----------
exchange, automated quotation system or market, a day on which such exchange,
system or market is open for a full day of trading.
"Trust Indenture Act" means the Trust Indenture Act of 1939 (15 U.S.C.
-------------------
(S)(S)77aaa-77bbbb) as in effect on the date of this Indenture except as
required by Section 9.04 hereof; provided that in the event the Trust Indenture
Act of 1939 is amended after such date, "Trust Indenture Act" means, to the
extent required by any such amendment, the Trust Indenture Act of 1939, as so
amended.
"Trust Officer" means any officer assigned to the Corporate Trust Division
-------------
(or any successor thereto), including any Vice President, Assistant Vice
President, Trust Officer, any Assistant Secretary, any trust officer or any
other officer of the Trustee customarily performing functions similar to those
performed by any of the above designated officers and having direct
responsibility for the administration of this Indenture.
"Trustee" means the party named as such in this Indenture until a successor
-------
replaces it in accordance with the provisions of this Indenture and, thereafter,
means such successor.
"Unrestricted Notes Certificate" means a certificate substantially in the
------------------------------
form set forth in Annex C hereof.
"Unrestricted Subsidiary" means any Subsidiary of the Company that the
-----------------------
Company has classified as an "Unrestricted Subsidiary" and that has not been
reclassified as a Restricted Subsidiary, pursuant to Section 4.17 hereof.
"U.S. Government Obligations" means (x) securities that are (i) direct
---------------------------
obligations of the United States of America for the payment of which the full
faith and credit of the United States of America is pledged or (ii) obligations
of a Person controlled or supervised by and acting as an agency or
instrumentality of the United States of America the payment of which is
unconditionally guaranteed as a full faith and credit obligation by the United
States of America, which, in either case, are not callable or redeemable at the
option of the issuer thereof, and (y) depository receipts issued by a bank (as
defined in Section 3(a)(2) of the Securities Act) as custodian with respect to
any U.S. Government Obligation which is specified in clause (x) above and held
by such Bank for the account of the holder of such depository receipt, or with
respect to any specific payment of principal or interest on any U.S. Government
Obligation which is so specified and held, provided that (except as required by
law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by the
custodian in respect of the U.S. Government Obligation or the specific payment
of principal or interest of the U.S. Government Obligation evidenced by such
depository receipt.
"Voting Stock" means, with respect to any Person, securities of any class or
------------
classes of Capital Stock in such Person entitling the holders thereof (whether
at all times or at the
22
<PAGE>
times that such class of Capital Stock has voting power by reason of the
happening of any contingency) to vote in the election of members of the board of
directors or comparable body of such Person.
"Wholly-Owned Restricted Subsidiary" of any Person means a Subsidiary of
----------------------------------
such Person all of the outstanding Capital Stock or other ownership interests
(other than director's qualifying shares) of which shall at the time be owned by
such Person or by one or more other Wholly-Owned Restricted Subsidiary of such
Person or by such Person and one or more other Wholly-Owned Restricted
Subsidiary of such Person.
SECTION 1.02. Incorporation by Reference of Trust Indenture Act.
-------------------------------------------------
Whenever this Indenture refers to a provision of the Trust Indenture Act,
the provision is incorporated by reference in and made a part of this Indenture.
The following Trust Indenture Act terms incorporated by reference in this
Indenture have the following meanings:
"indenture securities" means the Notes.
"indenture security holder" means a Holder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company or other obligor on
the Notes, if any.
All other Trust Indenture Act terms used or incorporated by reference in
this Indenture that are defined by the Trust Indenture Act, defined by Trust
Indenture Act reference to another statute or defined by Commission rule have
the meanings assigned to them therein.
SECTION 1.03. Rules of Construction. Unless the context otherwise
---------------------
requires:
(a) the words "herein," "hereof" and "hereunder," and other words of
similar import, refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision;
(b) "or" is not exclusive;
(c) "including" means including without limitation;
23
<PAGE>
(d) the principal amount of any noninterest bearing or other discount
security, at any date shall be the principal amount thereof that would be
shown on a balance sheet of the issuer dated such date prepared in
accordance with GAAP;
(e) when used with respect to the Notes, the term "principal amount"
shall mean the principal amount thereof that would be shown on a balance
sheet of the issuer dated such date prepared in accordance with GAAP; and
(f) unless otherwise expressly provided herein, the principal amount
of any Preferred Stock shall be the greater of (i) the maximum liquidation
value of such Preferred Stock or (ii) the maximum mandatory redemption or
mandatory repurchase price with respect to such Preferred Stock.
SECTION 1.04. Form of Documents Delivered to Trustee. In any case where
--------------------------------------
several matters are required to be certified by, or covered by an opinion of,
any specified Person, it is not necessary that all such matters be certified by,
or covered by the opinion of, only one such Person, or that they be so certified
or covered by only one document, but one such Person may certify or give an
opinion with respect to some matters and one or more other such Persons as to
other matters, and any such Person may certify or give an opinion as to such
matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous. Where any Person is required to make, give or execute
two or more applications, requests, consents, certificates, statements, opinions
or other instruments under this Indenture, they may, but need not, be
consolidated and form one instrument.
SECTION 1.05. Acts of Holders. (a) Any request, demand, authorization,
---------------
direction, notice, consent, waiver or other action provided by this Indenture to
be given or taken by Holders may be embodied in and evidenced by one or more
instruments of substantially similar tenor signed by such Holders in person or
by an agent duly appointed in writing; and, except as herein otherwise expressly
provided, such action shall become effective when such instrument or instruments
are delivered to the Trustee and, where it is hereby expressly required, to the
Company. Such instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of the Holders
signing such instrument or instruments. Proof of execution of any such
24
<PAGE>
instrument or of a writing appointing any such agent shall be sufficient for any
purpose of this Indenture and (subject to Section 7.01 hereof) conclusive in
favor of the Trustee and the Company, if made in the manner provided in this
Section.
(b) The fact and date of the execution by any Person of any such instrument
or writing may be proved by the affidavit of a witness of such execution or by
an acknowledgment of a notary public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing such instrument
or writing acknowledged to him the execution thereof. Where such execution is by
a signer acting in a capacity other than such signer's individual capacity, such
certificate or affidavit shall also constitute sufficient proof of the signer's
authority. The fact and date of the execution of any such instrument or writing,
or the authority of the person executing the same, may also be proved in any
other manner which the Trustee deems sufficient.
SECTION 1.06. Satisfaction and Discharge. This Indenture shall cease to
--------------------------
be of further effect (except as to the rights of Holders under Sections 2.09,
2.11, 4.02, 4.03 and 4.04 hereof) and the Trustee, on receipt of a Company Order
requesting such action, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture, when (a) either (i) all
outstanding Notes have been delivered to the Trustee for cancellation or (ii)
all such Notes not theretofore delivered to the Trustee for cancellation (A)
have become due and payable, (B) will become due and payable at their Stated
Maturity within one year or (C) are to be called for redemption within one year
under irrevocable arrangements satisfactory to the Trustee for the giving of
notice of redemption by the Trustee in the name, and at the expense, of the
Company, and the Company, in the case of (A), (B) or (C) above, has irrevocably
deposited or caused to be deposited with the Trustee as trust funds in trust for
the purpose an amount sufficient to pay and discharge the entire indebtedness on
such Notes, for principal (and premium, if any) and interest to the date of such
deposit (in the case of Notes which have become due and payable) or to the
Stated Maturity or Redemption Date, as the case may be, together with
irrevocable instructions from the Company in form and substance satisfactory to
the Trustee directing the Trustee to apply such funds to the payment thereof;
(b) the Company has paid or caused to be paid all other sums payable hereunder
by the Company; and (c) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and discharge of this
Indenture have been complied with. Notwithstanding the satisfaction and
discharge of this Indenture pursuant to this Section 1.06, the obligations of
the Company to the Trustee under Section 7.07 hereof, and, if money shall have
been deposited with the Trustee in trust for the Holders pursuant to this
Section 1.06, the obligations of the Trustee under this Section 1.06 and Section
4.03 hereof shall survive.
All money deposited with the Trustee pursuant to this Section 1.06 shall be
held in trust and applied by it, in accordance with the provisions of the Notes
and this Indenture, to the payment, either directly or through any Paying Agent,
to the Persons entitled thereto, of the principal (and premium, if any) and
interest for the payment of which such money has been deposited with the
Trustee. If the Trustee or Paying Agent is unable to apply any
25
<PAGE>
money or U.S. Government Obligations in accordance with this Section 1.06 by
reason of any legal proceeding or by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, the Company's obligations under this Indenture and the Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
this Section 1.06 until such time as the Trustee or Paying Agent is permitted to
apply all such money or U.S. Government Obligations in accordance with this
Section 1.06; provided that, if the Company has made any payment of interest on
or principal of any Notes because of the reinstatement of its obligations, the
Company shall be subrogated to the rights of the Holders of such Notes to
receive such payment from the cash or U.S. Government Obligations held by the
Trustee or Paying Agent.
ARTICLE II.
THE NOTES
SECTION 2.01. Form and Dating. (a) The Notes and the certificate of
---------------
authentication of the Trustee thereon shall be substantially in the form
contained in this Article II, with such appropriate insertions, substitutions
and other variations as are required or permitted under this Indenture. Upon
issuance, any such Note shall be duly executed by the Company and authenticated
by the Trustee as hereinafter provided.
(b) The Notes may have such letters, numbers or other marks of
identification and such legends and endorsements, stamped, printed, lithographed
or engraved thereon, (i) as the Company may deem appropriate and as are not
inconsistent with the provisions of this Indenture, (ii) as may be required to
comply with this Indenture, any law or any rule of any securities exchange on
which the Notes may be listed and (iii) as may be necessary to conform to
customary usage. Each Note shall be dated the date of its authentication by the
Trustee.
(c) Upon their original issuance, Rule 144A Notes shall be issued in the
form of one or more Global Securities registered in the name of the Depositary
or its nominee and deposited with the Trustee, as custodian for the Depositary,
for credit by the Depositary to the respective accounts of beneficial owners of
the Notes represented thereby (or such other accounts as they may direct). Such
Global Securities, together with their Successor Notes which are Global
Securities other than the Regulation S Global Security, are collectively herein
called the "Restricted Global Security". Upon their original issuance,
Regulation S Notes shall be issued in the form of one or more Global Securities
registered in the name of the Depositary, or its nominee and deposited with the
Trustee, as custodian for the Depositary, for credit to the respective accounts
of the beneficial owners of the Notes represented thereby (or such other
accounts as they may direct), provided that upon such deposit all such Notes
shall be credited to or through accounts maintained at the Depositary by or on
behalf of Euroclear or Cedel. Such Global Securities, together with their
Successor Notes which are Global Securities other than the Restricted Global
Security, are collectively herein called the "Regulation S Global Security".
26
<PAGE>
Upon their original issuance, Other Notes shall not be issued in the form of
a Global Note or in any other form intended to facilitate book-entry trading in
beneficial interests in such Notes.
SECTION 2.02. Form of Face of Note.
--------------------
[If a Global Security, then insert -- THIS NOTE IS A GLOBAL SECURITY WITHIN
THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE
NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS NOTE MAY NOT BE EXCHANGEABLE IN
WHOLE OR IN PART FOR A NOTE REGISTERED, AND NO TRANSFER OF THIS NOTE IN WHOLE OR
IN PART MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY
OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
INDENTURE.]
[If a Global Security to be held by the Depository, then insert -- UNLESS
THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER 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 IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.]
[If Restricted Notes, then insert -- THIS SECURITY HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER
HEREOF, BY PURCHASING THIS SECURITY, AGREES FOR THE BENEFIT OF THE COMPANY AND
THE INITIAL PURCHASERS OF THIS SECURITY THAT THIS SECURITY MAY NOT BE RESOLD,
PLEDGED OR OTHERWISE TRANSFERRED (X) PRIOR TO THE SECOND ANNIVERSARY OF THE
ISSUANCE HEREOF (OR A PREDECESSOR SECURITY HERETO) OR (Y) BY ANY HOLDER THAT WAS
AN AFFILIATE OF THE COMPANY AT ANY TIME DURING THE THREE MONTHS PRECEDING THE
DATE OF SUCH TRANSFER, IN EITHER CASE OTHER THAN (1) TO THE COMPANY, (2) SO LONG
AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, UNDER THE
SECURITIES ACT ("RULE 144A"), TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS
A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A PURCHASING FOR
ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM
NOTICE IS GIVEN THAT THE RESALE,
27
<PAGE>
PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A (AS INDICATED BY
THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE
OF THIS SECURITY), (3) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH REGULATION
S UNDER THE SECURITIES ACT (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON
THE CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS SECURITY), AND, IF SUCH
TRANSFER IS BEING EFFECTED BY CERTAIN TRANSFERORS SPECIFIED IN THE INDENTURE (AS
DEFINED BELOW) PRIOR TO DECEMBER 9, 1998, A CERTIFICATE WHICH MAY BE OBTAINED
FROM THE COMPANY OR THE TRUSTEE IS DELIVERED BY THE TRANSFEREE TO THE COMPANY
AND THE TRUSTEE, (4) TO AN INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS
DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT (AS
INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON
THE REVERSE OF THIS SECURITY) THAT IS ACQUIRING THIS SECURITY FOR INVESTMENT
PURPOSES AND NOT FOR DISTRIBUTION, AND A CERTIFICATE IN THE FORM ATTACHED TO
THIS SECURITY IS DELIVERED BY THE TRANSFEREE TO THE COMPANY AND THE TRUSTEE
(PROVIDED THAT CERTAIN HOLDERS SPECIFIED IN THE INDENTURE MAY NOT TRANSFER THIS
SECURITY PURSUANT TO THIS CLAUSE (4) ON OR PRIOR TO DECEMBER 9, 1998) OR (5)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN
EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES. AN INSTITUTIONAL ACCREDITED INVESTOR HOLDING THIS SECURITY AGREES
THAT IT WILL FURNISH TO THE COMPANY AND THE TRUSTEE SUCH CERTIFICATES AND OTHER
INFORMATION AS THEY MAY REASONABLY REQUIRE TO CONFIRM THAT ANY TRANSFER BY IT OF
THIS SECURITY COMPLIES WITH THE FOREGOING RESTRICTIONS. THE HOLDER HEREOF, BY
PURCHASING THIS SECURITY, REPRESENTS AND AGREES FOR THE BENEFIT OF THE COMPANY
AND THE INITIAL PURCHASERS THAT IT IS (1) A QUALIFIED INSTITUTIONAL BUYER WITHIN
THE MEANING OF RULE 144A OR (2) AN INSTITUTION THAT IS AN "ACCREDITED INVESTOR"
AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT AND THAT
IT IS HOLDING THIS SECURITY FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION OR
(3) A NON-U.S. PERSON OUTSIDE THE UNITED STATES WITHIN THE MEANING OF (OR AN
ACCOUNT SATISFYING THE REQUIREMENTS OF PARAGRAPH (O)(2) OF RULE 902 UNDER)
REGULATION S UNDER THE SECURITIES ACT.]
9 1/2% SENIOR NOTES DUE NOVEMBER 1, 2008
[IF RESTRICTED GLOBAL SECURITY - CUSIP NO. 582266AK8]
[IF ANY REGULATION S NOTE - CUSIP NO. U58159AD3]
[IF REGULATION S GLOBAL SECURITY - ISIN NO. USU58159AD39]
28
<PAGE>
[IF OTHER NOTE - CUSIP NO. ___________]
No. R-_____ $__________________
McLeodUSA Incorporated, a corporation duly organized and existing under the
laws of Delaware (herein called the "Company", which term includes any successor
Person under the Indenture hereinafter referred to), for value received, hereby
promises to pay to _____________, or registered assigns, the principal sum of
________________ Dollars [if this Note is a Global Security, then insert: (which
principal amount may from time to time be increased or decreased to such other
principal amounts (which, taken together with the principal amounts of all other
outstanding Notes, shall not exceed THREE HUNDRED MILLION DOLLARS ($300,000,000)
in the aggregate at any time) by adjustments made on the records of the Trustee
hereinafter referred to in accordance with the Indenture)] on November 1, 2008,
and to pay interest thereon from the Issue Date, semi-annually in arrears on
November 1 and May 1 of each year, commencing May 1, 1999 at the rate of 9.5%
per annum, until the principal hereof is paid or made available for payment [If
Original Notes, then insert: provided, however, that if (i) the Company has not
filed a registration statement (the "Exchange Offer Registration Statement")
under the Securities Act of 1933, as amended (the "Act"), registering a security
substantially identical to this Note (except that such Note will not contain
terms with respect to the Special Interest payments described below or transfer
restrictions) pursuant to an exchange offer (the "Registered Exchange Offer")
(or, in lieu thereof, a registration statement registering this Note for resale
(a "Shelf Registration Statement")) by December 29, 1998, or (ii) the Exchange
Offer Registration Statement relating to the Registered Exchange Offer has not
become or been declared effective by March 29, 1999, or (iii) neither the
Registered Exchange Offer has been consummated nor the Shelf Registration
Statement has been declared effective prior to April 28, 1999, or (iv) either
the Exchange Offer Registration Statement or, if applicable, the Shelf
Registration Statement is filed and declared effective (except as specifically
permitted therein) but shall thereafter cease to be effective without being
succeeded promptly by an additional registration statement filed and declared
effective, in each case (i) through (iv) upon the terms and conditions set forth
in the Registration Agreement (each such event referred to in clauses (i)
through (iv), a "Registration Default"), then interest will accrue (in addition
to any stated interest on the Notes) (the "Step-Up") at a rate of 0.5% per
annum, during the 90-day period from and including the date on which any such
Registration Default shall occur to but excluding the date on which all
Registration Defaults have been cured and shall increase by 0.25% per annum at
the end of each subsequent 90-day period, but in no event shall such rate exceed
2.00% per annum, in the aggregate regardless of the number of Registration
Defaults. Interest accruing as a result of the Step-Up is referred to herein as
"Special Interest." Accrued Special Interest, if any, shall be paid semi-
annually on November 1 and May 1 of each year; and the amount of accrued Special
Interest shall be determined on the basis of the number of days actually
elapsed. Any accrued and unpaid interest (including Special Interest) on this
Note upon the issuance of an Exchange Note (as defined in the Indenture) in
exchange for this Note shall cease to be payable to the Holder hereof but such
accrued and unpaid interest (including Special Interest) shall be payable on the
next Interest
29
<PAGE>
Payment Date for such Exchange Note to the Holder thereof on the related Regular
Record Date.] The interest so payable, and punctually paid or duly provided
for, on any Interest Payment Date will, as provided in such Indenture, be paid
to the Person in whose name this Note (or one or more Predecessor Notes) is
registered at the close of business on the Regular Record Date for such
interest, which shall be October 15 or April 15 (whether or not a Business Day),
as the case may be, immediately preceding such Interest Payment Date. Any such
interest not so punctually paid or duly provided for will forthwith cease to be
payable to the Holder on such Regular Record Date and may either be paid to the
Person in whose name this Note (or one or more Predecessor Notes) is registered
at the close of business on a Special Record Date for the payment of such
Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to
Holders of Notes not more than 15 calendar days and not less than 10 calendar
days prior to such Special Record Date, or be paid at any time in any other
lawful manner not inconsistent with the requirements of any securities exchange
on which the Notes may be listed, and upon such notice as may be required by
such exchange, all as more fully provided in said Indenture.
The principal of this Note shall accrue interest at the rate of 9.5% per
annum, and in the case of a default in payment of principal and premium, if any,
upon acceleration or redemption, in which case interest shall be payable
pursuant to the preceding paragraph on such overdue principal (and premium, if
any), such interest shall be payable on demand and, if not so paid on demand,
such interest shall itself bear interest at the rate of 10.5% per annum (to the
extent that the payment of such interest shall be legally enforceable), and
shall accrue from the date of such demand for payment to the date payment of
such interest has been made or duly provided for, and such interest on unpaid
interest shall also be payable on demand.
Payment of the principal of (and premium, if any) and interest on this Note
will be made at the corporate trust office of the Trustee and at the office or
agency of the Company maintained for that purpose in the Borough of Manhattan,
The City of New York, New York, and at any other office or agency maintained by
the Company for such purpose, in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts; provided, however, that at the option of the Company payment of
interest may be made by check mailed to the address of the Person entitled
thereto as such address shall appear in the Note Register.
Reference is hereby made to the further provisions of this Note set forth on
the reverse hereof, which further provisions shall for all purposes have the
same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Note shall
not be entitled to any benefit under the Indenture or be valid or obligatory for
any purpose.
30
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
Dated:
MCLEODUSA INCORPORATED
By____________________________
Attest:
______________________________
SECTION 2.03. Form of Reverse of Note.
-----------------------
This Note is one of a duly authorized issue of Notes of the Company
designated as its 9 1/2% Senior Notes due November 1, 2008 (the "Notes") issued
under an Indenture, dated as of October 30, 1998 (herein called the
"Indenture"), between the Company and United States Trust Company of New York,
as trustee (herein called the "Trustee", which term includes any successor
trustee under the Indenture). The Notes are limited in aggregate principal
amount to $300,000,000. Reference is hereby made to the Indenture and all
indentures supplemental thereto for a statement of the respective rights,
limitations of rights, duties and immunities thereunder of the Company, the
Trustee and the Holders of the Notes and of the terms upon which the Notes are,
and are to be, authenticated and delivered.
The Notes are subject to redemption upon not less than 30 nor more than 60
days' notice by mail to each Holder of Notes to be redeemed at such Holder's
address appearing in the Note Register, in amounts of $1,000 or an integral
multiple of $1,000, at any time on or after November 1, 2003 and prior to
maturity, as a whole or in part, at the election of the Company, at the
following Redemption Prices (expressed as percentages of the principal amount)
plus accrued interest to but excluding the Redemption Date (subject to the right
of Holder on the relevant Regular Record Date to receive interest due on an
Interest Payment Date that is on or prior to the Redemption Date), if redeemed
during the 12-month period beginning November 1 of each of the years indicated
below:
31
<PAGE>
<TABLE>
<CAPTION>
Redemption
Year Price
---- ----------
<S> <C>
2003 106.750%
2004 105.400%
2005 104.050%
2006 102.700%
2007 101.350%
2008 100.000%
</TABLE>
and thereafter at a Redemption Price equal to 100% of the principal amount,
together in the case of any such redemption with accrued interest to but
excluding the Redemption Date, but interest installments whose Stated Maturity
is on or prior to such Redemption Date will be payable to the Holders of such
Notes, or one or more Predecessor Notes, of record at the close of business on
the relevant Regular Record Dates referred to on the face hereof, all as
provided in the Indenture.
The Notes are further subject to redemption prior to November 1, 2001 only
in the event that the Company receives net proceeds from any sale of its Common
Stock in a Strategic Equity Investment on or before November 1, 2001, in which
case the Company may, at its option, use all or a portion of any such net
proceeds to redeem Notes in a principal amount of up to an aggregate amount
equal to 33 1/3% of the original principal amount of the Notes, provided,
however, that Notes in an amount equal to at least 66 2/3% of the original
principal amount of the Notes remain outstanding after such redemption. Such
redemption must occur on a Redemption Date within 90 days of any such sale and
upon not less than 30 nor more than 60 days' notice by mail to each Holder of
Notes to be redeemed at such Holder's address appearing in the Note Register, in
amounts of $1,000 or an integral multiple of $1,000 at a Redemption Price equal
to 111.5% of the principal amount of the Notes so redeemed, plus accrued and
unpaid interest thereon (if any) to but excluding the Redemption Date.
The Notes do not have the benefit of any sinking fund obligations.
The Indenture provides that, subject to certain conditions, if (i) a Change
of Control (as defined in the Indenture) occurs or (ii) certain Excess Proceeds
are available to the Company as a result of any Asset Sale, the Company shall be
required to make a Change of Control Offer or an Asset Sale Offer, as the case
may be, for all or a specified portion of the Notes.
32
<PAGE>
[If not a Global Security insert -- In the event of redemption or purchase
pursuant to an Asset Sale Offer of this Note in part only, a new Note or Notes
of like tenor for the unredeemed or unpurchased portion hereof will be issued in
the name of the Holder hereof upon the cancellation hereof.]
[If a Global Security insert -- In the event of a deposit or withdrawal of
an interest in this Note (including upon an exchange, transfer, redemption or
repurchase of this Note in part only) effected in accordance with the Applicable
Procedures, the Note Registrar, upon receipt of notice of such event from the
Depositary's custodian for this Note, shall make an adjustment on its records to
reflect an increase or decrease of the outstanding principal amount of this Note
resulting from such deposit or withdrawal, as the case may be.]
If an Event of Default shall occur and be continuing, the principal of all
the Notes may be declared due and payable in the manner and with the effect
provided in the Indenture.
The Indenture contains provisions for defeasance at any time of (i) the
entire indebtedness of this Note, or (ii) certain restrictive covenants and
Events of Default with respect to this Note, in each case upon compliance with
certain conditions set forth therein.
Unless the context otherwise requires, the Original Notes (as defined in
the Indenture) and the Exchange Notes (as defined in the Indenture) shall
constitute one series for all purposes under the Indenture, including without
limitation, amendments, waivers, redemptions, Change of Control Offers and Asset
Sale Offers.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Notes under the Indenture at any
time by the Company and the Trustee with the consent of the Holders of a
majority in aggregate principal amount of the Notes at the time outstanding.
The Indenture also contains provisions permitting the Holders of specified
percentages in aggregate principal amount of the Notes at the time outstanding,
on behalf of the Holders of all the Notes, to waive compliance by the Company
with certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Note shall be conclusive and binding upon such Holder and upon all future
Holders of this Note and of any Note issued upon the registration of transfer
hereof or in exchange herefor or in lieu hereof, whether or not notation of such
consent or waiver is made upon this Note.
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 premium, if any) and
interest on this Note at the times, place and rate, and in the coin or currency,
herein prescribed.
33
<PAGE>
As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Note is registrable in the Note Register, upon
surrender of this Note for registration of transfer at the office or agency of
the Company in the Borough of Manhattan, The City of New York, New York, duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Note Registrar duly executed by, the Holder
hereof or his attorney duly authorized in writing, and thereupon one or more new
Notes, of authorized denominations and like tenor and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.
The Notes are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, Notes are
exchangeable for a like tenor and aggregate principal amount of Notes of a
different authorized denomination, as requested by the Holder surrendering the
same.
No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Note for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name this Note is registered as the owner hereof for all
purposes, whether or not this Note be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
Interest on this Note shall be computed on the basis of a 360-day year of
twelve 30-day months; provided, however, that Special Interest shall be computed
on the basis of a 365- or 366-day year, as the case may be, and the number of
days actually elapsed.
THE INDENTURE AND THE NOTES, INCLUDING THIS NOTE, SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED IN SUCH STATE.
All terms used in this Note which are defined in the Indenture shall have
the meanings assigned to them in the Indenture.
CERTIFICATE OF TRANSFER
The transferor hereof (the "Transferor") hereby certifies in connection
with the transfer of this Note as follows:
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<PAGE>
(Please check one)
[_] The Transferor has requested that this Note be transferred to a person
(the "Transferee") who will take delivery in the form of a Regulation S Note.
In connection with such transfer, the Transferor hereby certifies that, unless
such transfer is being effected pursuant to an effective registration statement
under the Securities Act, it is being effected in accordance with Rule 904 or
Rule 144 under the Securities Act and with all applicable securities laws of the
states of the United States and other jurisdictions. Accordingly, the
Transferor hereby further certifies as follows:
(1) Rule 904 Transfers. If the transfer is being effected in
------------------
accordance with Rule 904:
(A) the Transferor is not a distributor of the Notes, an
affiliate of the Company or any such distributor or a person acting on
behalf of any of the foregoing;
(B) the offer of this Note was not made to a person in the
United States;
(C) either:
(i) at the time the buy order was originated, the
Transferee was outside the United States or the Transferor and
any person acting on its behalf reasonably believed that the
Transferee was outside the United States, or
(ii) the transaction is being executed in, on or through
the facilities of the Eurobond market, as regulated by the
Association of International Bond Dealers, or another designated
offshore securities market and neither the Owner nor any person
acting on its behalf knows that the transaction has been
prearranged with a buyer in the United States;
(D) no directed selling efforts have been made in the United
States by or on behalf of the Transferor or any affiliate thereof;
(E) if the Transferor is a dealer in securities or has received
a selling concession, fee or other remuneration in respect of this
Note, and the transfer is to occur during the Restricted Period, then
the requirements of Rule 904(c)(1) have been satisfied; and
(F) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act.
35
<PAGE>
(2) Rule 144 Transfers. If the transfer is being effected pursuant
------------------
to Rule 144:
(A) the transfer is occurring after a holding period of at least
one year (computed in accordance with paragraph (d) of Rule 144) has
elapsed since this Note was last acquired from the Company or from an
affiliate of the Company, whichever is later, and is being effected in
accordance with the applicable amount, manner of sale and notice
requirements of Rule 144; or
(B) the transfer is occurring after a holding period of at least
two years has elapsed since this Note was last acquired from the
Company or from an affiliate of the Company, whichever is later, and
the Transferor is not, and during the preceding three months has not
been, an affiliate of the Company.
[_] The Transferor has requested that this Note be transferred to the
Transferee who will take delivery in the form of a Restricted Note. In
connection with such transfer, the Transferor hereby certifies that, unless such
transfer is being effected pursuant to an effective registration statement under
the Securities Act, it is being effected in accordance with Rule 144A, Rule 144
or to an Institutional Accredited Investor under Rule 501(a)(1), (2), (3) or (7)
under the Securities Act and in compliance with all applicable securities laws
of the states of the United States and other jurisdictions. Accordingly, the
Transferor hereby further certifies as follows:
(1) Rule 144A Transfers. If the transfer is being effected in
-------------------
accordance with Rule 144A:
(A) this Note is being transferred to a person that the
Transferor and any person acting on its behalf reasonably believe is a
"qualified institutional buyer" within the meaning of Rule 144A,
acquiring for its own account or for the account of a qualified
institutional buyer; and
(B) the Transferor and any person acting on its behalf have
taken reasonable steps to ensure that the Transferee is aware that the
Transferor may be relying on Rule 144A in connection with the
transfer; and
(2) Rule 144 Transfers. If the transfer is being effected pursuant
------------------
to Rule 144:
(A) the transfer is occurring after a holding period of at least
one year (computed in accordance with paragraph (d) of Rule 144) has
elapsed since this Note was last acquired from the Company or from an
affiliate of the Company, whichever is later, and is being effected in
accordance with the applicable amount, manner of sale and notice
requirements of Rule 144; or
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<PAGE>
(B) the transfer is occurring after a holding period of at least
two years has elapsed since this Note was last acquired from the
Company or from an affiliate of the Company, whichever is later, and
the Transferor is not, and during the preceding three months has not
been, an affiliate of the Company.
(3) Institutional Accredited Investor Transfers. If the transfer is
-------------------------------------------
being effected to an Institutional Accredited Investor as defined under
Rule 501(a)(1), (2), (3) or (7), this Note is being transferred to such an
Institutional Accredited Investor as therein so defined who is purchasing
for investment purposes and not for distribution.
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company pursuant to
Section 4.07 or 4.08 of the Indenture, check the box:
[_]
If you want to elect to have only a part of this Note purchased by the
Company pursuant to Section 4.07 or 4.08 of the Indenture, state the amount:
$_________________
Dated:____________________ Your Signature:______________________
(Sign exactly as name appears
on the other side of this Note)
Signature Guarantee:____________________________________________________________
Notice: Signature(s) must be guaranteed by an "eligible guarantor
institution" meeting the requirements of the Note Registrar which
requirements will include membership or participation in STAMP or
such other "signature guarantee program" as may be determined by
the Trustee in addition to, or in substitution for STAMP, all in
accordance with the Securities Exchange Act of 1934, as amended.
37
<PAGE>
SECTION 2.04. Form of Trustee's Certificate of Authentication.
-----------------------------------------------
This is one of the Notes referred to in the within-mentioned Indenture.
Date:
_______________________,
as Trustee
By_____________________
Authorized Signatory
SECTION 2.05. Execution and Authentication. The aggregate principal
----------------------------
amount of Notes outstanding at any time shall not exceed $300,000,000. The Notes
shall be executed on behalf of the Company by its Chief Executive Officer, its
President or any Executive Vice President and shall be attested by the Company's
Secretary or one of its Assistant Secretaries, in each case by manual or
facsimile signature.
The Notes shall be authenticated by manual signature of an authorized
officer of the Trustee and shall not be valid for any purpose unless so
authenticated.
In case any officer of the Company whose signature shall have been placed
upon any of the Notes shall cease to be such officer of the Company before
authentication of such Notes by the Trustee and the issuance and delivery
thereof, such Notes may, nevertheless, be authenticated by the Trustee and
issued and delivered with the same force and effect as though such Person had
not ceased to be such officer of the Company.
Notwithstanding any other provision hereof, the Trustee shall authenticate
and deliver Notes only upon receipt by the Trustee of an Officers' Certificate
complying with Section 10.04 hereof with respect to satisfaction of all
conditions precedent contained in this Indenture to authentication and delivery
of such Notes.
Upon compliance by the Company with the provisions of the previous
paragraph, the Trustee shall, upon receipt of a Company Order requesting such
action, authenticate Notes for original issuance in an aggregate principal
amount not to exceed $300,000,000. Such Company Order shall specify the amount
of Notes to be authenticated and the date on which the Notes are to be
authenticated and shall further provide instructions concerning registration,
amounts for each Holder and delivery.
A Note shall not be valid or entitled to any benefit under this Indenture
or obligatory for any purpose unless executed by the Company and authenticated
by the manual signature of the Trustee as provided herein. The signature of an
authorized officer of the Trustee shall be conclusive evidence, and the only
evidence, that such Note has been authenticated and delivered under this
Indenture.
38
<PAGE>
The Trustee may appoint an authenticating agent reasonably acceptable to
the Company to authenticate the Notes. Unless limited by the terms of such
appointment, an authenticating agent may authenticate Notes whenever the Trustee
may do so. Each reference in this Indenture to authentication by the Trustee
includes authentication by such agent. Any authenticating agent of the Trustee
shall have the same rights hereunder as any Registrar or Paying Agent. The
Trustee shall not be liable for any failure to act of the authenticating agent
in performing any duty either required herein or authorized herein to be
performed by such person in accordance with the Indenture.
SECTION 2.06. Note Registrar and Paying Agent. The Company shall
-------------------------------
maintain, pursuant to Section 4.02 hereof, an office or agency where the Notes
may be presented for registration of transfer or for exchange. The Company shall
cause to be kept at such office a register (the register maintained in such
office being herein sometimes referred to as the "Note Register") in which,
subject to such reasonable regulations as it may prescribe, the Company shall
provide for the registration of Notes and of transfers of Notes entitled to be
registered or transferred as provided herein. The Trustee, at its Corporate
Trust Office, is initially appointed "Note Registrar" for the purpose of
registering Notes and transfers of Notes as herein provided. The Company may,
upon written notice to the Trustee, change the designation of the Trustee as
Note Registrar and appoint another Person to act as Note Registrar for purposes
of this Indenture. If any Person other than the Trustee acts as Note Registrar,
the Trustee shall have the right at any time, upon reasonable notice, to inspect
or examine the Note Register and to make such inquiries of the Note Registrar as
the Trustee shall in its discretion deem necessary or desirable in performing
its duties hereunder.
The Company shall enter into an appropriate agency agreement with any
Person designated by the Company as Note Registrar or Paying Agent that is not a
party to this Indenture, which agreement shall incorporate the provisions of the
Trust Indenture Act and shall implement the provisions of this Indenture that
relate to such Note Registrar or Paying Agent. Prior to the designation of any
such Person, the Company shall, by written notice (which notice shall include
the name and address of such Person), inform the Trustee of such designation.
If the Company fails to maintain a Note Registrar or Paying Agent, the Trustee
shall act as such.
Upon surrender for registration of transfer of any Note at an office or
agency of the Company designated for such purpose, the Company shall execute,
and the Trustee shall authenticate and deliver, in the name of the designated
transferee or transferees, one or more new Initial Notes or Exchange Notes, as
the case may be, of any authorized denomination or denominations, of like tenor
and aggregate principal amount, all as requested by the transferor.
Every Note presented or surrendered for registration of transfer or for
exchange shall (if so required by the Company, the Trustee or the Note
Registrar) be duly endorsed, or be accompanied by a duly executed instrument of
transfer in form satisfactory to the Company,
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the Trustee and the Note Registrar, by the Holder thereof or such Holder's
attorney duly authorized in writing.
SECTION 2.07. Paying Agent to Hold Money in Trust. On or prior to 10:00
-----------------------------------
a.m. on each due date of the principal, premium, or any payment of interest with
respect to any Note, the Company shall deposit with the Paying Agent a sum
sufficient to pay such principal, premium or interest when so becoming due.
The Company shall require each Paying Agent (other than the Trustee) to
agree in writing that such Paying Agent, shall hold in trust for the benefit of
Holders or the Trustee all money held by such Paying Agent for the payment of
principal, premium, or interest with respect to the Notes, shall notify the
Trustee of any default by the Company in making any such payment and at any time
during the continuance of any such default, upon the written request of the
Trustee, shall forthwith pay to the Trustee all sums held in trust by such
Paying Agent.
The Company at any time may require a Paying Agent to pay all money held by
it to the Trustee and to account for any funds disbursed by such Paying Agent.
Upon complying with this Section 2.07, the Paying Agent shall have no further
liability for the money delivered to the Trustee.
SECTION 2.08. Registration, Registration of Transfer and Exchange.
---------------------------------------------------
(a) At the option of the Holder, and subject to the other provisions
of this Section 2.08, Notes may be exchanged for other Notes of any authorized
denominations and of a like tenor and aggregate principal amount, upon surrender
of the Notes to be exchanged at such office or agency. Whenever any Notes are
so surrendered for exchange, the Company shall execute, and the Trustee shall
authenticate and deliver, the Notes which the Holder making the exchange is
entitled to receive.
All Notes issued upon any registration of transfer or exchange of Notes
shall be the valid obligations of the Company, evidencing the same debt, and
(subject to the provisions in the Original Notes regarding the payment of
Special Interest) entitled to the same benefits under this Indenture, as the
Notes surrendered upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of transfer or for
exchange shall (if so required by the Company or the Trustee) be duly endorsed,
or be accompanied by a written instrument of transfer in form satisfactory to
the Company and the Note Registrar duly executed, by the Holder thereof or his
attorney duly authorized in writing.
No service charge shall be made to the Holder for any registration of
transfer or exchange of Notes, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of
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transfer or exchange of Notes, other than exchanges pursuant to Sections 2.11,
3.06 or 9.06 hereof or in accordance with any offer pursuant to Section 4.07 or
4.08 hereof not involving any transfer.
Any holder of a Global Security shall, by acceptance of such Global
Security, agree that transfers of beneficial interests in such Global Security
may be effected through a book entry system maintained by the holder of such
Global Security (or its agent) and the ownership of a beneficial interest in the
Note shall be reflected in a book entry.
The Company shall not be required (i) to issue, register the transfer of or
exchange any Note during a period beginning at the opening of business 15 days
before the day of the mailing of a notice of redemption of Notes selected for
redemption under Section 3.03 and ending at the close of business on the day of
such mailing, or (ii) to register the transfer of or exchange any Note so
selected for redemption in whole or in part, except the unredeemed portion of
any Note being redeemed in part.
(b) Certain Transfers and Exchanges. Notwithstanding any other provision
-------------------------------
of this Indenture or the Notes, transfers and exchanges of Notes and beneficial
interests in a Global Security of the kinds specified in this Section 2.08(b)
shall be made only in accordance with this Section 2.08(b).
(i) Restricted Global Security to Regulation S Global Security. If
----------------------------------------------------------
the owner of a beneficial interest in the Restricted Global Security wishes
at any time to transfer such interest to a Person who wishes to acquire the
same in the form of a beneficial interest in the Regulation S Global
Security, such transfer may be effected only in accordance with the
provisions of this Clause (b)(i) and Clause (b)(vii) below and subject to
the Applicable Procedures. Upon receipt by the Trustee, as Note Registrar,
of (A) an order given by the Depositary or its authorized representative
directing that a beneficial interest in the Regulation S Global Security in
a specified principal amount be credited to a specified Agent Member's
account and that a beneficial interest in the Restricted Global Security in
an equal principal amount be debited from another specified Agent Member's
account and (B) a Regulation S Certificate, satisfactory to the Trustee and
duly executed by the owner of such beneficial interest in the Restricted
Global Security or his attorney duly authorized in writing, then the
Trustee, as Note Registrar but subject to Clause (b)(vii) below, shall
reduce the principal amount of the Restricted Global Security and increase
the principal amount of the Regulation S Global Security by such specified
principal amount as provided in Section 2.08(d)(3) hereof.
(ii) Regulation S Global Security to Restricted Global Security. If
the owner of a beneficial interest in the Regulation S Global Security
wishes at any time to transfer such interest to a Person who wishes to
acquire the same in the form of a beneficial interest in the Restricted
Global Security, such transfer may be effected only in accordance with this
Clause (b)(ii) and subject to the Applicable Procedures.
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Upon receipt by the Trustee, as Note Registrar, of (A) an order given by
the Depositary or its authorized representative directing that a beneficial
interest in the Restricted Global Security in a specified principal amount
be credited to a specified Agent Member's account and that a beneficial
interest in the Regulation S Global Security in an equal principal amount
be debited from another specified Agent Member's account and (B) if such
transfer is to occur during the Restricted Period, a Restricted Notes
Certificate, satisfactory to the Trustee and duly executed by the owner of
such beneficial interest in the Regulation S Global Security or his
attorney duly authorized in writing, then the Trustee, as Note Registrar,
shall reduce the principal amount of the Regulation S Global Security and
increase the principal amount of the Restricted Global Security by such
specified principal amount as provided in Section 2.08(d)(3) hereof.
(iii) Restricted Non-Global Security to Restricted Global Security or
---------------------------------------------------------------
Regulation S Global Security. Subject to Section 2.08(d)(2) hereof, if the
----------------------------
Holder of a Restricted Note (other than a Global Security) wishes at any
time to transfer all or any portion of such Restricted Note to a Person who
wishes to take delivery thereof in the form of a beneficial interest in the
Restricted Global Security or the Regulation S Global Security, such
transfer may be effected only in accordance with the provisions of this
Clause (b)(iii) and Clause (b)(vii) below and subject to the Applicable
Procedures. Upon receipt by the Trustee, as Note Registrar, of (A) such
Restricted Note as provided in Section 2.08(a) hereof and instructions
satisfactory to the Trustee directing that a beneficial interest in the
Restricted Global Security or Regulation S Global Security in a specified
principal amount not greater than the principal amount of such Note be
credited to a specified Agent Member's account and (B) a Restricted Notes
Certificate (or the completion of the Certificate of Transfer on the Note),
if the specified account is to be credited with a beneficial interest in
the Restricted Global Security, or a Regulation S Certificate (or the
completion of the Certificate of Transfer on the Note), if the specified
account is to be credited with a beneficial interest in the Regulation S
Global Security, in either case satisfactory to the Trustee and duly
executed by such Holder or his attorney duly authorized in writing, then
the Trustee, as Note Registrar but subject to Clause (b)(vii) below, shall
cancel such Restricted Note (and issue a new Restricted Note in respect of
any untransferred portion thereof) as provided in Section 2.08(a) hereof
and increase the principal amount of the Restricted Global Security or the
Regulation S Global Security , as the case may be, by the specified
principal amount as provided in Section 2.08(d)(3).
(iv) Regulation S Non-Global Security to Restricted Global Security
--------------------------------------------------------------
or Regulation S Global Security. Subject to Section 2.08(d)(2) hereof, if
-------------------------------
the Holder of a Regulation S Note (other than a Global Security) wishes at
any time to transfer all or any portion of such Regulation S Note to a
Person who wishes to acquire the same in the form of a beneficial interest
in the Restricted Global Security or the Regulation S Global Security, such
transfer may be effected only in accordance with this Clause
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(b)(iv) and Clause (b)(vii) below and subject to the Applicable Procedures.
Upon receipt by the Trustee, as Note Registrar, of (A) such Regulation S
Note as provided in Section 2.08(a) hereof and instructions satisfactory to
the Trustee directing that a beneficial interest in the Restricted Global
Security or Regulation S Global Security in a specified principal amount
not greater than the principal amount of such Note be credited to a
specified Agent Member's account and (B) if the transfer is to occur during
the Restricted Period and the specified account is to be credited with a
beneficial interest in the Restricted Global Security, a Restricted Notes
Certificate (or the completion of the Certificate of Transfer on the Note)
satisfactory to the Trustee and duly executed by such Holder or his
attorney duly authorized in writing, then the Trustee, as Note Registrar
but subject to Clause (b)(vii) below, shall cancel such Regulation S Note
(and issue a new Regulation S Note in respect of any untransferred portion
thereof) as provided in Section 2.08(a) hereof and increase the principal
amount of the Restricted Global Security or the Regulation S Global
Security, as the case may be, by the specified principal amount as provided
in Section 2.08(d)(3) hereof.
(v) Non-Global Security to Non-Global Security. A Note that is not
------------------------------------------
a Global Security may be transferred, in whole or in part, to a Person who
takes delivery in the form of another Note that is not a Global Security as
provided in Section 2.08(a) hereof, provided that, if the Note to be
transferred in whole or in part is a Restricted Note, or is a Regulation S
Note and the transfer is to occur during the Restricted Period, then the
Trustee shall have received (A) a Restricted Notes Certificate (or the
completion of the Certificate of Transfer on the Note), satisfactory to the
Trustee and duly executed by the transferor Holder or his attorney duly
authorized in writing, in which case the transferee Holder shall take
delivery in the form of a Restricted Note or (B) a Regulation S Certificate
(or the completion of the Certificate of Transfer on the Note),
satisfactory to the Trustee and duly executed by the transferor Holder or
his attorney duly authorized in writing; in which case the transferee
Holder shall take delivery in the form of a Regulation S Note (subject in
every case to Section 2.08(c) hereof).
(vi) Exchanges between Global Security and Non-Global Security. A
---------------------------------------------------------
beneficial interest in a Global Security may be exchanged for a Note that
is not a Global Security as provided in Section 2.08(d)(2) hereof, provided
that, if such interest is a beneficial interest in the Restricted Global
Security, or if such interest is a beneficial interest in the Regulation S
Global Security and such exchange is to occur during the Restricted Period,
then such interest shall be exchanged for a Restricted Note (subject in
each case to Section 2.08(c) hereof). A Note that is not a Global Security
may be exchanged for a beneficial interest in a Global Security only if (A)
such exchange occurs in connection with a transfer effected in accordance
with Clause (b)(iii) or (iv) above or (B) such Note is a Regulation S Note
and such exchange occurs after the Restricted Period.
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(vii) Regulation S Global Security to be Held Through Euroclear or
------------------------------------------------------------
Cedel during Restricted Period. The Company shall use its best efforts to
------------------------------
cause the Depositary to ensure that, until the expiration of the Restricted
Period, beneficial interests in the Regulation S Global Security may be
held only in or through accounts maintained at the Depositary by Euroclear
or Cedel (or by Agent Members acting for the account thereof), and no
person shall be entitled to effect any transfer or exchange that would
result in any such interest being held otherwise than in or through such an
account; provided that this Clause (b)(vii) shall not prohibit any transfer
or exchange of such an interest in accordance with Clause (b)(ii) or (vi)
above.
(c) Securities Act Legends. Rule 144A Notes, Other Notes and their
----------------------
respective Successor Notes shall bear a Restricted Note Legend, and the
Regulation S Notes and their Successor Notes shall bear a Regulation S Legend,
subject to the following:
(i) subject to the following Clauses of this Section 2.08(c), a
Note or any portion thereof which is exchanged, upon transfer or otherwise,
for a Global Security or any portion thereof shall bear the Securities Act
Legend borne by such Global Security while represented thereby;
(ii) subject to the following Clauses of this Section 2.08(c), a new
Note which is not a Global Security and is issued in exchange for another
Note (including a Global Security) or any portion thereof, upon transfer or
otherwise, shall bear the Securities Act Legend borne by such other Note,
provided that, if such new Note is required pursuant to Section 2.08(b)(v)
or (vi) hereof to be issued in the form of a Restricted Note, it shall bear
a Restricted Note Legend and, if such new Note is so required to be issued
in the form of a Regulation S Note, it shall bear a Regulation S Legend;
(iii) Registered Notes shall not bear a Securities Act Legend;
(iv) at any time after the Notes may be freely transferred without
registration under the Securities Act or without being subject to transfer
restrictions pursuant to the Securities Act, a new Note which does not bear
a Securities Act Legend may be issued in exchange for or in lieu of a Note
(other than a Global Security) or any portion thereof which bears such a
legend if the Trustee has received an Unrestricted Note Certificate,
satisfactory to the Trustee and duly executed by the Holder of such
legended Note or his attorney duly authorized in writing, and after such
date and receipt of such certificate, the Trustee shall authenticate and
deliver such a new Note in exchange for or in lieu of such other Note as
provided in this Article II;
(v) a new Note which does not bear a Securities Act Legend may be
issued in exchange for or in lieu of a Note (other than a Global Security)
or any portion thereof which bears such a legend if, in the Company's
judgment, placing such a legend upon such new Note is not necessary to
ensure compliance with the
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registration requirements of the Securities Act, and the Trustee, at the
direction of the Company, shall authenticate and deliver such a new Note as
provided in this Article II; and
(vi) notwithstanding the foregoing provisions of this Section
2.08(c), a Successor Note of a Note that does not bear a particular form of
Securities Act Legend shall not bear such form of legend unless the Company
has reasonable cause to believe that such Successor Note is a "restricted
security" within the meaning of Rule 144, in which case the Trustee, at the
direction of the Company, shall authenticate and deliver a new Note bearing
a Restricted Note Legend in exchange for such Successor Note as provided in
this Article II.
(d) The provisions of Clauses (1), (2), (3), (4) and (5) below shall apply
only to Global Securities:
(1) Each Global Security authenticated under this Indenture shall be
registered in the name of the Depositary or a nominee thereof and delivered
to the Depositary or a nominee thereof or custodian therefor, and each such
Global Security shall constitute a single Note for all purposes of this
Indenture.
(2) Notwithstanding any other provision in this Indenture, no Global
Security may be exchanged in whole or in part for Notes registered, and no
transfer of a Global Security in whole or in part may be registered, in the
name of any Person other than the Depositary or a nominee thereof unless
(i) the Depositary notifies the Company that it is unwilling or unable to
continue as a depositary for such Global Security or if at any time the
Depositary ceases to be a clearing agency registered under the Exchange
Act, and a successor depositary is not appointed by the Company within 90
days, (ii) the Company executes and delivers to the Trustee a notice that
such Global Security shall be so transferable, registrable and
exchangeable, and such transfer shall be registrable or (iii) there shall
have occurred and be continuing an Event of Default with respect to the
Notes represented by such Global Security.
(3) If any Global Security is to be exchanged for other Notes or
canceled in whole, it shall be surrendered by or on behalf of the
Depositary or its nominee to the Trustee, as Note Registrar, for exchange
or cancellation as provided in this Article II. If any Global Security is
to be exchanged for other Notes or canceled in part, or if another Note is
to be exchanged in whole or in part for a beneficial interest in any Global
Security, then either (i) such Global Security shall be so surrendered for
exchange or cancellation as provided in this Article II or (ii) the
principal amount thereof shall be reduced or increased by an amount equal
to the portion thereof to be so exchanged or canceled, or equal to the
principal amount of such other Note to be so exchanged for a beneficial
interest therein, as the case may be, by means of an appropriate adjustment
made on the records of the Trustee, as Note Registrar, whereupon the
Trustee, in accordance with the Applicable Procedures, shall instruct
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<PAGE>
the Depositary or its authorized representative to make a corresponding
adjustment to its records. Upon any such surrender or adjustment of a
Global Security, the Trustee shall, subject to Section 2.08(d)(2) hereof
and as otherwise provided in this Article II, authenticate and deliver any
Notes issuable in exchange for such Global Security (or any portion
thereof) to or upon the order of, and registered in such names as may be
directed by, the Depositary or its authorized representative. Upon the
request of the Trustee in connection with the occurrence of any of the
events specified in the preceding paragraph, the Company shall promptly
make available to the Trustee a reasonable supply of Notes that are not in
the form of Global Securities. The Trustee shall be entitled to rely upon
any order, direction or request of the Depositary or its authorized
representative which is given or made pursuant to this Article II if such
order, direction or request is given or made in accordance with the
Applicable Procedures.
(4) Every Note authenticated and delivered upon registration of
transfer of, or in exchange for or in lieu of, a Global Security or any
portion thereof, whether pursuant to this Section, Section 2.05, 2.09,
3.06, 4.07, 4.08 or 9.06 hereof or otherwise, shall be authenticated and
delivered in the form of, and shall be, a Global Security, unless such Note
is registered in the name of a Person other than the Depositary or a
nominee thereof.
(5) None of the Company, the Trustee, any agent of the Trustee, any
Paying Agent or the Note Registrar will have any responsibility or
liability for any aspect of the Depository's records (or the records of the
participant of such Depository) relating to or payments made on account of
beneficial ownership interests of a Global Security or for maintaining,
supervising or reviewing any records of the Depository relating to such
beneficial ownership interests.
SECTION 2.09. Replacement Notes. If any mutilated Note is surrendered to
-----------------
the Trustee, the Company shall execute and upon its written request the Trustee
shall authenticate and deliver, in exchange for any such mutilated Note, a new
Note containing identical provisions and of like principal amount, bearing a
number not contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i) evidence to
their satisfaction of the destruction, loss or theft of any Note and (ii) such
security or indemnity as may be required by them to save either of them and any
agent of each of them harmless, then, in the absence of notice to the Company or
the Trustee that such Note has been acquired by a bona fide purchaser, the
Company shall execute and upon its request the Trustee shall authenticate and
deliver, in lieu of any such destroyed, lost or stolen Note, a new Note
containing identical provisions and of like principal amount, bearing a number
not contemporaneously outstanding.
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In case any such mutilated, destroyed, lost or stolen Note has become or is
about to become due and payable, the Company in its discretion may, instead of
issuing a new Note, pay such Note.
Upon the issuance of any new Note under this Section 2.09, the Company may
require the payment by the Holder of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Note issued pursuant to this Section 2.09 in lieu of any
destroyed, lost or stolen Note shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Note shall be at any time enforceable by anyone, and shall be entitled to
all the benefits of this Indenture equally and proportionately with any and all
other Notes duly issued hereunder.
The provisions of this Section 2.09 are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Notes.
SECTION 2.10. Outstanding Notes. Notes outstanding at any time are all
-----------------
Notes authenticated by the Trustee except for those canceled by it, those
delivered to it for cancellation and those described in this Section 2.10 as not
outstanding. A Note does not cease to be outstanding because the Company or an
Affiliate of the Company holds such Note.
If a Note is replaced pursuant to Section 2.09 hereof, it ceases to be
outstanding unless the Trustee and the Company receive proof satisfactory to
them that such replaced Note is held by a bona fide purchaser.
If the Paying Agent segregates and holds in trust, in accordance with this
Indenture, on a redemption date or Maturity date money sufficient to pay all
principal, premium, if any, and interest payable on that date with respect to
the Notes (or portions thereof) to be redeemed or maturing, as the case may be,
then on and after that date such Notes (or such portions thereof) shall cease to
be outstanding and interest on them shall cease to accrue.
In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver or consent or any amendment,
modification or other change to this Indenture, Notes held or beneficially owned
by the Company or a Restricted Subsidiary of the Company or by an Affiliate of
the Company or a Restricted Subsidiary of the Company or by agents of any of the
foregoing shall be disregarded, except that for the purposes of determining
whether the Trustee shall be protected in relying on any such direction, waiver
or consent or any amendment, modification or other change to this Indenture,
only Notes which a Trust Officer knows are so owned shall be so disregarded.
Notes so owned which have been pledged in good faith shall not be disregarded if
the
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pledgee establishes to the satisfaction of the Trustee such pledgee's right so
to act with respect to the Notes and that the pledgee is not the Company or an
Affiliate of the Company or any of their agents.
SECTION 2.11. Temporary Notes. Pending the preparation of definitive
---------------
Notes, the Company may execute, and the Trustee shall authenticate, temporary
notes ("Temporary Notes") which are printed, lithographed, or otherwise
produced, substantially of the tenor of the definitive Notes in lieu of which
they are issued and with such appropriate insertions, omissions, substitutions
and other variations.
If Temporary Notes are issued, the Company shall cause definitive Notes to
be prepared without unreasonable delay. After the preparation of definitive
Notes, the Temporary Notes shall be exchangeable for definitive Notes upon
surrender of the Temporary Notes to the Trustee, without charge to the Holder.
Until so exchanged, Temporary Notes will evidence the same debt and will be
entitled to the same benefits under this Indenture as the definitive Notes in
lieu of which they have been issued.
SECTION 2.12. Cancellation. The Company at any time may deliver Notes to
------------
the Trustee for cancellation. The Note Registrar and the Paying Agent shall
forward to the Trustee any Notes surrendered to them for registration of
transfer, exchange, purchase or payment. The Trustee shall cancel all Notes
surrendered for registration of transfer, exchange, purchase, payment or
cancellation and shall destroy such canceled Notes unless the Company shall by
Company Order otherwise direct. The Company may not issue new Notes to replace
Notes that have been delivered to the Trustee for cancellation.
SECTION 2.13. Payment of Interest; Interest Rights Preserved. Interest on
----------------------------------------------
any Note which is payable, and is punctually paid or duly provided for, on any
Interest Payment Date shall be paid to the Person in whose name such Note is
registered at the close of business on the Regular Record Date for such interest
payment, which shall be the October 15 or April 15 (whether or not a Business
Day) immediately preceding such Interest Payment Date.
Any interest on any Note which is payable, but is not punctually paid or
duly provided for, on any Interest Payment Date (herein called "Defaulted
Interest") shall forthwith cease to be payable to the registered Holder on the
relevant Regular Record Date, and, except as hereinafter provided, such
Defaulted Interest, and any interest payable on such Defaulted Interest, may be
paid by the Company, at its election, as provided in clause (a) or (b) below:
(a) The Company may elect to make payment of any Defaulted Interest,
and any interest payable on such Defaulted Interest, to the Persons in
whose names the Notes are registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest, which shall be
fixed in the following manner. The Company shall notify the Trustee in
writing of the amount of Defaulted Interest
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proposed to be paid on the Notes and the date of the proposed payment, and
at the same time the Company shall deposit with the Trustee an amount of
money equal to the aggregate amount proposed to be paid in respect of such
Defaulted Interest or shall make arrangements satisfactory to the Trustee
for such deposit prior to the date of the proposed payment, such money when
deposited to be held in trust for the benefit of the Persons entitled to
such Defaulted Interest as provided in this Clause. Thereupon the Trustee
shall fix a Special Record Date for the payment of such Defaulted Interest
which shall be not more than 15 calendar days and not less than 10 calendar
days prior to the date of the proposed payment and not less than 10
calendar days after the receipt by a Trust Officer of the Trustee of the
notice of the proposed payment. The Trustee shall promptly notify the
Company of such Special Record Date and, in the name and at the expense of
the Company, shall cause notice of the proposed payment of such Defaulted
Interest and the Special Record Date therefor to be sent, first class mail,
postage prepaid, to each Holder at such Holder's address as it appears in
the Note Register, not less than 10 calendar days prior to such Special
Record Date. Notice of the proposed payment of such Defaulted Interest and
the Special Record Date therefor having been mailed as aforesaid, such
Defaulted Interest shall be paid to the Persons in whose names the Notes
are registered at the close of business on such Special Record Date and
shall no longer be payable pursuant to the following clause (b).
(b) The Company may make payment of any Defaulted Interest, and any
interest payable on such Defaulted Interest, on the Notes in any other
lawful manner not inconsistent with the requirements of any securities
exchange on which the Notes may be listed, and upon such notice as may be
required by such exchange, if, after notice given by the Company to the
Trustee of the proposed payment pursuant to this clause, such manner of
payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section 2.13, each Note
delivered under this Indenture upon registration of transfer of, or in exchange
for, or in lieu of, any other Note, shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Note.
SECTION 2.14. Authorized Denominations. The Notes shall be issuable in
------------------------
minimum denominations of $1,000 and any integral multiple thereof.
SECTION 2.15. Computation of Interest. Interest on the Notes shall be
-----------------------
computed on the basis of a 360-day year of twelve 30-day months; provided that
Special Interest shall be computed on the basis of a 365- or 366-day year, as
the case may be, and the number of days actually elapsed from the date Special
Interest commences to accrue to but not including the date on which Special
Interest ceases to accrue.
SECTION 2.16. Persons Deemed Owners. Prior to the due presentation for
---------------------
registration of transfer of any Note, the Company, the Trustee, the Paying
Agent, the Note
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Registrar or any co-registrar may deem and treat the person in whose name Note
is registered as the absolute owner of such Note for the purpose of receiving
payment of principal of, premium, if any, and interest on such Note and for all
other purposes whatsoever, whether or not such Note is overdue, and none of the
Company, the Trustee, the Paying Agent, the Note Registrar or any co-Registrar
shall be affected by notice to the contrary.
SECTION 2.17. CUSIP Numbers. The Company, in issuing the Notes, may use
-------------
"CUSIP" and "ISIN" numbers for each series of Notes and, if so, the Trustee
shall use the relevant CUSIP and ISIN numbers in any notices to Holders as a
convenience to such Holders; provided that any such notice may state that no
representation is made as to the correctness or accuracy of the CUSIP and ISIN
numbers printed in the notice or on the Notes and that reliance may be placed
only on the other identification numbers printed on the Notes. The Company
shall promptly notify the Trustee of any change in any CUSIP or "ISIN" numbers
used.
SECTION 2.18. Holder Lists. The Trustee shall preserve in as current a
------------
form as is reasonably practicable the most recent list available to it of the
names and addresses of Holders and shall otherwise comply with Trust Indenture
Act (S) 312(a). If the Trustee is not the Note Registrar, the Company shall
furnish to the Trustee as of each Regular Record Date and at such other times as
the Trustee may request in writing a list in such form and as of such date as
the Trustee may reasonably require of the names and addresses of Holders,
including the aggregate principal amount of Notes held by each Holder.
ARTICLE III.
REDEMPTION
SECTION 3.01. Notice to Trustee. If the Company elects to redeem Notes
-----------------
pursuant to paragraph two or three of the reverse side of the Notes, it shall
notify the Trustee in writing of the Redemption Date and the principal amount of
Notes to be redeemed. The Company shall give each such notice to the Trustee at
least 60 calendar days prior to the Redemption Date unless the Trustee consents
in writing to a shorter period. Such notice shall be accompanied by an
Officers' Certificate and an Opinion of Counsel from the Company to the effect
that such redemption will comply with any conditions to such redemption set
forth herein and in the Notes.
SECTION 3.02. Selection of Notes to be Redeemed. If less than all the
---------------------------------
Notes are to be redeemed at any time, the Trustee shall select the Notes to be
redeemed by lot, on a pro rata or other basis as it shall deem fair and
appropriate; provided that the Trustee may select for redemption in part only
Notes in denominations larger than $1,000. In selecting Notes to be redeemed
pursuant to this Section 3.02, the Trustee shall make such adjustments,
reallocations and eliminations as it shall deem proper so that the principal
amount of each Note to be redeemed shall be $1,000 or an integral multiple
thereof, by increasing,
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decreasing or eliminating any amount less than $1,000 which would be
allocable to any Holder. If the Notes to be redeemed are certificated Notes,
the certificated Notes to be redeemed shall be selected by the Trustee by
prorating, as nearly as may be, the principal amount of certificated Notes to be
redeemed among the Holders of certificated Notes registered in their respective
names. The Trustee in its discretion may determine the particular Notes (if
there are more than one) registered in the name of any Holder which are to be
redeemed, in whole or in part. Provisions of this Indenture that apply to Notes
called for redemption also apply to portions of Notes called for redemption.
The Trustee shall notify the Company promptly of the Notes or portions of Notes
to be redeemed.
SECTION 3.03. Notice of Redemption. At least 30 calendar days but not
--------------------
more than 60 calendar days before a Redemption Date, the Company shall send a
notice of redemption, first class mail, postage prepaid, to Holders of Notes to
be redeemed at the addresses of such Holders as they appear in the Note
Register.
The notice shall identify the Notes to be redeemed and shall state:
(a) the Redemption Date;
(b) the Redemption Price (and shall specify the portion of such
Redemption Price that constitutes the amount of accrued and unpaid interest to
be paid, if any);
(c) the name and address of the Paying Agent;
(d) that the Notes called for redemption must be surrendered to the
Paying Agent to collect the Redemption Price;
(e) if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed and that, after the Redemption
Date, a new Note or Notes in principal amount equal to the unredeemed portion
will be issued;
(f) if fewer than all the outstanding Notes are to be redeemed, the
identification and principal amounts of the particular Notes to be redeemed;
(g) that, unless the Company defaults in making the redemption
payment, interest on the Notes (or portions thereof) called for redemption shall
cease and such Notes (or portions thereof) shall cease to accrue interest on and
after the Redemption Date;
(h) the paragraph of the Notes pursuant to which the Notes are being
called for redemption; and
(i) any other information necessary to enable Holders to comply with
the notice of redemption.
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At the Company's request, the Trustee shall give the notice of redemption
in the Company's name and at the Company's expense. In such event, the Company
shall provide the Trustee with the information required by this Section 3.03 in
a timely manner.
SECTION 3.04. Effect of Notice of Redemption. Once notice of redemption
------------------------------
is mailed, Notes called for redemption shall become due and payable on the
Redemption Date and at the Redemption Price stated in such notice. Upon
surrender to the Paying Agent, such Notes shall be paid at the Redemption Price
stated in such notice. Failure to give notice or any defect in the notice to
any Holder shall not affect the validity of the notice to any other Holder.
SECTION 3.05. Deposit of Redemption Price. On or prior to 10:00 a.m., New
---------------------------
York City time, on each Redemption Date, the Company shall deposit with the
Paying Agent (or, if the Company, one of its Subsidiaries or any of their
Affiliates is the Paying Agent, the Paying Agent shall segregate and hold in
trust for the benefit of the Holders) money, in federal or other immediately
available funds, sufficient to pay the Redemption Price on all Notes to be
redeemed on that date other than Notes or portions of Notes called for
redemption on such date which have been delivered by the Company to the Trustee
for cancellation.
So long as the Company complies with the preceding paragraph and the other
provisions of this Article III, interest on the Notes to be redeemed on the
applicable Redemption Date shall cease to accrue from and after such date and
such Notes or portions thereof shall be deemed not to be entitled to any benefit
under this Indenture except to receive payment of the Redemption Price on the
Redemption Date. If any Note called for redemption shall not be so paid upon
surrender for redemption, then, from the Redemption Date until such principal is
paid, interest shall be paid on the unpaid principal and, to the extent
permitted by law, on any accrued but unpaid interest thereon, in each case at
the rate prescribed therefor by such Notes.
SECTION 3.06. Notes Redeemed in Part. Upon surrender and cancellation of
----------------------
a Note that is redeemed in part, the Company shall issue and the Trustee shall
authenticate and deliver to the surrendering Holder (at the Company's expense) a
new Note equal in principal amount to the unredeemed portion of the Note
surrendered and canceled; provided that each such Note shall be in a principal
amount of $1,000 or an integral multiple thereof.
ARTICLE IV.
COVENANTS
SECTION 4.01. Payment of Notes. The Company shall promptly pay the
----------------
principal of, premium, if any, and interest on, the Notes on the dates and in
the manner provided in the Notes and in this Indenture. Principal, premium and
interest shall be considered paid on
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the date due if, on such date, the Trustee or the Paying Agent holds in
accordance with this Indenture money sufficient to pay all principal, premium
and interest then due.
To the extent lawful, the Company shall pay interest on (i) any overdue
principal of (and premium, if any, on) the Notes, at the interest rate borne on
the Notes, plus 1% per annum, and (ii) Defaulted Interest (without regard to any
applicable grace period), at the same rate. The Company's obligation pursuant
to the previous sentence shall apply whether such overdue amount is due at its
Stated Maturity, as a result of the Company's obligations pursuant to Section
3.05, Section 4.07 or Section 4.08 hereof, or otherwise.
SECTION 4.02. Maintenance of Office or Agency. The Company shall maintain
-------------------------------
in the Borough of Manhattan, The City of New York, an office or agency where
Notes may be presented or surrendered for payment, where Notes may be
surrendered for registration of transfer or exchange and where notices and
demands to or upon the Company in respect of the Notes and this Indenture may be
served. The Company shall give prompt written notice to the Trustee of the
location, and any change in the location, of such office or agency. If at any
time the Company shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office of the Trustee, and the Company hereby appoints the Trustee its agent to
receive all presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other offices
or agencies (in or outside of The City of New York) where the Notes may be
presented or surrendered for any or all of such purposes, and may from time to
time rescind such designations; provided that no such designation or rescission
shall in any manner relieve the Company of its obligation to maintain an office
or agency in The City of New York, for such purposes. The Company shall give
prompt written notice to the Trustee of any such designation and any change in
the location of any such other office or agency.
SECTION 4.03. Money for the Note Payments to be Held in Trust. If the
-----------------------------------------------
Company, any Subsidiary of the Company or any of their respective Affiliates
shall at any time act as Paying Agent with respect to the Notes, such Paying
Agent shall, on or before each due date of the principal of (and premium, if
any) or interest on any of the Notes, segregate and hold in trust for the
benefit of the Persons entitled thereto money sufficient to pay the principal
(and premium, if any) or interest so becoming due until such money shall be paid
to such Persons or otherwise disposed of as herein provided, and shall promptly
notify the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents with respect to
the Notes, it shall, prior to or on each due date of the principal of (and
premium, if any) or interest on any of the Notes, deposit with a Paying Agent a
sum sufficient to pay the principal (and premium, if any) or interest so
becoming due, such sum to be held in trust for the benefit of the Persons
entitled to such principal, premium or interest, and (unless such
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Paying Agent is the Trustee) the Paying Agent shall promptly notify the Trustee
of the Company's action or failure so to act.
SECTION 4.04. Corporate Existence. Subject to the provisions of Article
-------------------
IV and Article V hereof, the Company shall do or cause to be done all things
necessary to preserve and keep in full force and effect the corporate existence,
rights (charter and statutory) and franchises of the Company and each of its
Restricted Subsidiaries; provided that the Company and any such Restricted
Subsidiary shall not be required to preserve the corporate existence of any such
Restricted Subsidiary or any such right or franchise if the Board of Directors
shall determine that the preservation thereof is no longer desirable in the
conduct of the business of the Company and provided further that any Restricted
Subsidiary may consolidate with, merge into, or sell, convey, lease or otherwise
dispose of all of its property and assets to the Company or any wholly owned
Restricted Subsidiary.
SECTION 4.05. Maintenance of Property. The Company shall cause all
-----------------------
Property used or useful in the conduct of its business or the business of any of
its Restricted Subsidiaries and material to the Company and its Restricted
Subsidiaries taken as a whole to be maintained and kept in good condition,
repair and working order and supplied with all necessary equipment and shall
cause to be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as, in the judgment of the Company, may be necessary
so that the business carried on in connection therewith may be properly and
advantageously conducted at all times; provided that nothing in this Section
4.05 shall prevent the Company from discontinuing the operation or maintenance
of any of such Property if such discontinuance is, in the judgment of the
Company, desirable in the conduct of its business or the business of any of its
Restricted Subsidiaries.
SECTION 4.06. Payment of Taxes and Other Claims. The Company shall pay or
---------------------------------
discharge or cause to be paid or discharged, before the same shall become
delinquent, (a) all material taxes, assessments and governmental charges levied
or imposed upon the Company or any of its Restricted Subsidiaries or upon the
income, profits or Property of the Company or any of its Restricted Subsidiaries
and (b) all material lawful claims for labor, materials and supplies which, if
unpaid, might by law become a Lien upon the Property of the Company or any of
its Restricted Subsidiaries; provided that the Company shall not be required to
pay or discharge or cause to be paid or discharged any such tax, assessment,
charge or claim whose amount, applicability or validity is being contested in
good faith by appropriate proceedings upon stay of execution or the enforcement
thereof and for which adequate reserves in accordance with GAAP or other
appropriate provision has been made.
SECTION 4.07. Repurchase at the Option of Holders upon a Change of
----------------------------------------------------
Control. (a) Upon the occurrence of a Change of Control, each Holder shall have
- -------
the right to require the Company to purchase such Holder's Notes, in whole or in
part, in a principal amount that is an integral multiple of $1,000, pursuant to
the offer described in Section 4.07(b) hereof (the "Change of Control Offer"),
at a purchase price (the "Change of Control Purchase Price") in
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cash equal to 101 percent of the principal amount of such Notes (or portions
thereof), plus accrued and unpaid interest, if any, to the Change of Control
Payment Date.
(b) Within 30 calendar days of the date of any Change of Control, the
Company, or the Trustee at the request and expense of the Company, shall send to
each Holder by first class mail, postage prepaid, a notice prepared by the
Company stating:
(i) that a Change of Control has occurred and a Change of Control
Offer is being made pursuant to this Section 4.07, and that all Notes that
are timely tendered will be accepted for payment;
(ii) the Change of Control Purchase Price, and the date Notes are to
be purchased pursuant to the Change of Control Offer (the "Change of
Control Payment Date"), which date shall be a date occurring no earlier
than 30 calendar days nor later than 60 calendar days subsequent to the
date such notice is mailed;
(iii) that any Notes or portions thereof not tendered or accepted for
payment will continue to accrue interest;
(iv) that, unless the Company defaults in the payment of the Change
of Control Purchase Price with respect thereto, all Notes or portions
thereof accepted for payment pursuant to the Change of Control Offer shall
cease to accrue interest from and after the Change of Control Payment Date;
(v) that any Holder electing to have any Notes or portions thereof
purchased pursuant to a Change of Control Offer will be required to
surrender such Notes, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of such Notes completed, to the Paying Agent at
the address specified in the notice, prior to the close of business on the
third Business Day preceding the Change of Control Payment Date;
(vi) that any Holder shall be entitled to withdraw such election if
the Paying Agent receives, not later than the close of business on the
second Business Day preceding the Change of Control Payment Date, a
telegram, telex, facsimile transmission or letter, setting forth the name
of the Holder, the principal amount of Notes delivered for purchase, and a
statement that such Holder is withdrawing such Holder's election to have
such Notes or portions thereof purchased pursuant to the Change of Control
Offer;
(vii) that any Holder electing to have Notes purchased pursuant to the
Change of Control Offer must specify the principal amount that is being
tendered for purchase, which principal amount must be $1,000 or an integral
multiple thereof;
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(viii) that any Holder whose Notes are being purchased only in part
will be issued new Notes equal in principal amount to the unpurchased
portion of the Note or Notes surrendered, which unpurchased portion will be
equal in principal amount to $1,000 or an integral multiple thereof; and
(ix) any other information necessary to enable any Holder to tender
Notes and to have such Notes purchased pursuant to this Section 4.07.
(c) On the Change of Control Payment Date, the Company shall (i)
accept for payment any Notes or portions thereof properly tendered pursuant to
the Change of Control Offer; (ii) irrevocably deposit with the Paying Agent, by
10:00 a.m., New York City time, on such date, in immediately available funds, an
amount equal to the Change of Control Purchase Price in respect of all Notes or
portions thereof so accepted; and (iii) deliver, or cause to be delivered, to
the Trustee the Notes so accepted together with an Officers' Certificate listing
the Notes or portions thereof tendered to the Company and accepted for payment.
The Paying Agent shall promptly send by first class mail, postage prepaid, to
each Holder of Notes or portions thereof so accepted for payment, payment in an
amount equal to the Change of Control Purchase Price for such Notes or portions
thereof. The Company shall publicly announce the results of the Change of
Control Offer on or as soon as practicable after the Change of Control Payment
Date.
(d) Upon surrender and cancellation of a Note that is purchased in
part pursuant to a Change of Control Offer, the Company shall promptly issue and
the Trustee shall authenticate and deliver to the surrendering Holder of such
Note, a new Note equal in principal amount to the unpurchased portion of such
surrendered Note; provided that each such new Note shall be in a principal
amount of $1,000 or an integral multiple thereof.
(e) The Company shall comply with the requirements of Section 14(e) under
the Exchange Act and any other securities laws or regulations, to the extent
such laws and regulations are applicable, in connection with the purchase of
Notes pursuant to a Change of Control Offer.
SECTION 4.08. Limitation on Asset Sales. The Company shall not, and
-------------------------
shall not permit any of its Restricted Subsidiaries, directly or indirectly, to,
consummate any Asset Sale, unless:
(i) the Company or such Restricted Subsidiary, as the case may be,
receives consideration for such Asset Sale at least equal to the Fair
Market Value (as evidenced by a Board Resolution delivered to the Trustee)
of the Property or assets sold or otherwise disposed of;
(ii) at least 75 percent of the consideration received in respect of
such Asset Sale by the Company or such Restricted Subsidiary, as the case
may be, for such Property or assets consists of (a) Cash Proceeds and/or
Telecommunications Assets;
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(b) shares of publicly-traded Voting Stock of any Person engaged in the
Telecommunications Business in the United States; or (c) the assumption of
Indebtedness of the Company or such Restricted Subsidiary (other than
Indebtedness that is subordinated to the Notes) and the release of the
Company or the Restricted Subsidiary, as the case may be, from all
liability on the Indebtedness assumed; and
(iii) the Company or such Restricted Subsidiary, as the case may be,
uses the Net Cash Proceeds from such Asset Sale in the manner set forth in
Section 4.08(b) hereof.
(b) Within 360 calendar days after the closing of any Asset Sale, the
Company or such Restricted Subsidiary, as the case may be, may, at its option:
(i) reinvest an amount equal to the Net Cash Proceeds, or any
portion thereof, from such Asset Sale in Telecommunications Assets or in
Capital Stock of any Person engaged in the Telecommunications Business;
and/or
(ii) apply an amount equal to such Net Cash Proceeds, or remaining
Net Cash Proceeds, to the permanent reduction of Indebtedness of the
Company (other than Indebtedness to a Restricted Subsidiary of the Company)
that is senior to or pari passu with the Notes or to the permanent
---- -----
reduction of Indebtedness or Preferred Stock of any Restricted Subsidiary
of the Company (other than Indebtedness to, or Preferred Stock owned by,
the Company or another Restricted Subsidiary of the Company).
Net Cash Proceeds from any Asset Sale that are not applied pursuant to clause
(i) or (ii) above within 360 calendar days of the closing of such Asset Sale
shall constitute "Excess Proceeds."
(c) If at any time the aggregate amount of Excess Proceeds calculated
as of such date exceeds $5 million, the Company shall use the then-existing
Excess Proceeds to make an offer, as described in Section 4.08(d) hereof (an
"Asset Sale Offer"), to purchase from all Holders, on a pro rata basis, Notes in
an aggregate principal amount equal to the maximum principal amount that may be
purchased out of the then-existing Excess Proceeds, at a purchase price (the
"Asset Sale Purchase Price") in cash equal to 100 percent of the principal
amount of such Notes, plus accrued and unpaid interest, if any, to the Asset
Sale Payment Date.
(d) Within 30 calendar days of the date the amount of Excess Proceeds
exceeds $5 million, the Company, or the Trustee at the request and expense of
the Company, shall send to each Holder by first class mail, postage prepaid, a
notice prepared by the Company stating:
(i) that an Asset Sale Offer is being made pursuant to this Section
4.08, and that all Notes that are timely tendered will be accepted for
payment, subject to
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proration in the event the amount of Excess Proceeds is less than the
aggregate Asset Sale Purchase Price of all Notes timely tendered pursuant
to the Asset Sale Offer;
(ii) the Asset Sale Purchase Price, the amount of Excess Proceeds
that are available to be applied to purchase tendered Notes, and the date
Notes are to be purchased pursuant to the Asset Sale Offer (the "Asset Sale
Payment Date"), which date shall be a date no earlier than 30 calendar days
nor later than 40 calendar days subsequent to the date such notice is
mailed;
(iii) that any Notes or portions thereof not tendered or accepted for
payment will continue to accrue interest;
(iv) that, unless the Company defaults in the payment of the Asset
Sale Purchase Price with respect thereto, all Notes or portions thereof
accepted for payment pursuant to the Asset Sale Offer shall cease to accrue
interest from and after the Asset Sale Payment Date;
(v) that any Holder electing to have any Notes or portions thereof
purchased pursuant to the Asset Sale Offer will be required to surrender
such Notes, with the form entitled "Option of Holder to Elect Purchase" on
the reverse of such Notes completed, to the Paying Agent at the address
specified in the notice, prior to the close of business on the third
Business Day preceding the Asset Sale Payment Date;
(vi) that any Holder shall be entitled to withdraw such election if
the Paying Agent receives, not later than the close of business on the
second Business Day preceding the Asset Sale Payment Date, a telegram,
telex, facsimile transmission or letter, setting forth the name of the
Holder, the principal amount of Notes delivered for purchase, and a
statement that such Holder is withdrawing such Holder's election to have
such Notes or portions thereof purchased pursuant to the Asset Sale Offer;
(vii) that any Holder electing to have Notes purchased pursuant to
the Asset Sale Offer must specify the principal amount that is being
tendered for purchase, which principal amount must be $1,000 or an integral
multiple thereof;
(viii) that any Holder whose Notes are being purchased only in part
will be issued new Notes equal in principal amount to the unpurchased
portion of the Note or Notes surrendered, which unpurchased portion will be
equal in principal amount to $1,000 or an integral multiple thereof; and
(ix) any other information necessary to enable any Holder to tender
Notes and to have such Notes purchased pursuant to this Section 4.08.
(e) If the aggregate Asset Sale Purchase Price of the Notes surrendered by
Holders exceeds the amount of Excess Proceeds as indicated in the notice
required by
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Section 4.08(d) hereof, the Trustee shall select the Notes to be purchased on a
pro rata basis based on the principal amount of the Notes tendered, with such
adjustments as may be deemed appropriate by the Trustee, so that only Notes in
denominations of $1,000 or integral multiples thereof shall be purchased.
(f) On the Asset Sale Payment Date, the Company shall (i) accept for
payment any Notes or portions thereof properly tendered and selected for
purchase pursuant to the Asset Sale Offer and Section 4.08(e) hereof; (ii)
irrevocably deposit with the Paying Agent, by 10:00 a.m., New York City time, on
such date, in immediately available funds, an amount equal to the Asset Sale
Purchase Price in respect of all Notes or portions thereof so accepted; and
(iii) deliver, or cause to be delivered, to the Trustee the Notes so accepted
together with an Officers' Certificate listing the Notes or portions thereof
tendered to the Company and accepted for payment. The Paying Agent shall
promptly send by first class mail, postage prepaid, to each Holder of Notes or
portions thereof so accepted for payment, payment in an amount equal to the
Asset Sale Purchase Price for such Notes or portions thereof. The Company shall
publicly announce the results of the Asset Sale Offer on or as soon as
practicable after the Asset Sale Payment Date.
(g) Upon surrender and cancellation of a Note that is purchased in part,
the Company shall promptly issue and the Trustee shall authenticate and deliver
to the surrendering Holder of such Note a new Note equal in principal amount to
the unpurchased portion of such surrendered Note; provided that each such new
Note shall be in a principal amount of $1,000 or an integral multiple thereof.
(h) Upon completion of an Asset Sale Offer (including payment of the Asset
Sale Purchase Price for accepted Notes), any surplus Excess Proceeds that were
the subject of such offer shall cease to be Excess Proceeds, and the Company may
then use such amounts for general corporate purposes.
(i) The Company shall comply with the requirements of Section 14(e) under
the Exchange Act and any other securities laws or regulations, to the extent
such laws and regulations are applicable, in connection with the purchase of
Notes pursuant to an Asset Sale Offer.
SECTION 4.09. Limitation on Consolidated Indebtedness. (a) The Company
---------------------------------------
shall not, and shall not permit any Restricted Subsidiary to, Incur any
Indebtedness after the Issue Date unless either (a) the ratio of (i) the
aggregate consolidated principal amount of Indebtedness of the Company
outstanding as of the most recent available quarterly or annual balance sheet,
after giving pro forma effect to the Incurrence of such Indebtedness and any
other Indebtedness Incurred since such balance sheet date and the receipt and
application of the proceeds thereof, to (ii) Consolidated Cash Flow Available
for Fixed Charges for the four full fiscal quarters immediately preceding the
Incurrence of such Indebtedness for which consolidated financial statements of
the Company have been filed with the Commission or have otherwise become
publicly available, determined on a pro forma basis as if any such
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Indebtedness had been Incurred and the proceeds thereof had been applied at the
beginning of such four fiscal quarters, would be less than 5.5 to 1.0 for such
four-quarter periods ending on or prior to December 31, 2000 and 5.0 to 1.0 for
such periods ending thereafter, or (b) the Company's Consolidated Capital Ratio
as of the most recent quarterly or annual balance sheet of the Company that has
been filed with the Commission or has otherwise become publicly available, after
giving pro forma effect to (x) the Incurrence of such Indebtedness and any other
Indebtedness Incurred since such balance sheet date and (y) paid-in capital
received since such balance sheet date or concurrently with the Incurrence of
such Indebtedness, and in each case the receipt and application of the proceeds
thereof, is less than 2.0 to 1.0.
(b) Notwithstanding the foregoing limitation, the Company and any
Restricted Subsidiary may Incur each and all of the following:
(i) Indebtedness under Senior Credit Facilities in an aggregate
principal amount outstanding or available at any one time not to exceed
$100 million, and any renewal, extension, refinancing or refunding thereof
in an amount which, together with any principal amount remaining
outstanding or available under all Senior Credit Facilities, does not
exceed the aggregate principal amount outstanding or available under all
Senior Credit Facilities immediately prior to such renewal, extension,
refinancing or refunding;
(ii) Indebtedness under Qualified Receivable Facilities in an
aggregate principal amount outstanding or available at any one time not to
exceed the greater of (x) $150 million or (y) an amount equal to 85% of net
Receivables determined in accordance with GAAP, and any renewal, extension,
refinancing or refunding thereof in an amount which, together with any
principal amount remaining outstanding or available under all Qualified
Receivable Facilities, does not exceed the aggregate principal amount
outstanding or available under all Qualified Receivable Facilities
immediately prior to such renewal, extension, refinancing or refunding;
(iii) Purchase Money Indebtedness, provided that the amount of such
Purchase Money Indebtedness does not exceed 90% of the cost of the
construction, acquisition or improvement of the applicable
Telecommunications Assets;
(iv) Indebtedness owed by the Company to any Wholly-Owned Restricted
Subsidiary of the Company or Indebtedness owed by a Restricted Subsidiary
of the Company to the Company or a Wholly-Owned Restricted Subsidiary of
the Company; provided that upon either (x) the transfer or other
disposition by such Wholly-Owned Restricted Subsidiary or the Company of
any Indebtedness so permitted to a Person other than the Company or another
Wholly-Owned Restricted Subsidiary of the Company or (y) the issuance
(other than directors' qualifying shares), sale, lease, transfer or other
disposition of shares of Capital Stock (including by consolidation or
merger) of such Wholly-Owned Restricted Subsidiary to a Person other than
the
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Company or another such Wholly-Owned Restricted Subsidiary, the provisions
of this clause (iv) shall no longer be applicable to such Indebtedness and
such Indebtedness shall be deemed to have been Incurred at the time of such
transfer or other disposition;
(v) Indebtedness Incurred to renew, extend, refinance or refund
(each, a "refinancing") the Notes or Indebtedness outstanding at the date
of the Indenture or Purchase Money Indebtedness Incurred pursuant to clause
(iii) of this paragraph in an aggregate principal amount not to exceed the
aggregate principal amount of and accrued interest on the Indebtedness so
refinanced plus the amount of any premium required to be paid in connection
with such refinancing pursuant to the terms of the Indebtedness so
refinanced or the amount of any premium reasonably determined by the
Company as necessary to accomplish such refinancing by means of a tender
offer or privately negotiated repurchase, plus the expenses of the Company
incurred in connection with such refinancing; provided that Indebtedness
the proceeds of which are used to refinance the Notes or Indebtedness which
is pari passu to the Notes or Indebtedness which is subordinate in right of
payment to the Notes shall only be permitted under this clause (v) if (A)
in the case of any refinancing of the Notes or Indebtedness which is pari
passu to the Notes, the refinancing Indebtedness is made pari passu to the
Notes or constitutes Subordinated Indebtedness, and, in the case of any
refinancing of Subordinated Indebtedness, the refinancing Indebtedness
constitutes Subordinated Indebtedness and (B) in any case, the refinancing
Indebtedness by its terms, or by the terms of any agreement or instrument
pursuant to which such Indebtedness is issued, (x) does not provide for
payments of principal of such Indebtedness at stated maturity or by way of
a sinking fund applicable thereto or by way of any mandatory redemption,
defeasance, retirement or repurchase thereof by the Company (including any
redemption, retirement or repurchase which is contingent upon events or
circumstances, but excluding any retirement required by virtue of the
acceleration of any payment with respect to such Indebtedness upon any
event of default thereunder), in each case prior to the time the same are
required by the terms of the Indebtedness being refinanced and (y) does not
permit redemption or other retirement (including pursuant to an offer to
purchase made by the Company) of such Indebtedness at the option of the
Holder thereof prior to the time the same are required by the terms of the
Indebtedness being refinanced, other than a redemption or other retirement
at the option of the Holder of such Indebtedness (including pursuant to an
offer to purchase made by the Company) which is conditioned upon a change
of control pursuant to provisions substantially similar to those described
in Section 4.07 hereof;
(vi) Indebtedness consisting of Permitted Interest Rate and Currency
Protection Agreements;
(vii) Indebtedness (A) in respect of performance, surety or appeal
bonds provided in the ordinary course of business or (B) arising from
customary agreements
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providing for indemnification, adjustment of purchase price for closing
balance sheet changes within 90 days after closing, or similar obligations,
or from Guarantees or letters of credit, surety bonds or performance bonds
securing any obligations of the Company or any of its Restricted
Subsidiaries pursuant to such agreements, in each case Incurred in
connection with the disposition of any business, assets or Restricted
Subsidiary of the Company (other than Guarantees of Indebtedness Incurred
by any Person acquiring all or any portion of such business, assets or
Restricted Subsidiary of the Company for the purpose of financing such
acquisition) and in an aggregate principal amount not to exceed the gross
proceeds actually received by the Company or any Restricted Subsidiary in
connection with such disposition; and
(viii) Indebtedness not otherwise permitted to be Incurred pursuant
to clauses (i) through (vii) above, which, together with any other
outstanding Indebtedness Incurred pursuant to this clause (viii), has an
aggregate principal amount not in excess of $10 million at any time
outstanding.
(c) Notwithstanding any other provision of this Section 4.09, the maximum
amount of Indebtedness that the Company or a Restricted Subsidiary may Incur
pursuant to this Section 4.09, shall not be deemed to be exceeded due solely as
the result of fluctuations in the exchange rates of currencies.
(d) For purposes of determining any particular amount of Indebtedness
under this Section 4.09, (1) Guarantees, Liens or obligations with respect to
letters of credit supporting Indebtedness otherwise included in the
determination of such particular amount shall not be included and (2) any Liens
granted pursuant to the equal and ratable provisions referred to in Section 4.12
hereof shall not be treated as Indebtedness. For purposes of determining
compliance with this Section 4.09, in the event that an item of Indebtedness
meets the criteria of more than one of the types of Indebtedness described in
the above clauses, the Company, in its sole discretion, shall classify such item
of Indebtedness and only be required to include the amount and type of such
Indebtedness in one of such clauses.
SECTION 4.10. Limitation on Indebtedness and Preferred Stock of Restricted
------------------------------------------------------------
Subsidiaries. The Company shall not permit any Restricted Subsidiary of the
- ------------
Company to Incur any Indebtedness or issue any Preferred Stock except:
(i) Indebtedness or Preferred Stock outstanding on the date of the
Indenture after giving effect to the application of the proceeds of the
Notes;
(ii) Indebtedness Incurred or Preferred Stock issued to and held by
the Company or a Wholly-Owned Restricted Subsidiary of the Company
(provided that such Indebtedness or Preferred Stock is at all times held by
the Company or a Wholly-Owned Restricted Subsidiary of the Company);
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(iii) Indebtedness Incurred or Preferred Stock issued by a Person
prior to the time (A) such Person became a Restricted Subsidiary of the
Company, (B) such Person merges into or consolidates with a Restricted
Subsidiary of the Company or (C) another Restricted Subsidiary of the
Company merges into or consolidates with such Person (in a transaction in
which such Person becomes a Restricted Subsidiary of the Company), which
Indebtedness or Preferred Stock was not Incurred or issued in anticipation
of such transaction and was outstanding prior to such transaction;
(iv) Indebtedness under a Senior Credit Facility which is permitted
to be outstanding under clause (i) of the second paragraph of Section 4.09;
(v) in the case of a Restricted Subsidiary that is a Qualified
Receivable Subsidiary, Indebtedness under a Qualified Receivable Facility
which is permitted to be outstanding under clause (ii) of the second
paragraph of Section 4.09;
(vi) Indebtedness consisting of Permitted Interest Rate and Currency
Protection Agreements;
(vii) Indebtedness (A) in respect of performance, surety and appeal
bonds provided in the ordinary course of business or (B) arising from
customary agreements providing for indemnification, adjustment of purchase
price for closing balance sheet changes within 90 days after closing, or
similar obligations, or from Guarantees or letters of credit, surety bonds
or performance bonds securing any obligation of such Restricted Subsidiary
pursuant to such agreements, in each case Incurred in connection with the
disposition of any business, assets or Restricted Subsidiary of such
Restricted Subsidiary (other than Guarantees of Indebtedness Incurred by
any Person acquiring all or any portion of such business, assets or
Restricted Subsidiary for the purpose of financing such acquisition) and in
an aggregate principal amount not to exceed the gross proceeds actually
received by such Restricted Subsidiary in connection with such disposition;
(viii) Indebtedness or Preferred Stock which is exchanged for, or the
proceeds of which are used to refinance, refund or redeem, any Indebtedness
or Preferred Stock permitted to be outstanding pursuant to clauses (i) and
(iii) hereof or any extension or renewal thereof (for purposes hereof, a
"refinancing"), in an aggregate principal amount, in the case of
Indebtedness, or with an aggregate liquidation preference in the case of
Preferred Stock, not to exceed the aggregate principal amount of the
Indebtedness so refinanced or the aggregate liquidation preference of the
Preferred Stock so refinanced, plus the amount of any premium required to
be paid in connection with such refinancing pursuant to the terms of the
Indebtedness or Preferred Stock so refinanced or the amount of any premium
reasonably determined by the Company as necessary to accomplish such
refinancing by means of a tender offer or privately negotiated repurchase,
plus the amount of expenses of the Company and the applicable Restricted
Subsidiary Incurred in connection therewith and
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provided the Indebtedness or Preferred Stock Incurred or issued upon such
refinancing by its terms, or by the terms of any agreement or instrument
pursuant to which such Indebtedness or Preferred Stock is Incurred or
issued, (x) does not provide for payments of principal or liquidation value
at the stated maturity of such Indebtedness or Preferred Stock or by way of
a sinking fund applicable to such Indebtedness or Preferred Stock or by way
of any mandatory redemption, defeasance, retirement or repurchase of such
Indebtedness or Preferred Stock by the Company or any Restricted Subsidiary
of the Company (including any redemption, retirement or repurchase which is
contingent upon events or circumstances, but excluding any retirement
required by virtue of acceleration of such Indebtedness upon an event of
default thereunder), in each case prior to the time the same are required
by the terms of the Indebtedness or Preferred Stock being refinanced and
(y) does not permit redemption or other retirement (including pursuant to
an offer to purchase made by the Company or a Restricted Subsidiary of the
Company) of such Indebtedness or Preferred Stock at the option of the
holder thereof prior to the stated maturity of the Indebtedness or
Preferred Stock being refinanced, other than a redemption or other
retirement at the option of the holder of such Indebtedness or Preferred
Stock (including pursuant to an offer to purchase made by the Company or a
Restricted Subsidiary of the Company) which is conditioned upon the change
of control of the Company pursuant to provisions substantially similar to
those described in Section 4.07 hereof and provided, further, that in the
case of any exchange or redemption of Preferred Stock of a Restricted
Subsidiary of the Company, such Preferred Stock may only be exchanged for
or redeemed with Preferred Stock of such Restricted Subsidiary; and
(ix) Indebtedness Incurred or Preferred Stock issued by a Restricted
Subsidiary, provided that the Fair Market Value of the Company's Investment
in all Restricted Subsidiaries which Incur Indebtedness or issue Preferred
Stock pursuant to this clause (ix) shall not exceed, at any time,
$30,000,000 in the aggregate, and provided further that such Indebtedness
Incurred is otherwise permitted pursuant to Section 4.09 hereof.
SECTION 4.11. Limitation on Restricted Payments. (a) The Company shall
---------------------------------
not, and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, make any Restricted Payment unless, at the time of and after giving
effect to such proposed Restricted Payment:
(i) no Default or Event of Default shall have occurred and be
continuing or shall occur as a consequence thereof;
(ii) after giving effect, on a pro forma basis, to such Restricted
Payment and the incurrence of any Indebtedness the net proceeds of which
are used to finance such Restricted Payment, the Company could incur at
least $1.00 of additional Indebtedness pursuant to the first paragraph of
Section 4.09 hereof; and
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(iii) after giving effect to such Restricted Payment on a pro forma
basis, the aggregate amount expended (the amount so expended, if other than
cash, to be determined in good faith by a majority of the disinterested
members of the Board of Directors, whose determination shall be conclusive
and evidenced by a resolution thereof) or declared for all Restricted
Payments after the Issue Date does not exceed the sum of (A) 50% of the
Consolidated Net Income of the Company (or, if Consolidated Net Income
shall be a deficit, minus 100% of such deficit) for the period (taken as
one accounting period) beginning on the last day of the fiscal quarter
immediately preceding the Issue Date and ending on the last day of the
fiscal quarter for which the Company's financial statements have been filed
with the Commission or otherwise become publicly available immediately
preceding the date of such Restricted Payment, plus (B) 100% of the net
reduction in Investments, subsequent to the Issue Date, in any Person,
resulting from payments of interest on Indebtedness, dividends, repayments
of loans or advances, or other transfers of Property (but only to the
extent such interest, dividends, repayments or other transfers of Property
are not included in the calculation of Consolidated Net Income), in each
case to the Company or any Restricted Subsidiary from any Person
(including, without limitation, from Unrestricted Subsidiaries) or from
redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries
(valued in each case as provided in the definition of "Investments" in
Section 1.01 hereof), not to exceed in the case of any Person the amount of
Investments previously made subsequent to the Issue Date by the Company or
any Restricted Subsidiary in such Person and which was treated as a
Restricted Payment; provided that the Company or a Restricted Subsidiary of
the Company may make any Restricted Payment with the aggregate net proceeds
received after the date of the Indenture, including the fair value of
property other than cash (determined in good faith by the Board of
Directors as evidenced by a resolution of the Board of Directors filed with
the Trustee), (x) as capital contributions to the Company, (y) from the
issuance (other than to a Restricted Subsidiary) of Capital Stock (other
than Disqualified Stock) of the Company and warrants, rights or options on
Capital Stock (other than Disqualified Stock) of the Company, or (z) from
the conversion of Indebtedness of the Company into Capital Stock (other
than Disqualified Stock and other than by a Restricted Subsidiary) of the
Company after the date of this Indenture.
(b) The foregoing limitations shall not prevent the Company from:
(i) paying a dividend on its Capital Stock at any time within 60
days after the declaration thereof if, on the declaration date, the Company
could have paid such dividend in compliance with the preceding paragraph of
this Section 4.11;
(ii) retiring (A) any Capital Stock of the Company or any Restricted
Subsidiary of the Company, (B) Indebtedness of the Company that is
subordinated in right of payment to the Notes, or (C) Indebtedness of a
Restricted Subsidiary of the Company, in exchange for, or out of the
proceeds of the substantially concurrent sale of Qualified Stock of the
Company;
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(iii) retiring any Indebtedness of the Company subordinated in right
of payment to the Notes in exchange for, or out of the proceeds of, the
substantially concurrent incurrence of Indebtedness of the Company (other
than Indebtedness to a Subsidiary of the Company), provided that such new
Indebtedness (A) is subordinated in right of payment to the Notes at least
to the same extent as, (B) has an Average Life at least as long as, and (C)
has no scheduled principal payments due in any amount earlier than, any
equivalent amount of principal under the Indebtedness so retired;
(iv) retiring any Indebtedness of a Restricted Subsidiary of the
Company in exchange for, or out of the proceeds of, the substantially
concurrent incurrence of Indebtedness of the Company or any Restricted
Subsidiary that is permitted under Section 4.09 hereof (in the case of
Indebtedness of the Company) and Section 4.10 hereof (in the case of
Indebtedness of Restricted Subsidiaries) and that (A) is not secured by any
assets of the Company or any Restricted Subsidiary to a greater extent than
the retired Indebtedness was so secured, (B) has an Average Life at least
as long as the retired Indebtedness, and (C) is subordinated in right of
payment to the Notes at least to the same extent as the retired
Indebtedness;
(v) retiring any Capital Stock or options to acquire Capital Stock
of the Company or any Restricted Subsidiary of the Company held by any
directors, officers or employees of the Company or any Restricted
Subsidiary, provided that the aggregate price paid for all such retired
Capital Stock shall not exceed, in the aggregate, the sum of $2 million
plus the aggregate cash proceeds received by the Company subsequent to the
Issue Date from issuances of Capital Stock or options to acquire Capital
Stock by the Company to directors, officers or employees of the Company and
its Subsidiaries;
(vi) making payments or distributions to dissenting stockholders
pursuant to applicable law in connection with a consolidation, merger or
transfer of assets permitted in Article V hereof;
(vii) retiring any Capital Stock of the Company to the extent
necessary (as determined in good faith by a majority of the disinterested
members of the Board of Directors, whose determination shall be conclusive
and evidenced by a resolution thereof) to prevent the loss, or to secure
the renewal or reinstatement, of any license or franchise held by the
Company or any Restricted Subsidiary from any governmental agency;
(viii) making Investments in any Person primarily engaged in the
Telecommunications Business; provided, that the aggregate amount of such
Investments does not exceed at any time the sum of (A) $30,000,000 plus (B) the
amount of Net Cash Proceeds received by the Company after the Issue Date as a
capital contribution or from the sale of its Capital Stock (other than
Disqualified Stock) to a Person who is not a Subsidiary
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of the Company, except to the extent such Net Cash Proceeds are used to make
Restricted Payments permitted pursuant to clauses (x), (y) and (z) of clause
(iii) of Section 4.11(a) hereof or clause (ii) of Section 4.11(b) hereof or this
clause (viii), plus (C) the net reduction in Investments made pursuant to this
clause (viii) resulting from distributions on or repayments of such Investments
or from the Net Cash Proceeds from the sale of any such Investment (except in
each case to the extent any such payment or proceeds are included in the
calculation of Consolidated Net Income) or from such Person becoming a
Restricted Subsidiary (valued in each case as provided in the definition of
"Investment" set forth in Section 1.01 hereof), provided that the net reduction
in any Investment shall not exceed the amount of such Investment; and
(ix) making Investments not otherwise permitted in an aggregate amount
not to exceed $15 million at any time outstanding.
(c) In determining the amount of Restricted Payments permissible under
this Section 4.11, amounts expended pursuant to clauses (ii), (iii) and (iv) of
the foregoing paragraph shall not be included as Restricted Payments.
(d) Not later than the date of making any Restricted Payment (including
any Restricted Payment permitted to be made pursuant to the two previous
paragraphs), the Company shall deliver to the Trustee an Officers' Certificate
stating that such Restricted Payment is permitted and setting forth the basis
upon which the required calculations were computed, which calculations may be
based upon the Company's latest available financial statements.
SECTION 4.12. Limitation on Liens. (a) The Company shall not, and shall
-------------------
not permit any Restricted Subsidiary of the Company to, Incur or suffer to exist
any Lien on or with respect to any property or assets now owned or hereafter
acquired to secure any Indebtedness without making, or causing such Restricted
Subsidiary to make, effective provision for securing the Notes (x) equally and
ratably with such Indebtedness as to such property for so long as such
Indebtedness will be so secured or (y) in the event such Indebtedness is
Indebtedness of the Company which is subordinate in right of payment to the
Notes, prior to such Indebtedness as to such property for so long as such
Indebtedness will be so secured.
(b) The foregoing restrictions shall not apply to:
(i) Liens existing on the date of the Indenture and securing
Indebtedness outstanding on the date of the Indenture or Incurred on or
after the Issue Date pursuant to any Senior Credit Facility or Qualified
Receivable Facility;
(ii) Liens securing Indebtedness in an amount which, together with the
aggregate amount of Indebtedness then outstanding or available under all
Senior Credit Facilities (or under refinancings or amendments of such
Senior Credit
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Facilities), does not exceed 1.5 times the Company's Consolidated Cash Flow
Available for Fixed Charges for the four full fiscal quarters preceding the
Incurrence of such Lien for which the Company's consolidated financial
statements have been filed with the Commission or become publicly
available, determined on a pro forma basis as if such Indebtedness had been
Incurred and the proceeds thereof had been applied at the beginning of such
four fiscal quarters;
(iii) Liens in favor of the Company or any Wholly-Owned Restricted
Subsidiary of the Company;
(iv) Liens on Property of the Company or a Restricted Subsidiary
acquired, constructed or constituting improvements made after the Issue
Date of the Notes to secure Purchase Money Indebtedness which is otherwise
permitted under the Indenture, provided that (a) the principal amount of
any Indebtedness secured by any such Lien does not exceed 100% of such
purchase price or cost of construction or improvement of the Property
subject to such Lien, (b) such Lien attaches to such property prior to, at
the time of or within 180 days after the acquisition, completion of
construction or commencement of operation of such Property and (c) such
Lien does not extend to or cover any Property other than the specific item
of Property (or portion thereof) acquired, constructed or constituting the
improvements made with the proceeds of such Purchase Money Indebtedness;
(v) Liens to secure Acquired Indebtedness, provided that (a) such
Lien attaches to the acquired asset prior to the time of the acquisition of
such asset and (b) such Lien does not extend to or cover any other
Property;
(vi) Liens to secure Indebtedness Incurred to extend, renew,
refinance or refund (or successive extensions, renewals, refinancings or
refundings), in whole or in part, Indebtedness secured by any Lien referred
to in the foregoing clauses (i), (ii), (iv) and (v) so long as such Lien
does not extend to any other Property and the principal amount of
Indebtedness so secured is not increased except as otherwise permitted
under clause (v) of the second paragraph of Section 4.09 hereof (in the
case of Indebtedness of the Company) or clause (viii) of Section 4.10
hereof (in the case of Indebtedness of Restricted Subsidiaries);
(vii) Liens not otherwise permitted by the foregoing clauses (i)
through (vi) in an aggregate amount not to exceed 5% of the Company's
Consolidated Tangible Assets;
(viii) Liens granted after the Issue Date pursuant to the immediately
preceding paragraph to secure the Notes; and
(ix) Permitted Liens.
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SECTION 4.13 Limitation on Sale and Leaseback Transactions. The Company
---------------------------------------------
shall not, and shall not permit any of its Restricted Subsidiaries to, directly
or indirectly, enter into, assume, Guarantee or otherwise become liable with
respect to any Sale and Leaseback Transaction (other than a Sale and Leaseback
Transaction between the Company or a Restricted Subsidiary on the one hand and a
Restricted Subsidiary or the Company on the other hand), unless (i) the Company
or such Restricted Subsidiary, as the case may be, receives consideration at the
time of such Sale and Leaseback Transaction at least equal to the Fair Market
Value (as evidenced by a Board Resolution delivered to the Trustee) of the
Property subject to such transaction; (ii) the Attributable Indebtedness of the
Company or such Restricted Subsidiary with respect thereto is included as
Indebtedness and would be permitted by Section 4.09 hereof or Section 4.10
hereof, as the case may be; (iii) the Company or such Restricted Subsidiary
would be permitted to create a Lien on such Property without securing the Notes
by Section 4.12 hereof; and (iv) the Net Cash Proceeds from such transaction are
applied in accordance with Section 4.08 hereof; provided that the Company shall
be permitted to enter into Sale and Leaseback Transactions for up to $30 million
with respect to construction of the Company's headquarters buildings located in
Cedar Rapids, Iowa, provided that any such transaction is entered into within
180 days of the earlier of (x) substantial completion or (y) occupation of the
applicable phase of such headquarters building.
SECTION 4.14. Limitation on Dividends and Other Payment Restrictions
------------------------------------------------------
Affecting Subsidiaries. The Company shall not, and shall not permit any
- ----------------------
Restricted Subsidiary to, directly or indirectly, cause or suffer to exist or
become effective, or enter into, any encumbrance or restriction (other than
pursuant to law or regulation) on the ability of any Restricted Subsidiary (i)
to pay dividends or make any other distributions in respect of its Capital Stock
or pay any Indebtedness or other obligation owed to the Company or any
Restricted Subsidiary; (ii) to make loans or advances to the Company or any
Restricted Subsidiary; or (iii) to transfer any of its Property to the Company
or any other Restricted Subsidiary, except:
(a) any encumbrance or restriction existing as of the Issue Date or
any other agreement relating to any Existing Indebtedness or any
Indebtedness under a Qualified Receivable Facility otherwise permitted
under this Indenture;
(b) any encumbrance or restriction pursuant to an agreement relating
to an acquisition of Property, so long as the encumbrances or restrictions
in any such agreement relate solely to the Property so acquired;
(c) any encumbrance or restriction relating to any Indebtedness of any
Restricted Subsidiary existing on the date on which such Restricted
Subsidiary is acquired by the Company or another Restricted Subsidiary
(other than any such Indebtedness Incurred by such Restricted Subsidiary in
connection with or in anticipation of such acquisition);
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(d) any encumbrance or restriction pursuant to an agreement effecting
a permitted refinancing of Indebtedness issued pursuant to an agreement
referred to in the foregoing clauses (a) through (c), so long as the
encumbrances and restrictions contained in any such refinancing agreement
are not materially more restrictive than the encumbrances and restrictions
contained in such agreements;
(e) customary provisions (A) that restrict the subletting, assignment
or transfer of any property or asset that is a lease, license, conveyance
or contract or similar property or asset; (B) existing by virtue of any
transfer of, agreement to transfer, option or right with respect to, or
Lien on, any property or assets of the Company or any Restricted Subsidiary
not otherwise prohibited by the Indenture or (C) arising or agreed to in
the ordinary course of business, not relating to any Indebtedness, and that
do not, individually or in the aggregate, detract from the value of
property or assets of the Company or any Restricted Subsidiary in any
manner material to the Company or any Restricted Subsidiary;
(f) in the case of clause (iii) above, restrictions contained in any
security agreement (including a Capital Lease Obligation) securing
Indebtedness of the Company or a Restricted Subsidiary otherwise permitted
under the Indenture, but only to the extent such restrictions restrict the
transfer of the property subject to such security agreement; and
(g) any restriction with respect to a Restricted Subsidiary of the
Company imposed pursuant to an agreement which has been entered into for
the sale or disposition of all or substantially all of the Capital Stock or
assets of such Restricted Subsidiary, provided that the consummation of
such transaction would not result in an Event of Default or an event that,
with the passing of time or the giving of notice or both, would constitute
an Event of Default, that such restriction terminates if such transaction
is not consummated and that the consummation or abandonment of such
transaction occurs within one year of the date such agreement was entered
into.
Nothing contained in this Section 4.14 shall prevent the Company or any
other Restricted Subsidiary from (1) creating, incurring, assuming or suffering
to exist any Liens otherwise permitted under Section 4.12 hereof or (2)
restricting the sale or other disposition of property or assets of the Company
or any of its Restricted Subsidiaries that secure Indebtedness of the Company or
any of its Restricted Subsidiaries otherwise permitted under Section 4.09 hereof
or Section 4.10 hereof, as the case may be.
SECTION 4.15. Limitation on Issuance and Sale of Capital Stock of
---------------------------------------------------
Restricted Subsidiaries. The Company (i) shall not permit any Restricted
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Subsidiary to issue any Capital Stock other than to the Company or a Wholly-
Owned Restricted Subsidiary unless immediately after giving effect thereto such
Restricted Subsidiary would no longer constitute a Restricted Subsidiary and any
Investment of the Company or any other Restricted Subsidiary in such Restricted
Subsidiary would have been permitted under Section 4.11
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hereof if made on the date of such issuance and (ii) shall not permit any Person
other than the Company or a Wholly-Owned Restricted Subsidiary to own any
Capital Stock of any Restricted Subsidiary, other than directors' qualifying
shares and except for:
(a) a sale of 100% of the Capital Stock of a Restricted Subsidiary
sold in a transaction not prohibited by the covenant described under
Section 4.08 hereof;
(b) a sale of the Capital Stock of a Restricted Subsidiary sold in a
transaction not prohibited by the covenant described under Section 4.08
hereof if, after giving effect thereto, greater than 50% of the Capital
Stock of such Restricted Subsidiary is owned by the Company or by a Wholly-
Owned Restricted Subsidiary;
(c) Capital Stock of a Restricted Subsidiary issued and outstanding on
the Issue Date and held by Persons other than the Company or any Restricted
Subsidiary;
(d) Capital Stock of a Restricted Subsidiary issued and outstanding
prior to the time that such Person becomes a Restricted Subsidiary so long
as such Capital Stock was not issued in anticipation or contemplation of
such Person's becoming a Restricted Subsidiary or otherwise being acquired
by the Company;
(e) any Preferred Stock permitted to be issued under Section 4.10
hereof; and
(f) ownership by any Person other than the Company or a Subsidiary of
the Company of less than 50% of the Capital Stock of a Person (A) in which
the Company or a Restricted Subsidiary has made a Permitted Investment
pursuant to clause (iii) of the definition of "Permitted Investments" set
forth in Section 1.01 hereof, (B) of which more than 50% of such Person's
Capital Stock is owned, directly or indirectly, by the Company and (C) as
to which the Company has the power to direct the policies, management and
affairs.
SECTION 4.16. Transactions with Affiliates. The Company shall not, and
----------------------------
shall not permit any of its Restricted Subsidiaries to, directly or indirectly,
sell, lease, transfer, or otherwise dispose of, any of its Properties or assets
to, or purchase any Property or assets from, or enter into any contract,
agreement, understanding, loan, advance or Guarantee with or for the benefit of,
any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless (a)
such Affiliate Transaction or series of Affiliate Transactions is on terms that
are no less favorable to the Company or such Restricted Subsidiary than those
that would have been obtained in a comparable arm's-length transaction by the
Company or such Restricted Subsidiary with a Person that is not an Affiliate
(or, in the event that there are no comparable transactions involving Persons
who are not Affiliates of the Company or the relevant Restricted Subsidiary to
apply for comparative purposes, is otherwise on terms that, taken as a whole,
the Company has determined to be fair to the Company or the relevant Restricted
Subsidiary) and (b) the Company delivers to the Trustee (i) with respect to any
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Affiliate Transaction involving aggregate payments in excess of $1 million, a
certificate of the chief executive, operating or financial officer of the
Company evidencing such officer's determination that such Affiliate Transaction
or series of Affiliate Transactions complies with clause (a) above and is in the
best interests of the Company or such Restricted Subsidiary and (ii) with
respect to any Affiliate Transaction or series of Affiliate Transactions
involving aggregate payments in excess of $5 million, a Board Resolution
certifying that such Affiliate Transaction or series of Affiliate Transactions
complies with clause (a) above and that such Affiliate Transaction or series of
Affiliate Transactions has been approved by a majority of the disinterested
members of the Board of Directors who have determined that such Affiliate
Transaction or series of Affiliate Transactions is in the best interest of the
Company or such Restricted Subsidiary; provided that the following shall not be
deemed Affiliate Transactions:
(i) any employment agreement entered into by the Company or any of its
Restricted Subsidiaries in the ordinary course of business and consistent
with industry practice;
(ii) any agreement or arrangement with respect to the compensation of
a director or officer of the Company or any Restricted Subsidiary approved
by a majority of the disinterested members of the Board of Directors and
consistent with industry practice;
(iii) transactions between or among the Company and its Restricted
Subsidiaries;
(iv) transactions permitted by Section 4.11 hereof;
(v) transactions pursuant to any agreement or arrangement existing on
the Issue Date; and
(vi) transactions with respect to wireline or wireless transmission
capacity, the lease or sharing or other use of cable or fiberoptic lines,
equipment, rights-of-way or other access rights, between the Company or any
Restricted Subsidiary and any other Person; provided, in any case, that
such transaction is on terms that are no less favorable, taken as a whole,
to the Company or the relevant Restricted Subsidiary than those that could
have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with Persons who are not Affiliates of the Company or
the relevant Restricted Subsidiary (or, in the event that there are no
comparable transactions involving Persons who are not Affiliates of the
Company or the relevant Restricted Subsidiary to apply for comparative
purposes, is otherwise on terms that, taken as a whole, the Company has
determined to be fair to the Company or the relevant Restricted
Subsidiary).
SECTION 4.17. Restricted and Unrestricted Subsidiaries. (a) The Company
----------------------------------------
may designate a Subsidiary (including a newly formed or newly acquired
Subsidiary) of the
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Company or any of its Restricted Subsidiaries as an Unrestricted Subsidiary if
such Subsidiary does not have any obligations which, if in Default, would result
in a cross default on Indebtedness of the Company or a Restricted Subsidiary
(other than Indebtedness to the Company or a Wholly-Owned Restricted
Subsidiary), and (i) such Subsidiary has total assets of $1,000 or less, (ii)
such Subsidiary has assets of more than $1,000 and an Investment in such
Subsidiary in an amount equal to the Fair Market Value of such Subsidiary would
then be permitted under Section 4.11(a) hereof or (iii) such designation is
effective immediately upon such Person becoming a Subsidiary. Unless so
designated as an Unrestricted Subsidiary, any Person that becomes a Subsidiary
of the Company or any of its Restricted Subsidiaries shall be classified as a
Restricted Subsidiary thereof.
(b) The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, take any action or enter into any transaction or series of
transactions that would result in a Person (other than a newly formed Subsidiary
having no outstanding Indebtedness (other than Indebtedness to the Company or a
Restricted Subsidiary) at the date of determination) becoming a Restricted
Subsidiary (whether through an acquisition, the redesignation of an Unrestricted
Subsidiary or otherwise), unless, after giving effect to such action,
transaction or series of transactions on a pro forma basis, (i) the Company
could incur at least $1 of additional Indebtedness pursuant to Section 4.09(a)
hereof and (ii) no Default or Event of Default would occur.
(c) Subject to clause (b), an Unrestricted Subsidiary may be redesignated
as a Restricted Subsidiary. The designation of a Subsidiary as an Unrestricted
Subsidiary or the designation of an Unrestricted Subsidiary as a Restricted
Subsidiary in compliance with clause (b) shall be made by the Board of Directors
pursuant to a Board Resolution delivered to the Trustee and shall be effective
as of the date specified in such Board Resolution, which shall not be prior to
the date such Board Resolution is delivered to the Trustee.
SECTION 4.18. Reports. For as long as any Notes remain outstanding, the
-------
Company shall furnish to the Holders of the Notes and to securities analysts and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act. The Company
shall file with the Trustee within 15 days after it files them with the
Commission copies of the annual and quarterly reports and the information,
documents, and other reports that the Company is required to file with the
Commission pursuant to Section 13(a) or 15(d) of the Exchange Act ("SEC
Reports"). In the event the Company shall cease to be required to file SEC
Reports pursuant to the Exchange Act, the Company shall nevertheless continue to
file such reports with the Commission (unless the Commission shall not accept
such a filing) and in any event with the Trustee. The Company shall furnish
copies of the SEC Reports to the Holders of Notes at the time the Company is
required to file the same with the Trustee and will make such information
available to investors who request it in writing.
SECTION 4.19. Compliance Certificate; Notice of Default or Event of
-----------------------------------------------------
Default. The Company shall deliver to the Trustee within 120 calendar days
- -------
after the end of each fiscal
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year of the Company ending after the date hereof, an Officers' Certificate
stating whether or not, to the best knowledge of such officer, the Company has
complied with all conditions and covenants under this Indenture, and, if the
Company shall be in Default, specifying all such Defaults and the nature thereof
of which such officer may have knowledge.
For the purposes of this Section 4.19, compliance shall be determined
without regard to any period of grace or requirement of notice under this
Indenture.
The Company shall deliver written notice to the Trustee within 30 calendar
days after any executive officer of the Company becomes aware of the occurrence
of any event which constitutes, or with the giving of notice or the lapse of
time or both would constitute, a Default or Event of Default, describing such
Default or Event of Default, its status and what action the Company is taking or
proposes to take with respect thereto.
ARTICLE V.
CONSOLIDATION, MERGER, CONVEYANCE, LEASE OR TRANSFER
SECTION 5.01. Merger, Consolidation or Sale of Assets. The Company shall
---------------------------------------
not in any transaction or series of related transactions, consolidate with, or
merge with or into, any other Person or permit any other Person to merge with or
into the Company (other than a merger of a Restricted Subsidiary of the Company
into the Company in which the Company is the continuing corporation), or sell,
convey, assign, transfer, lease or otherwise dispose of all or substantially all
of the Property and assets of the Company and its Restricted Subsidiaries taken
as a whole to any other Person, unless:
(a) either (i) the Company shall be the continuing corporation or (ii)
the corporation (if other than the Company) formed by such consolidation or
into which the Company is merged, or the Person which acquires, by sale,
assignment, conveyance, transfer, lease or disposition, all or
substantially all of the Property and assets of the Company and its
Restricted Subsidiaries taken as a whole (any such corporation or Person
being the "Surviving Entity") shall be a corporation organized and validly
existing under the laws of the United States of America, any political
subdivision thereof, any state thereof or the District of Columbia, and
shall expressly assume, by an indenture supplemental hereto, executed and
delivered to the Trustee, in form reasonably satisfactory to the Trustee,
the due and punctual payment of the principal of (and premium, if any) and
interest on all the Notes and the performance of every covenant and
obligation in this Indenture on the part of the Company to be performed or
observed;
(b) immediately after giving effect to such transaction or series of
related transactions on a pro forma basis (including, without limitation,
any Indebtedness incurred or anticipated to be incurred in connection with
or in respect of such
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transaction or series of related transactions), no Default or Event of
Default shall have occurred and be continuing;
(c) immediately after giving effect to such transaction or series of
related transactions on a pro forma basis (including, without limitation,
any Indebtedness incurred or anticipated to be incurred in connection with
or in respect of such transaction or series of transactions), the Company
(or the Surviving Entity, if the Company is not continuing) would (A) be
permitted to Incur $1.00 of additional Indebtedness under Section 4.09(a)
hereof and (B) have a Consolidated Net Worth that is not less than the
Consolidated Net Worth of the Company immediately before such transaction
or series of transactions; and
(d) if, as a result of any such transaction, Property of the Company
would become subject to a Lien prohibited by the provisions of the
Indenture described under Section 4.12 hereof, the Company or the successor
entity to the Company shall have secured the Notes as required thereby.
In connection with any consolidation, merger, conveyance, lease or other
disposition contemplated by this Section 5.01, the Company shall deliver, or
cause to be delivered, to the Trustee, in form reasonably satisfactory to the
Trustee, an Officers' Certificate and an Opinion of Counsel, each stating that
such consolidation, merger, conveyance, lease or disposition and any
supplemental indenture in respect thereto comply with this Article V and that
all conditions precedent herein provided for relating to such transaction have
been complied with.
SECTION 5.02. Successor Corporation Substituted. Upon any consolidation
---------------------------------
with, or merger by the Company with or into, any other corporation, or any sale,
assignment, transfer, lease, conveyance or other disposition of all or
substantially all of the Property and assets of the Company and its Restricted
Subsidiaries taken as a whole in accordance with Section 5.01 hereof, the
successor corporation formed by such consolidation or into which the Company is
merged, or the Person to which such sale, conveyance, assignment, transfer,
lease, conveyance or other disposition is made, shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
this Indenture with the same effect as if such successor Person has been named
as the Company herein; and thereafter the predecessor corporation shall be
relieved of all obligations and covenants under this Indenture and the Notes,
except for the obligation to pay the principal of (and premium, if any) and
interest on the Notes.
ARTICLE VI.
DEFAULTS AND REMEDIES
SECTION 6.01. Events of Default. "Event of Default," wherever used herein
-----------------
with respect to the Notes, means any one of the following events (whatever the
reason for such
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event, and whether it shall be voluntary or involuntary, or be effected by
operation of law, pursuant to any judgment, decree or order of any court or any
order, rule or regulation of any administrative or governmental body):
(a) default in the payment of interest on any Note when the same
becomes due and payable, and the continuance of such Default for a period
of 30 calendar days; or
(b) default in the payment of the principal of (or premium, if any,
on) any Note when the same becomes due and payable whether upon Maturity,
optional redemption, required repurchase (including pursuant to a Change of
Control Offer or an Asset Sale Offer) or otherwise, or the failure to make
an offer to purchase any Note as herein required; or
(c) default in the performance, or breach, of any covenant or
agreement contained in Section 4.07, Section 4.08 or Article V hereof; or
(d) default in the performance, or breach, of any covenant or warranty
of the Company contained in this Indenture or the Notes (other than a
covenant or warranty addressed in Section 6.01(a), Section 6.01(b) or
Section 6.01(c) hereof), and the continuance of such Default or breach for
a period of 60 calendar days after written notice thereof has been given to
the Company by the Trustee or to the Company and the Trustee by the Holders
of at least 25 percent of the aggregate principal amount of the outstanding
Notes specifying such Default and stating that such notice is a "Notice of
Default" delivered in connection with this Indenture; or
(e) a default or defaults under any bond, debenture, note or other
evidence of Indebtedness by the Company or any Restricted Subsidiary of the
Company (or under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any
Indebtedness by the Company or any such Restricted Subsidiary) having,
individually or in the aggregate, a principal or similar amount outstanding
of at least $10 million, whether such indebtedness now exists or shall
hereafter be created, which default or defaults shall have resulted in the
acceleration of the maturity of such Indebtedness prior to its express
maturity or shall constitute a failure to pay such Indebtedness when due
and payable after the expiration of any applicable grace period with
respect thereto or shall have resulted in such Indebtedness becoming or
being declared due and payable; or
(f) a final judgment or final judgments for the payment of money
(other than to the extent covered by insurance as to which the insurance
company has acknowledged coverage and other than to the extent covered by
an indemnity given by an insurance company) is entered against the Company
or any Restricted Subsidiary of the Company in an aggregate amount in
excess of $10 million by a court or courts
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of competent jurisdiction, which judgment is not discharged, waived,
stayed, bonded or satisfied for a period of 45 consecutive calendar days;
or
(g) the entry by a court having jurisdiction in the premises of (i) a
decree or order for relief in respect of the Company or any Restricted
Subsidiary of the Company in an involuntary case or proceeding under United
States bankruptcy laws, as now or hereafter constituted, or any other
applicable Federal, state, or foreign bankruptcy, insolvency, or other
similar law or (ii) a decree or order adjudging the Company or any
Restricted Subsidiary of the Company a bankrupt or insolvent, or approving
as properly filed a petition seeking reorganization, arrangement,
adjustment or composition of, or in respect of, the Company or any
Restricted Subsidiary of the Company under United States bankruptcy laws,
as now or hereafter constituted, or any other applicable Federal, state or
foreign bankruptcy, insolvency, or similar law, or appointing a custodian,
receiver, liquidator, assignee, trustee, sequestrator or other similar
official of the Company or any Restricted Subsidiary of the Company or of
any substantial part of the Property or assets of the Company or any
Restricted Subsidiary of the Company, or ordering the winding-up or
liquidation of the affairs of the Company or any Restricted Subsidiary of
the Company, and the continuance of any such decree or order for relief or
any such other decree or order unstayed and in effect for a period of 60
consecutive calendar days; or
(h) the commencement by the Company or any Restricted Subsidiary of
the Company of a voluntary case or proceeding under United States
bankruptcy laws, as now or hereafter constituted, or any other applicable
Federal, state, or foreign bankruptcy, insolvency or other similar law or
of any other case or proceeding to be adjudicated a bankrupt or insolvent;
or (ii) the consent by the Company or any Restricted Subsidiary of the
Company to the entry of a decree or order for relief in respect of the
Company or any Restricted Subsidiary of the Company in an involuntary case
or proceeding under United States bankruptcy laws, as now or hereafter
constituted, or any other applicable Federal, state, or foreign bankruptcy,
insolvency, or other similar law or to the commencement of any bankruptcy
or insolvency case or proceeding against the Company or any Restricted
Subsidiary of the Company; or (iii) the filing by the Company or any
Restricted Subsidiary of the Company of a petition or answer or consent
seeking reorganization or relief under United States bankruptcy laws, as
now or hereafter constituted, or any other applicable Federal, state or
foreign bankruptcy, insolvency or other similar law; or (iv) the consent by
the Company or any Restricted Subsidiary of the Company to the filing of
such petition or to the appointment of or taking possession by a custodian,
receiver, liquidator, assignee, trustee, sequestrator or similar official
of the Company or any Restricted Subsidiary of the Company or of any
substantial part of the Property or assets of the Company or any Restricted
Subsidiary of the Company, or the making by the Company or any Restricted
Subsidiary of the Company of an assignment for the benefit of creditors; or
(v) the admission by the Company or any Restricted Subsidiary of the
Company in writing of its inability to pay its debts
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generally as they become due; or (vi) the taking of corporate action by the
Company or any Restricted Subsidiary of the Company in furtherance of any
such action.
SECTION 6.02. Acceleration. If any Event of Default (other than an Event
------------
of Default specified in Section 6.01(g) or Section 6.01(h) hereof) occurs and is
continuing, then and in every such case, the Trustee by a notice in writing to
the Company may, and at the direction of the Holders of not less than 25 percent
of the outstanding aggregate principal amount of Notes by a notice in writing to
the Company and the Trustee, shall declare the Default Amount and any accrued
and unpaid interest on all Notes then outstanding to be immediately due and
payable. Upon any such declaration, such Default Amount and any accrued and
unpaid interest on all Notes then outstanding will become and be immediately due
and payable.
If an Event of Default specified in Section 6.01(g) or Section 6.01(h)
hereof occurs, the Default Amount and any accrued and unpaid interest on all
Notes then outstanding shall ipso facto become and be immediately due and
payable without any declaration or other act on the part of the Trustee or any
Holder of Notes.
In the event of a declaration of acceleration because an Event of Default
set forth in Section 6.01(e) hereof has occurred and is continuing, such
declaration of acceleration shall be automatically rescinded and annulled if the
event of default triggering such Event of Default pursuant to Section 6.01(e)
hereof shall be remedied, or cured, or waived by the holders of the relevant
Indebtedness, within 60 calendar days after such event of default; provided no
judgment or decree for the payment of the money due on the Notes has been
obtained by the Trustee as hereinafter in this Article VI provided.
At any time after a declaration of acceleration with respect to Notes has
been made and before a judgment or decree for payment of the money due has been
obtained by the Trustee as hereinafter in this Article VI provided, the Holders
of a majority in principal amount of the outstanding Notes, by written notice to
the Company and the Trustee, may rescind and annul such declaration and its
consequences if,
(a) the Company has paid or deposited with the Trustee a sum
sufficient to pay:
(i) all overdue installments of interest on all Notes,
(ii) the principal of (and premium, if any, on) any Notes which have
become due otherwise than by such declaration of acceleration and interest
thereon at the rate or rates prescribed therefor in such Notes,
(iii) to the extent that payment of such interest is lawful, interest
on the Defaulted Interest at the rate prescribed therefor in the Notes and
this Indenture, and
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(iv) all moneys paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel and all other amounts due to the Trustee
pursuant to Section 7.07 hereof; and
(b) all Events of Default with respect to the Notes, other than the
non-payment of the principal of Notes which have become due solely by such
declaration of acceleration, have been cured or waived by the Holders as
provided herein.
No such rescission shall affect any subsequent Default or impair any right
consequent thereon.
SECTION 6.03. Other Remedies. The Company covenants that if an Event of
--------------
Default specified in Section 6.01(a) or Section 6.01(b) hereof occurs the
Company shall, upon demand of the Trustee, pay to the Trustee, for the benefit
of the Holders, the whole amount then due and payable on the Notes for principal
(and premium, if any) and interest and, to the extent that payment of such
interest shall be legally enforceable, interest upon the overdue principal (and
premium, if any) and upon Defaulted Interest, at the rate or rates prescribed
therefor in such Notes; and, in addition thereto, such further amount as shall
be sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel and all other amounts due to the Trustee pursuant to
Section 7.07 hereof.
If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name and as trustee of an express trust, may and, at the
direction of the Holders of not less than a majority of the outstanding
aggregate principal amount of the Notes, shall institute a judicial proceeding
for the collection of the sums so due and unpaid, and may prosecute such
proceeding to judgment or final decree, and may enforce the same against the
Company or any other obligor upon such Notes and collect the moneys adjudged or
decreed to be payable in the manner provided by law out of the Property and
assets of the Company or any other obligor upon such Notes, wherever situated.
If an Event of Default with respect to the Notes occurs and is continuing,
the Trustee may in its discretion proceed to protect and enforce its rights and
the rights of the Holders by such appropriate judicial proceedings as the
Trustee shall deem most effectual to protect and enforce any such rights,
whether for the specific enforcement of any covenant or agreement in this
Indenture or in aid of the exercise of any power granted herein, or to enforce
any other proper remedy.
SECTION 6.04. Waiver of Past Defaults. The Holders of not less than a
-----------------------
majority in principal amount of the outstanding Notes may, on behalf of the
Holders of all the Notes, waive any past Default and its consequences under this
Article VI, except a Default (a) in the payment of the principal of (or
premium, if any) or interest on, any Note, or (b) in respect
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of a covenant or provision hereof which under Section 9.02 hereof cannot be
modified or amended without the consent of the Holders of each outstanding Note
affected.
SECTION 6.05. Control by Majority. The Holders of not less than a
-------------------
majority in principal amount of the outstanding Notes shall have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee; provided that
(a) such direction shall not be in conflict with any rule of law or
with this Indenture or unduly prejudicial to the rights of other Holders
and would not subject the Trustee to personal liability, and
(b) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction.
SECTION 6.06. Limitation on Suits. No Holder of Notes shall have any
-------------------
right to institute any proceeding, judicial or otherwise, with respect to this
Indenture, or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless:
(a) such Holder has previously given written notice to the Trustee of
a continuing Event of Default with respect to the Notes;
(b) the Holders of not less than 25 percent in principal amount of the
outstanding Notes shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name
as Trustee hereunder;
(c) such Holder or Holders have offered and, if requested, provided to
the Trustee security or indemnity satisfactory to the Trustee in its
reasonable discretion against the costs, expenses and liabilities to be
incurred in compliance with such request;
(d) the Trustee for 30 calendar days after its receipt of such notice,
request and offer of indemnity has failed to institute any such proceeding;
and
(e) no direction inconsistent with such written request has been given
to the Trustee during such 30-day period by the Holders of a majority in
principal amount of the outstanding Notes;
in any event, it being understood and intended that no one or more Holders of
Notes shall have any right in any manner whatever by virtue of, or by availing
of, any provision of this Indenture to affect, disturb or prejudice the rights
of any other Holders of Notes, or to obtain or to seek to obtain priority or
preference over any other of such Holders or to enforce any
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right under this Indenture, except in the manner herein provided and for the
equal and ratable benefit of all Holders of Notes.
SECTION 6.07. Rights of Holders to Receive Payment. Notwithstanding any
------------------------------------
other provision of this Indenture, the right of any Holder to receive payment of
principal of (premium, if any) and interest on the Notes held by such Holder, on
or after the respective due dates expressed in the Notes or the redemption dates
or purchase dates provided for therein, or to bring suit for the enforcement of
any such payment on or after such respective dates, shall be absolute and
unconditional and shall not be impaired or affected without the consent of such
Holder.
SECTION 6.08. Trustee May File Proofs of Claim. In case of the pendency
--------------------------------
of any receivership, insolvency, liquidation, bankruptcy, reorganization,
arrangement, adjustment, composition or other judicial proceedings, or any
voluntary or involuntary case under United States bankruptcy laws, as now or
hereafter constituted, relative to the Company or any other obligor upon the
Notes or the Property and assets of the Company or of such other obligor or
their creditors, the Trustee (irrespective of whether the principal of such
Notes shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company for the payment of overdue principal or interest) shall be entitled
and empowered, by intervention in such proceeding or otherwise, (i) to file and
prove a claim for the whole amount of principal (and premium, if any) and
interest owing and unpaid in respect of the Notes, to file such other papers or
documents and to take such other actions, including participating as a member or
otherwise in any official committee of creditors appointed in the matter, as may
be necessary or advisable in order to have the claims of the Trustee (including
any claim for the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel and all other amounts due to the Trustee
pursuant to Section 7.07 hereof) and of the Holders allowed in such judicial
proceeding, and (ii) to collect and receive any moneys or other Property payable
or deliverable on any such claims and to distribute the same; and any receiver,
assignee, trustee, custodian, liquidator, sequestrator (or other similar
official) in any such proceeding is hereby authorized by each Holder to make
such payments to the Trustee, and in the event that the Trustee shall consent to
the making of such payments directly to the Holders, to pay to the Trustee any
amount due it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and any other amounts due the
Trustee under Section 7.07 hereof. Nothing contained herein shall be deemed to
authorize the Trustee to authorize or consent to or accept or adopt on behalf of
any Holder any plan of reorganization, arrangement, adjustment or composition
affecting the Notes or the rights of any Holder thereof, or to authorize the
Trustee to vote in respect of the claim of any Holder in any such proceeding.
SECTION 6.09. Priorities. Any money collected by the Trustee pursuant to
----------
this Article VI shall be applied in the following order, at the date or dates
fixed by the Trustee and, in case of the distribution of such money on account
of principal (premium, if any) or
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interest, upon presentation of the Notes and the notation thereon of the payment
if only partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under Section
7.07 hereof;
SECOND: To the payment of the amounts then due and unpaid for
principal of (and premium, if any) and interest on the Notes, ratably,
without preference or priority of any kind, according to the amounts due
and payable on such Notes for principal (and premium, if any) and interest,
respectively; and
THIRD: To the Company.
The Trustee may fix a record date and payment date for any payment to
Holders pursuant to this Section 6.09. At least 15 calendar days before such
record date, the Company shall mail to each Holder and the Trustee a notice that
states such record date, the payment date and amount to be paid. The Trustee
may mail such notice in the name and at the expense of the Company.
SECTION 6.10. Undertaking for Costs. All parties to this Indenture agree,
---------------------
and each Holder of any Note by such Holder's acceptance thereof shall be deemed
to have agreed, that any court may in its discretion require, in any suit for
the enforcement of any right or remedy under this Indenture, or in any suit
against the Trustee for any action taken, suffered or omitted by it as Trustee,
the filing by any party litigant in such suit of an undertaking to pay the costs
of such suit and that such court may in its discretion assess reasonable costs,
including reasonable attorneys' fees, against any party litigant in such suit,
having due regard to the merits and good faith of the claims or defenses made by
such party litigant; but the provisions of this Section shall not apply to any
suit instituted by the Trustee, to any suit instituted by any Holder, or group
of Holders, holding in the aggregate more than 10 percent in principal amount of
the outstanding Notes, or to any suit instituted by any Holder for the
enforcement of the payment of the principal of (or premium, if any) or interest
on any Note on or after its Stated Maturity.
SECTION 6.11. Waiver of Stay or Extension Laws. The Company (to the
--------------------------------
extent it may lawfully do so) shall not at any time insist upon, or plead, or in
any manner whatsoever claim or take the benefit or advantage of, any stay or
extension law wherever enacted, now or at any time hereafter in force, which may
affect the covenants or the performance of this Indenture; and the Company (to
the extent that it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law, and shall not hinder, delay or impede the execution
of any power herein granted to the Trustee, but shall suffer and permit the
execution of every such power as though no such law had been enacted.
SECTION 6.12. Trustee May Enforce Claims Without Possession of the Notes.
----------------------------------------------------------
All rights of action and claims under this Indenture or the Notes may be
prosecuted and enforced
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by the Trustee without the possession of any of the Notes or the production
thereof in any proceeding relating thereto, and any such proceeding instituted
by the Trustee shall be brought in its own name, as trustee of an express trust,
and any recovery of judgment shall, after provision for the payment of the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel, be for the ratable benefit of the Holders of the Notes.
SECTION 6.13. Restoration of Rights and Remedies. If the Trustee or any
----------------------------------
Holder of Notes has instituted any proceeding to enforce any right or remedy
under this Indenture and such proceeding has been discontinued or abandoned for
any reason, or has been determined adversely to the Trustee or to such Holder,
then and in every such case the Company, the Trustee and the Holders shall,
subject to any determination in such proceeding, be restored severally and
respectively to their former positions hereunder, and thereafter all rights and
remedies of the Trustee and the Holders shall continue as though no such
proceeding had been instituted.
SECTION 6.14. Rights and Remedies Cumulative. Except as otherwise
------------------------------
provided in Section 2.09 hereof, no right or remedy herein conferred upon or
reserved to the Trustee or to the Holders is intended to be exclusive of any
other right or remedy, and every right and remedy shall, to the extent permitted
by law, be cumulative and in addition to every other right and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy.
SECTION 6.15. Delay or Omission Not Waiver. No delay or omission of the
----------------------------
Trustee or of any Holder of any Note to exercise any right or remedy accruing
upon any Event of Default shall impair any such right or remedy or constitute a
waiver of any such Event of Default or an acquiescence therein. Every right and
remedy given by this Article VI or by law to the Trustee or to the Holders may
be exercised from time to time, and as often as may be deemed expedient, by the
Trustee or by the Holders, as the case may be.
ARTICLE VII.
TRUSTEE
SECTION 7.01. Duties of Trustee. (a) If an Event of Default has occurred
-----------------
and is continuing, the Trustee shall exercise the rights and powers vested in it
by this Indenture and shall use the same degree of care and skill in their
exercise as a prudent person would exercise or use under the circumstances in
the conduct of such person's own affairs.
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(b) Except during the continuance of an Event of Default of which a Trust
Officer has actual knowledge: (i) the Trustee undertakes to perform such duties
and only such duties as are specifically set forth in this Indenture and no
implied covenants or obligations shall be read into this Indenture against the
Trustee; and (ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture; provided that in
the case of any such certificates or opinions that by any provision of this
Indenture are specifically required to be furnished to the Trustee, the Trustee
shall examine such certificates and opinions to determine whether or not they
conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own negligent
action, its own negligent failure to act or its own willful misconduct; provided
that: (i) this paragraph (c) shall not limit the effect of paragraph (b) of this
Section 7.01; (ii) the Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and (iii) the Trustee shall not
be liable with respect to any action it takes or omits to take in good faith in
accordance with a direction received by it pursuant to Section 6.05 hereof.
(d) Money held in trust by the Trustee need not be segregated from other
funds except to the extent required by law.
(e) No provision of this Indenture shall require the Trustee to expend or
risk its own funds or otherwise incur any financial liability in the performance
of any of its duties hereunder, or in the exercise of any of its rights or
powers, if it shall have reasonable grounds for believing that repayment of such
funds or adequate indemnity against such risk of liability is not reasonably
assured to it.
(f) Every provision of this Indenture relating to the conduct or affecting
the liability of or affording protection to the Trustee shall be subject to the
provisions of this Article VII and to the provisions of the Trust Indenture Act.
SECTION 7.02. Rights of Trustee. The Trustee may rely on any document
-----------------
believed by it to be genuine and to have been signed or presented by the proper
Person. Except as provided in Section 7.01(b) hereof, the Trustee need not
investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel. The Trustee shall not be liable
for any action it takes or omits to take in good faith in reliance on any
Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through agents and shall not be responsible for
the misconduct or negligence of any such agent; provided that such agent was
appointed with due care by the Trustee.
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(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith which it believes to be authorized or within its rights or
powers; provided that the Trustee's conduct does not constitute willful
misconduct or gross negligence.
(e) The Trustee shall not be charged with knowledge of any Default or
Event of Default under Section 6.01(c), 6.01(d), 6.01(e) or 6.01(f) hereof, of
the identity of any Restricted Subsidiary or of the existence of any Change of
Control or Asset Sale unless either (i) a Trust Officer shall have actual
knowledge thereof, or (ii) the Trustee shall have received notice thereof in
accordance with Section 10.02 hereof from the Company or any Holder of Notes.
(f) The Trustee may consult with counsel and the written advice of such
counsel or any Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in reliance thereon.
(g) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture or
other paper or document, but the Trustee, in its discretion may make such
further inquiry or investigation into such facts or matters as it may see fit,
and, if the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, records and premises
of the Company, personally or by agent or attorney.
(h) The Trustee shall not be liable for any action it takes or omits to
take in good faith in accordance with the direction of the Holders of a majority
of the aggregate outstanding principal amount of Notes relating to the time,
method and place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred upon the Trustee, under this
Indenture.
SECTION 7.03. Individual Rights of Trustee. The Trustee, any Paying Agent
----------------------------
or Note Registrar, in its individual or any other capacity, may become the owner
or pledgee of Notes and may otherwise deal with the Company or its Affiliates
with the same rights it would have if it were not Trustee, Paying Agent or Note
Registrar hereunder, as the case may be; provided that the Trustee must in any
event comply with Sections 7.10 and 7.11 hereof.
SECTION 7.04. Trustee's Disclaimer. The Trustee shall not be responsible
--------------------
for and makes no representation as to the validity or adequacy of this Indenture
or the Notes, it shall not be accountable for the Company's use of the proceeds
from the Notes, and it shall not be responsible (a) for any statement of the
Company in this Indenture, including the recitals contained herein, or in any
document issued in connection with the sale of the Notes or in the Notes other
than the Trustee's certificate of authentication or (b) for compliance by the
Company with the Registration Agreement.
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SECTION 7.05. Notice of Defaults. Within 90 calendar days after the
------------------
occurrence of any Default hereunder known to a Trust Officer with respect to the
Notes, the Trustee shall transmit by mail to all Holders, as their names and
addresses appear in the Note Register, notice of such Default hereunder known to
the Trustee, unless such Default shall have been cured or waived; provided that,
except in the case of a Default in the payment of the principal of (or premium,
if any) or interest on any Note, the Trustee shall be protected in withholding
such notice if and so long as the board of directors, the executive committee or
a trust committee of directors and/or Trust Officers of the Trustee in good
faith determine that the withholding of such notice is in the interest of the
Holders.
SECTION 7.06. Preservation of Information; Reports by Trustee to Holders.
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(a) The Company shall furnish or cause to be furnished to the Trustee:
(i) semiannually, not less than 10 calendar days prior to each
Interest Payment Date, a list, in such form as the Trustee may reasonably
require, of the names and addresses of the Holders as of the Regular Record
Date immediately preceding such Interest Payment Date, and
(ii) at such other times as the Trustee may request in writing, within
30 calendar days after the receipt by the Company of any such request, a
list of similar form and content as of a date not more than 15 calendar
days prior to the time such list is furnished;
provided that if and so long as the Trustee shall be the Note Registrar for the
Notes, no such list need be furnished with respect to the Notes.
(b) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 7.06(a) hereof and the
names and addresses of Holders received by the Trustee in its capacity as Note
Registrar, if so acting. The Trustee may destroy any list furnished to it as
provided in Section 7.06(a) hereof upon receipt of a new list so furnished.
(c) Holders may communicate as provided in Section 312(b) of the Trust
Indenture Act with other Holders with respect to their rights under this
Indenture or under the Notes.
(d) Each Holder of Notes, by receiving and holding the same, agrees with
the Company and the Trustee that neither the Company nor the Trustee shall be
held accountable by reason of the disclosure of any such information as to the
names and addresses of the Holders in accordance with this Section 7.06,
regardless of the source from which such information was derived, and that the
Trustee shall not be held accountable by reason of mailing any material pursuant
to a request made under this Section 7.06.
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(e) Within 60 calendar days after April 15 of each year commencing with
the year 1998, the Trustee shall transmit by mail to all Holders of Notes, a
brief report dated as of such April 15 if and to the extent required under
Section 313(a) of the Trust Indenture Act.
(f) The Trustee shall comply with Sections 313(b) and 313(c) of the Trust
Indenture Act.
(g) A copy of each report described in Section 7.06(e) hereof shall, at
the time of its transmission to Holders, be filed by the Trustee with each stock
exchange, if any, upon which the Notes are then listed, with the Commission and
also with the Company. The Company shall promptly notify the Trustee of any
stock exchange upon which the Notes are listed.
SECTION 7.07. Compensation and Indemnity. The Company shall pay to the
--------------------------
Trustee from time to time reasonable compensation for its services. The Company
shall reimburse the Trustee upon request for all reasonable out-of-pocket
expenses incurred or made by it, including costs of collection, in addition to
the compensation for its services. Such expenses shall include the reasonable
compensation and expenses, disbursements and advances of the Trustee's agents
and counsel. The Trustee's compensation shall not be limited by any law on
compensation of a trustee of an express trust.
The Company shall indemnify the Trustee for, and hold it harmless against,
any and all loss, liability or expense (including reasonable attorneys' fees)
arising out of or incurred by it in connection with the acceptance or
administration of the trust created by this Indenture and the performance of its
duties hereunder, except as set forth in the next paragraph. The Trustee shall
notify the Company promptly of any claim for which it may seek indemnity.
Failure by the Trustee to so notify the Company shall not relieve the Company of
its obligations hereunder. The Company shall defend any such claim and the
Trustee shall cooperate in the defense of such claim. The Trustee may have
separate counsel and the Company shall pay the reasonable fees and expenses of
such counsel. The Company need not pay for any settlement made without its
consent, which consent shall not be unreasonably withheld.
The Company need not reimburse any expense or indemnify against any loss,
liability or expense incurred by the Trustee through the Trustee's own willful
misconduct, negligence or bad faith.
To secure the Company's payment obligations in this Section 7.07, the
Trustee shall have a Lien prior to the Notes on all money or property held or
collected by the Trustee other than money or property held in trust to pay
principal of, premium, if any, and interest on, particular Notes.
The Company's payment obligations pursuant to this Section 7.07 shall
survive the resignation or removal of the Trustee and discharge of this
Indenture. Subject to any other
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rights available to the Trustee under applicable bankruptcy law, when the
Trustee incurs expenses after the occurrence of a Default specified in Section
6.01(g) or Section 6.01(h) hereof, the expenses are intended to constitute
expenses of administration under bankruptcy law.
SECTION 7.08. Replacement of Trustee. (a) No resignation or removal of the
----------------------
Trustee and no appointment of a successor Trustee pursuant to this Article VII
shall become effective until the acceptance of appointment by the successor
Trustee under this Section 7.08.
(b) The Trustee may resign at any time by giving written notice thereof to
the Company. If an instrument of acceptance by a successor Trustee shall not
have been delivered to the Trustee within 30 calendar days after the giving of
such notice of resignation, the resigning Trustee may petition any court of
competent jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of a
majority in principal amount of the outstanding Notes, delivered to the Trustee
and to the Company.
(d) If at any time:
(i) the Trustee shall fail to comply with Section 310(b) of the
Trust Indenture Act after written request therefor by the Company or by any
Holder who has been a bona fide Holder of a Note for at least six months,
unless the Trustee's duty to resign is stayed in accordance with the
provisions of Section 310(b) of the Trust Indenture Act; or
(ii) the Trustee shall cease to be eligible under Section 7.10
hereof and shall fail to resign after written request therefor by the
Company or by any such Holder; or
(iii) the Trustee shall become incapable of acting or a decree or
order for relief by a court having jurisdiction in the premises shall have
been entered in respect of the Trustee in an involuntary case under the
United States bankruptcy laws, as now or hereafter constituted, or any
other applicable Federal or state bankruptcy, insolvency or similar law; or
a decree or order by a court having jurisdiction in the premises shall have
been entered for the appointment of a receiver, custodian, liquidator,
assignee, trustee, sequestrator (or other similar official) of the Trustee
or of its Property and assets or affairs, or any public officer shall take
charge or control of the Trustee or of its Property and assets or affairs
for the purpose of rehabilitation, conservation, winding up or liquidation;
or
(iv) the Trustee shall commence a voluntary case under the United
States bankruptcy laws, as now or hereafter constituted, or any other
applicable Federal or
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state bankruptcy, insolvency or similar law or shall consent to the
appointment of or taking possession by a receiver, custodian, liquidator,
assignee, trustee, sequestrator (or other similar official) of the Trustee
or its Property and assets or affairs, or shall make an assignment for the
benefit of creditors, or shall admit in writing its inability to pay its
debts generally as they become due, or shall take corporate action in
furtherance of any such action,
then, in any such case, (i) the Company by a Board Resolution may remove the
Trustee with respect to the Notes, or (ii) subject to Section 6.10 hereof, any
Holder who has been a bona fide Holder of a Note for at least six months may, on
behalf of such Holder and all others similarly situated, petition any court of
competent jurisdiction for the removal of the Trustee and the appointment of a
successor Trustee for the Notes.
(e) If the Trustee shall resign, be removed or become incapable of acting,
or if a vacancy shall occur in the office of Trustee for any cause, the Company,
by or pursuant to a Board Resolution, shall promptly appoint a successor
Trustee. If, within one year after such resignation, removal or incapability, or
the occurrence of such vacancy, a successor Trustee shall be appointed by the
Holders of a majority in principal amount of the outstanding Notes delivered to
the Company and the retiring Trustee, the successor Trustee so appointed shall,
forthwith upon its acceptance of such appointment in accordance with this
Section 7.08, become the successor Trustee and to that extent replace any
successor Trustee appointed by the Company. If no successor Trustee shall have
been so appointed by the Company or the Holders and shall have accepted
appointment in the manner hereinafter provided, any Holder that has been a bona
fide Holder of a Note for at least six months may, subject to Section 6.10
hereof, on behalf of himself and all others similarly situated, petition any
court of competent jurisdiction for the appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each removal of
the Trustee and each appointment of a successor Trustee by mailing written
notice of such resignation, removal and appointment by first class mail, postage
prepaid, to the Holders as their names and addresses appear in the Note
Register. Each notice shall include the name of the successor Trustee with
respect to the Notes and the address of its Corporate Trust Office.
(g) In the event of an appointment hereunder of a successor Trustee, each
such successor Trustee so appointed shall execute, acknowledge and deliver to
the Company and to the retiring Trustee an instrument accepting such
appointment, and thereupon the resignation or removal of the retiring Trustee
shall become effective and such successor Trustee, without any further act, deed
or conveyance, shall become vested with all the rights, powers, trusts and
duties of the retiring Trustee but, on request of the Company or the successor
Trustee, such retiring Trustee shall, upon payment of its charges, execute and
deliver an instrument transferring to such successor Trustee all the rights,
powers and trusts of the retiring Trustee, and shall duly assign, transfer and
deliver to such successor Trustee
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all Property and money held by such former Trustee hereunder, subject to its
Lien, if any, provided for in Section 7.07 hereof.
(h) Upon request of any such successor Trustee, the Company shall execute
any and all instruments for more fully and certainly vesting in and confirming
to such successor Trustee all such rights, powers and trusts referred to in
Section 7.08(g) hereof.
(i) No successor Trustee shall accept its appointment unless at the time
of such acceptance such successor Trustee shall be qualified and eligible under
this Article VII and under the Trust Indenture Act.
SECTION 7.09. Successor Trustee by Merger. Any corporation into which the
---------------------------
Trustee may be merged or converted or with which it may be consolidated, or any
corporation resulting from any merger, conversion or consolidation to which the
Trustee shall be a party, or any corporation succeeding to all or substantially
all of the corporate trust business of the Trustee, shall be the successor of
the Trustee hereunder; provided that such corporation shall be otherwise
qualified and eligible under this Article VII and under the Trust Indenture Act,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Notes shall have been authenticated, but
not delivered, by the Trustee then in office, any successor by merger,
conversion or consolidation to such authenticating Trustee may adopt such
authentication and deliver the Notes so authenticated with the same effect as if
such successor Trustee had itself authenticated such Notes. In the event that
any Notes shall not have been authenticated by such predecessor Trustee, any
such successor Trustee may authenticate and deliver such Notes, in either its
own name or that of its predecessor Trustee, with the full force and effect
which this Indenture provides for the certificate of authentication of the
Trustee.
SECTION 7.10. Eligibility; Disqualification. There shall at all times be
-----------------------------
a Trustee hereunder which shall be
(i) a corporation organized and doing business under the laws of the
United States of America, any State or Territory thereof or the District of
Columbia, authorized under such laws to exercise corporate trust powers,
and subject to supervision or examination by Federal, State, Territorial or
District of Columbia authority, or
(ii) a corporation or other Person organized and doing business under
the laws of a foreign government that is permitted to act as Trustee
pursuant to a rule, regulation or order of the Commission, authorized under
such laws to exercise corporate trust powers, and subject to supervision or
examination by authority of such foreign government or a political
subdivision thereof substantially equivalent to supervision or examination
applicable to United States institutional trustees,
in either case having a combined capital and surplus of at least $25,000,000.
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If such Person publishes reports of condition at least annually, pursuant
to law or to the requirements of the aforesaid supervising or examining
authority, then for the purposes of this Section 7.10, the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published.
Neither the Company nor any Affiliate of the Company shall serve as Trustee
hereunder. If at any time the Trustee shall cease to be eligible to serve as
Trustee hereunder pursuant to the provisions of this Section 7.10, it shall
resign immediately in the manner and with the effect specified in this Article
VII.
If the Trustee has or shall acquire any "conflicting interest" within the
meaning of Section 310(b) of the Trust Indenture Act, the Trustee and the
Company shall in all respects comply with the provisions of Section 310(b) of
the Trust Indenture Act. Nothing herein shall prevent the Trustee from filing
with the Commission the application referred to in the penultimate paragraph of
Section 310(b) of the Trust Indenture Act.
SECTION 7.11. Preferential Collection of Claims Against Company. The
-------------------------------------------------
Trustee shall comply with Section 311(a) of the Trust Indenture Act, excluding
any creditor relationship listed in Section 311(b) of the Trust Indenture Act.
A Trustee who has resigned or been removed shall be subject to Section 311(a) of
the Trust Indenture Act to the extent indicated therein.
ARTICLE VIII.
DEFEASANCE
SECTION 8.01. Company's Option to Effect Legal Defeasance or Covenant
-------------------------------------------------------
Defeasance. The Company may elect, at its option, at any time, to have Section
- ----------
8.02 or Section 8.03 hereof applied to the outstanding Notes (in whole and not
in part) upon compliance with the conditions set forth below in this Article
VIII. Such election shall be evidenced by a Board Resolution delivered to the
Trustee.
SECTION 8.02 Legal Defeasance and Discharge. Upon the Company's
------------------------------
exercise of its option to have this Section 8.02 applied to the outstanding
Notes (in whole and not in part), the Company shall be deemed to have been
discharged from its obligations with respect to such Notes as provided in this
Section 8.02 on and after the date the conditions set forth in Section 8.04
hereof are satisfied (hereinafter called "Defeasance"). For this purpose, such
Defeasance means that the Company shall be deemed to have paid and discharged
the entire indebtedness represented by such Notes and to have satisfied all its
other obligations under such Notes and this Indenture insofar as such Notes are
concerned (and the Trustee, at the expense of the Company, shall execute proper
instruments acknowledging the same), subject to the following which shall
survive until otherwise terminated or discharged hereunder:
(a) the rights of Holders of such Notes to receive, solely from the
trust fund described in Section 8.04 hereof and as more fully set forth in such
Section 8.04, payments
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in respect of the principal of and any premium and interest on such Notes when
such payments are due,
(b) the Company's obligations with respect to such Notes under Sections
2.09, 2.10, 2.12, 4.02 and 4.03 hereof,
(c) the rights, powers, trusts, duties and immunities of the Trustee
under this Indenture,
(d) Article III hereof, and
(e) this Article VIII.
Subject to compliance with this Article VIII, the Company may exercise its
option to have this Section 8.02 applied to the outstanding Notes (in whole and
not in part) notwithstanding the prior exercise of its option to have Section
8.03 hereof applied to such Notes.
SECTION 8.03. Covenant Defeasance. Upon the Company's exercise of its
-------------------
option to have this Section 8.03 applied to the outstanding Notes (in whole and
not in part), (i) the Company shall be released from its obligations under
Section 5.01(c) and (d), Sections 4.05 through 4.18, inclusive, and any covenant
added to this Indenture subsequent to the Issue Date pursuant to Section 9.01
hereof, (ii) the occurrence of any event specified in Section 6.01(c) or Section
6.01(d) hereof, with respect to any of Section 5.01(c) and (d), Sections 4.05
through 4.18, inclusive, and any covenant added to this Indenture subsequent to
the Issue Date pursuant to Section 9.01 hereof, shall be deemed not to be or
result in an Event of Default, in each case with respect to such Notes as
provided in this Section 8.03 on and after the date the conditions set forth in
Section 8.04 hereof are satisfied (hereinafter called "Covenant Defeasance").
For this purpose, such Covenant Defeasance means that, with respect to such
Notes, the Company may omit to comply with and shall have no liability in
respect of any term, condition or limitation set forth in any such specified
Section (to the extent so specified in the case of Sections 6.01(c) and 6.01(d)
hereof), whether directly or indirectly by reason of any reference elsewhere
herein to any such Section or by reason of any reference in any such Section to
any other provision herein or in any other document; but the remainder of this
Indenture and such Notes shall be unaffected thereby.
SECTION 8.04. Conditions to Defeasance or Covenant Defeasance. The
-----------------------------------------------
following shall be the conditions to the application of Section 8.02 or Section
8.03 hereof to the outstanding Notes:
(a) The Company shall irrevocably have deposited or caused to be deposited
with the Trustee as trust funds in trust for the purpose of making the following
payments, specifically pledged as security for, and dedicated solely to the
benefits of the Holders of such Notes, (i) money in an amount, or (ii) U.S.
Government Obligations which through the scheduled payment of principal and
interest in respect thereof in accordance with their terms will provide, not
later than one day before the due date of any payment, money in an
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amount, or (iii) a combination thereof, in each case sufficient, in the opinion
of a nationally recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee, to pay and discharge,
and which shall be applied by the Trustee (or any such other qualifying trustee)
to pay and discharge, the principal of and any installment of interest on such
Notes on the respective Stated Maturities thereof, in accordance with the terms
of this Indenture and such Notes.
(b) In the event of an election to have Section 8.02 hereof apply to
the outstanding Notes, the Company shall have delivered to the Trustee an
Opinion of Counsel stating that (i) the Company has received from, or there has
been published by, the Internal Revenue Service a ruling or (ii) since the date
of this Indenture, there has been a change in the applicable Federal income tax
law, in either case (i) or (ii) to the effect that, and based thereon such
opinion shall confirm that, the Holders of such Notes will not recognize gain or
loss for Federal income tax purposes as a result of the deposit, Defeasance and
discharge to be effected with respect to such Notes and will be subject to
Federal income tax on the same amount, in the same manner and at the same times
as would be the case if such deposit, Defeasance and discharge were not to
occur.
(c) In the event of an election to have Section 8.03 hereof apply to
the outstanding Notes, the Company shall have delivered to the Trustee an
Opinion of Counsel reasonably acceptable to the Trustee to the effect that the
Holders of such Notes will not recognize gain or loss for Federal income tax
purposes as a result of the deposit and Covenant Defeasance to be effected with
respect to such Notes and will be subject to Federal income tax on the same
amount, in the same manner and at the same times as would be the case if such
deposit and Covenant Defeasance were not to occur.
(d) No Default or Event of Default with respect to the outstanding
Notes shall have occurred and be continuing at the time of such deposit after
giving effect thereto or at any time on or prior to the 91st calendar day after
the date of such deposit (it being understood that this condition shall not be
deemed satisfied until after such 91st calendar day).
(e) Such Defeasance or Covenant Defeasance shall not cause the Trustee to
have a conflicting interest within the meaning of the Trust Indenture Act
(assuming for the purpose of this clause (e) that all Notes are in default
within the meaning of such Act).
(f) Such Defeasance or Covenant Defeasance shall not result in a breach or
violation of, or constitute a default under, any other agreement or instrument
to which the Company is a party or by which it is bound.
(g) Such Defeasance or Covenant Defeasance shall not result in the trust
arising from such deposit constituting an investment company within the meaning
of the Investment Company Act of 1940, as amended, unless such trust shall be
registered under such Act or exempt from registration thereunder.
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(h) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent with respect to such Defeasance or Covenant Defeasance have been
complied with.
SECTION 8.05. Deposited Money and U.S. Government Obligations to be Held
----------------------------------------------------------
in Trust; Miscellaneous Provisions. All money and U.S. Government Obligations
- ----------------------------------
(including the proceeds thereof) deposited with the Trustee pursuant to Section
8.04 hereof in respect of the outstanding Notes shall be held in trust and
applied by the Trustee, in accordance with the provisions of such Notes and this
Indenture, to the payment, either directly or through any such Paying Agent as
the Trustee may determine, to the Holders of such Notes, of all sums due and to
become due thereon in respect of principal and any premium and interest, but
money so held in trust need not be segregated from other funds except to the
extent required by law. The Company shall pay and indemnify the Trustee against
any tax, fee or other charge imposed on or assessed against the U.S. Government
Obligations deposited pursuant to Section 8.04 hereof or the principal and
interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of outstanding Notes.
Anything in this Article VIII to the contrary notwithstanding, the Trustee
shall deliver or pay to the Company from time to time upon Company Order any
money or U.S. Government Obligations held by it as provided in Section 8.04
hereof which, in the opinion of a nationally recognized firm of independent
public accountants expressed in a written certification thereof delivered to the
Trustee, are in excess of the amount thereof that would then be required to be
deposited to effect the Defeasance or Covenant Defeasance, as the case may be,
with respect to the outstanding Notes.
The Trustee and the Paying Agent shall pay to the Company upon written
request any money held by them for the payment of principal, premium, if any, or
interest that remains unclaimed for two years; provided that the Trustee or such
--------
Paying Agent before being required to make any payment may cause to be published
at the expense of the Company once in a newspaper of general circulation in the
City of New York or mail to each Holder entitled to such money at such Holder's
address (as set forth in the Note Register) notice that such money remains
unclaimed and that after a date specified therein (which shall be at least 30
days from the date of such publication or mailing) any unclaimed balance of such
money then remaining will be repaid to the Company. After payment to the
Company, Holders entitled to such money must look to the Company for payment as
general creditors unless an applicable law designates another Person, and all
liability of the Trustee and such Paying Agent with respect to such money shall
cease.
SECTION 8.06. Reinstatement. If the Trustee or Paying Agent is unable to
-------------
apply any money in accordance with this Article VIII with respect to any Notes
by reason of any order or judgement of any court or governmental authority
enjoining, restraining or otherwise prohibiting such application then the
obligations under this Indenture and such Notes from which the Company has been
discharged or released pursuant to Sections 8.02 or 8.03 hereof shall be revived
and reinstated as though no deposit had occurred pursuant to this Article VIII
with respect to such Notes, until such time as the Trustee or Paying Agent is
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permitted to apply all money held in trust pursuant to Section 8.05 hereof with
respect to such Notes in accordance with this Article VIII; provided that if the
Company makes any payment of principal of or any premium or interest on any such
Note following such reinstatement of its obligations, the Company shall be
subrogated to the rights (if any) of the Holders of such Notes to receive such
payment from the money so held in trust.
ARTICLE IX.
AMENDMENTS
SECTION 9.01. Without Consent of Holders. The Company and the Trustee
--------------------------
may, at any time, and from time to time, without notice to or consent of any
Holder of Notes, enter into one or more indentures supplemental hereto, in form
satisfactory to the Trustee, for any of the following purposes:
(a) to evidence the succession of another Person to the Company and
the assumption by such successor of the covenants of the Company herein and
contained in the Notes; or
(b) to add to the covenants of the Company, for the benefit of the
Holders of all of the Notes, or to surrender any right or power herein
conferred upon the Company; or
(c) to add any additional Events of Default; or
(d) to provide for uncertificated Notes in addition to or in place of
certificated Notes; or
(e) to evidence and provide for the acceptance of appointment
hereunder of a successor Trustee; or
(f) to secure the Notes; or
(g) to cure any ambiguity herein, or to correct or supplement any
provision hereof which may be inconsistent with any other provision hereof
or to add any other provisions with respect to matters or questions arising
under this Indenture; provided that such actions shall not adversely affect
--------
the interests of the Holders of Notes in any material respect; or
(h) to comply with the requirements of the Commission in order to
effect or maintain the qualification of this Indenture under the Trust
Indenture Act.
SECTION 9.02. With Consent of Holders. With the consent of the Holders
-----------------------
of not less than a majority in principal amount of the outstanding Notes, by Act
of said Holders delivered to the Company and the Trustee, the Company and the
Trustee may enter into one or more indentures supplemental hereto for the
purpose of adding any provisions to or
95
<PAGE>
changing in any manner or eliminating any of the provisions of this Indenture or
of modifying in any manner the rights of the Holders; provided that no such
supplemental indenture shall, without the consent of the Holder of each
outstanding Note,
(a) change the Stated Maturity of the principal of, or any
installment of interest on, any Note, or alter the redemption provisions
thereof, or reduce the principal amount thereof (or any premium, if any),
or the interest thereon, that would be due and payable upon Maturity
thereof, or change the place of payment where, or the coin or currency in
which, any Note or any premium or interest thereon is payable, or impair
the right to institute suit for the enforcement of any such payment on or
after the Maturity thereof; or
(b) reduce the percentage in principal amount of the outstanding
Notes, the consent of whose Holders is required for any such supplemental
indenture; or
(c) modify any of the provisions of Section 6.04 hereof, except to
increase any percentage set forth therein or to provide that certain other
provisions of this Indenture cannot be modified or waived without the
consent of the Holder of each outstanding Note affected thereby; or
(d) subordinate in right of payment, or otherwise subordinate, the
Notes to any other Indebtedness; or
(e) modify any of the provisions of this Section 9.02, except to
increase any percentage set forth herein or to provide that certain other
provisions of this Indenture cannot be modified or waived without the
consent of the Holder of each outstanding Note affected thereby.
It shall not be necessary for any Act of Holders under this Section 9.02 to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
SECTION 9.03. Effect of Supplemental Indentures. Upon the execution of
---------------------------------
any supplemental indenture under this Article IX, this Indenture shall be
modified in accordance therewith, and such supplemental indenture shall form a
part of this Indenture for all purposes; and every Holder of Notes theretofore
or thereafter authenticated and delivered hereunder shall be bound thereby.
SECTION 9.04. Compliance with Trust Indenture Act. Every amendment or
-----------------------------------
supplement to this Indenture or the Notes shall comply with the Trust Indenture
Act as then in effect.
SECTION 9.05. Revocation and Effect of Consents and Waivers. A consent to
---------------------------------------------
an amendment, supplement or a waiver by a Holder of a Note shall bind the Holder
and every subsequent Holder of such Note or portion of such Note that evidences
the same debt as the consenting Holder's Note, even if notation of the consent
or waiver is not made on such
96
<PAGE>
Note; provided that any such Holder or subsequent Holder may revoke the consent
--------
or waiver as to such Holder's Note or portion of such Note if the Trustee
receives the notice of revocation at least one day prior to the date the
amendment, supplement or waiver becomes effective. After an amendment,
supplement or waiver becomes effective pursuant to this Article IX, it shall
bind every Holder.
The Company may, but shall not be obligated to, fix a record date for the
purpose of determining the Holders entitled to give their consent or take any
other action described above or required or permitted to be taken pursuant to
this Indenture. If a record date is fixed, then notwithstanding the immediately
preceding paragraph, those Persons who were Holders at such record date (or
their duly designated proxies), and only those Persons, shall be entitled to
give such consent or to revoke any consent previously given or to take any such
action, whether or not such Persons continue to be Holders after such record
date. No such consent shall be valid or effective for more than 120 calendar
days after such record date.
SECTION 9.06. Notation on or Exchange of Notes. If a supplemental
--------------------------------
indenture changes the terms of a Note, the Trustee may require the Holder
thereof to deliver such Note to the Trustee. The Trustee may place an
appropriate notation on such Note regarding the changed terms and return it to
the Holder. Alternatively, if the Company or the Trustee so determines, the
Company in exchange for such Note shall issue and the Trustee shall authenticate
a new Note that reflects the changed terms. Failure to make the appropriate
notation or to issue a new Note shall not affect the validity of such amendment
or supplement.
SECTION 9.07. Trustee to Execute Supplemental Indentures. The Trustee
------------------------------------------
shall execute any supplemental indenture authorized pursuant to this Article IX
if such supplemental indenture does not adversely affect the rights, duties,
liabilities or immunities of the Trustee. If it does, the Trustee may, but shall
not be required to, execute such supplemental indenture. In executing any
supplemental indenture, the Trustee shall be (subject to Section 7.01 hereof)
fully protected in relying upon an Officers' Certificate and an Opinion of
Counsel, which shall not be at the expense of the Trustee, stating that the
execution of such supplemental indenture is authorized or permitted by this
Indenture.
ARTICLE X.
MISCELLANEOUS
SECTION 10.01. Trust Indenture Act Controls. If and to the extent that any
----------------------------
provision of this Indenture limits, qualifies or conflicts with the duties
imposed by, or with another provision (an "incorporated provision") included in
this Indenture by operation of, Sections 310 to 318, inclusive, of the Trust
Indenture Act, such imposed duties or incorporated provision shall control.
97
<PAGE>
SECTION 10.02. Notices. Any notice or communication shall be in writing
-------
and delivered in person or mailed by first class mail, postage prepaid,
addressed as follows: if to the Company: McLeodUSA Incorporated, 6400 C Street,
S.W., Cedar Rapids, Iowa 52406, Attention: Clark E. McLeod; if to the Trustee:
United States Trust Company of New York, 114 West 47th Street, New York, New
York 10036, Attention: Corporate Trust Administration.
The Company or the Trustee, by notice to the other, may designate
additional or different addresses for subsequent notices or communications. Any
notice or communication mailed to a Holder shall be sent to the Holder by first
class mail, postage prepaid, at the Holder's address as it appears in the Note
Register and shall be duly given if so sent within the time prescribed. Failure
to mail a notice or communication to a Holder or any defect in it shall not
affect its sufficiency with respect to other Holders. If a notice or
communication is mailed to the Company, the Trustee or a Holder in the manner
provided above, it is duly given, whether or not the addressee receives it. In
case by reason of the suspension of regular mail service or by reason of any
other cause it shall be impracticable to give notice by mail to Holders, then
such notification as shall be made with the approval of the Trustee shall
constitute a sufficient notification for every purpose hereunder.
SECTION 10.03. Certificate and Opinion as to Conditions Precedent. Upon
--------------------------------------------------
any request or application by the Company to the Trustee to take or refrain from
taking any action under this Indenture, the Company shall furnish to the
Trustee: (a) an Officers' Certificate stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with; and (b) an Opinion of
Counsel stating that, in the opinion of such counsel, all such conditions
precedent have been complied with.
SECTION 10.04. Statements Required in Certificate or Opinion. Each
---------------------------------------------
certificate or opinion with respect to compliance with a covenant or condition
provided for in this Indenture (other than pursuant to Section 4.19 hereof)
shall include: (a) a statement that the individual making such certificate or
opinion has read such covenant or condition; (b) a brief statement as to the
nature and scope of the examination or investigation upon which the statements
or opinions contained in such certificate or opinion are based; (c) a statement
that, in the opinion of such individual, such person has made such examination
or investigation as is necessary to enable such person to express an informed
opinion as to whether or not such covenant or condition has been complied with;
and (d) a statement as to whether or not, in the opinion of such individual,
such covenant or condition has been complied with; provided that, with respect
to matters of fact, an Opinion of Counsel may rely on an Officers' Certificate
or certificates of public officials.
SECTION 10.05. Rules by Trustee, Paying Agent and Note Registrar. The
-------------------------------------------------
Trustee may make reasonable rules for action by or a meeting of Holders, and any
Note Registrar and Paying Agent may make reasonable rules for their functions;
provided that no such rule shall conflict with terms of this Indenture or the
Trust Indenture Act.
98
<PAGE>
SECTION 10.06. Payments on Business Days. If a payment hereunder is
-------------------------
scheduled to be made on a date that is not a Business Day, payment shall be made
on the next succeeding day that is a Business Day, and no interest shall accrue
with respect to that payment during the intervening period. If a regular record
date is a date that is not a Business Day, such record date shall not be
affected.
SECTION 10.07. Governing Law. THIS INDENTURE AND THE NOTES SHALL BE
-------------
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SAID STATE.
SECTION 10.08. No Recourse Against Others. No controlling Person,
--------------------------
director, officer, employee, incorporator or stockholder of the Company, as
such, shall have any liability for any obligations of the Company under the
Notes or this Indenture or for any claim based on, in respect of, or by reason
of, such obligations or their creation, solely by reason of its past, present or
future status as a controlling Person, director, officer, employee, incorporator
or stockholder of the Company. By accepting a Note, each Holder waives and
releases all such liability (but only such liability) as part of the
consideration for issuance of such Note to such Holder.
SECTION 10.09. Successors. All agreements of the Company in this Indenture
----------
and the Notes shall bind its successors and assigns whether so expressed or not.
All agreements of the Trustee in this Indenture shall bind its successors and
assigns whether so expressed or not.
SECTION 10.10. Counterparts. This Indenture may be executed in any number
------------
of counterparts and by the parties thereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
SECTION 10.11. Table of Contents; Headings. The table of contents, cross-
---------------------------
reference table and headings of the Articles and Sections of this Indenture have
been inserted for convenience of reference only, are not intended to be
considered a part hereof and shall not modify or restrict any of the terms or
provisions hereof.
SECTION 10.12. Severability. In case any provision in this Indenture or in
------------
the Notes shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
SECTION 10.13. Further Instruments and Acts. Upon request of the Trustee,
----------------------------
the Company will execute and deliver such further instruments and do such
further acts as may be reasonably necessary or proper to carry out more
effectively the purposes of this Indenture.
99
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed all as of the day and year first above written.
MCLEODUSA INCORPORATED
By________________________________________
Name:
Title:
Attest:
______________________
UNITED STATES TRUST COMPANY OF NEW YORK,
as Trustee
By________________________________________
Name:
Title:
Attest:
______________________
100
<PAGE>
STATE OF IOWA )
) SS.:
COUNTY OF LINN )
On the _______ day of October, 1998, before me personally came
_________________, to me known, who, being by me duly sworn, did depose and say
that he is _________________________________________ of McLeodUSA Incorporated,
one of the corporations described in and which executed the foregoing instrument
and that he signed his name thereto by authority of the Board of Directors of
said corporation.
____________________________________________
Notary Public
State of
My commission expires / /
[Seal]
<PAGE>
STATE OF NEW YORK )
) SS.:
COUNTY OF NEW YORK )
On the _____ day of October, 1998, before me personally came
_________________, to me known, who, being by me duly sworn, did depose and say
that he is ____________________ of United States Trust Company of New York, one
of the corporations described in and which executed the foregoing instrument and
that he signed his name thereto by authority of the Board of Directors of said
corporation.
____________________________________________
Notary Public
State of
My commission expires / /
[Seal]
<PAGE>
ANNEX A -- Form of
Regulation S Certificate
REGULATION S CERTIFICATE
(For transfers pursuant to (S) 2.08(b)(i), (iii) and (v)
of the Indenture)
United States Trust Company of New York,
as Trustee
114 West 47th Street
New York, New York 10036
Attention:
Re: 9 1/2% Senior Notes due November 1, 2008
of McLeodUSA Incorporated (the "Notes")
----------------------------------------------
Reference is made to the Indenture, dated as of October 30, 1998 (the
"Indenture"), between McLeodUSA Incorporated (the "Company") and United States
Trust Company of New York, as Trustee. Terms used herein and defined in the
Indenture or in Regulation S or Rule 144 under the U.S. Securities Act of 1933,
as amended (the "Securities Act") are used herein as so defined.
This certificate relates to U.S. $________ principal amount of Notes, which
are evidenced by the following certificate(s) (the "Specified Notes"):
CUSIP No(s). _________________________________
CERTIFICATE No(s). ___________________________
The person in whose name this certificate is executed below (the "Undersigned")
hereby certifies that either (i) it is the sole beneficial owner of the
Specified Notes or (ii) it is acting on behalf of all the beneficial owners of
the Specified Notes and is duly authorized by them to do so. Such beneficial
owner or owners are referred to herein collectively as the "Owner". If the
Specified Notes are represented by a Global Security, they are held through the
Depositary or an Agent Member in the name of the Undersigned, as or on behalf of
the Owner. If the Specified Notes are not represented by a Global Security,
they are registered in the name of the Undersigned, as or on behalf of the
Owner.
<PAGE>
The Owner has requested that the Specified Notes be transferred to a person
(the "Transferee") who will take delivery in the form of a Regulation S Note. In
connection with such transfer, the Owner hereby certifies that, unless such
transfer is being effected pursuant to an effective registration statement under
the Securities Act, it is being effected in accordance with Rule 904 or Rule 144
under the Securities Act and with all applicable securities laws of the states
of the United States and other jurisdictions. Accordingly, the Owner hereby
further certifies as follows:
(1) Rule 904 Transfers. If the transfer is being effected in
------------------
accordance with Rule 904:
(A) the Owner is not a distributor of the Notes, an
affiliate of the Company or any such distributor or a person acting on
behalf of any of the foregoing;
(B) the offer of the Specified Notes was not made to a
person in the United States;
(C) either:
(i) at the time the buy order was originated, the
Transferee was outside the United States or the Owner and any
person acting on its behalf reasonably believed that the
Transferee was outside the United States, or
(ii) the transaction is being executed in, on or
through the facilities of the Eurobond market, as regulated by
the Association of International Bond Dealers, or another
designated offshore securities market and neither the Owner nor
any person acting on its behalf knows that the transaction has
been prearranged with a buyer in the United States;
(D) no directed selling efforts have been made in the
United States by or on behalf of the Owner or any affiliate thereof;
(E) if the Owner is a dealer in securities or has received a
selling concession, fee or other remuneration in respect of the
Specified Notes, and the transfer is to occur during the Restricted
Period, then the requirements of Rule 904(c)(1) have been satisfied;
and
(F) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act.
<PAGE>
(2) Rule 144 Transfers. If the transfer is being effected
------------------
pursuant to Rule 144:
(A) the transfer is occurring after a holding period of at
least one year (computed in accordance with paragraph (d) of Rule 144)
has elapsed since the Specified Notes were last acquired from the
Company or from an affiliate of the Company, whichever is later, and
is being effected in accordance with the applicable amount, manner of
sale and notice requirements of Rule 144; or
(B) the transfer is occurring after a holding period of at
least two years has elapsed since the Specified Notes were last
acquired from the Company or from an affiliate of the Company,
whichever is later, and the Owner is not, and during the preceding
three months has not been, an affiliate of the Company.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company and the Purchasers.
Dated: ______________________________________________
(Print the name of the Undersigned, as such
term is defined in the second paragraph of this
certificate.)
By:____________________________________________
Name:
Title:
(If the Undersigned is a corporation, partnership or
fiduciary, the title of the person signing on behalf
of the Undersigned must be stated.)
<PAGE>
ANNEX B -- Form of Restricted
Notes Certificate
RESTRICTED NOTES CERTIFICATE
(For transfers pursuant to (S) 2.08(b)(ii), (iii), (iv) and (v)
of the Indenture)
United States Trust Company of New York,
as Trustee
114 West 47th Street
New York, New York 10036
Attention:
Re: 9 1/2% Senior Notes due November 1, 2008
of McLeodUSA Incorporated (the "Notes")
----------------------------------------------
Reference is made to the Indenture, dated as of October 30, 1998 (the
"Indenture"), between McLeodUSA Incorporated (the "Company") and United States
Trust Company of New York, as Trustee. Terms used herein and defined in the
Indenture or in Regulation S or Rule 144 under the U.S. Securities Act of 1933,
as amended (the "Securities Act") are used herein as so defined.
This certificate relates to U.S. $__________ principal amount of
Notes, which are evidenced by the following certificate(s) (the "Specified
Notes"):
CUSIP No(s). _____________________________
CERTIFICATE No(s). _______________________
The person in whose name this certificate is executed below (the "Undersigned")
hereby certifies that either (i) it is the sole beneficial owner of the
Specified Notes or (ii) it is acting on behalf of all the beneficial owners of
the Specified Notes and is duly authorized by them to do so. Such beneficial
owner or owners are referred to herein collectively as the "Owner". If the
Specified Notes are represented by a Global Security, they are held through the
Depositary or an Agent Member in the name of the Undersigned, as or on behalf of
the Owner. If the Specified Notes are not represented by a Global Security,
they are registered in the name of the Undersigned, as or on behalf of the
Owner.
<PAGE>
The Owner has requested that the Specified Notes be transferred to a
person (the "Transferee") who will take delivery in the form of a Restricted
Note. In connection with such transfer, the Owner hereby certifies that, unless
such transfer is being effected pursuant to an effective registration statement
under the Securities Act, it is being effected in accordance with Rule 144A,
Rule 144 or to an Institutional Accredited Investor under Rule 501(a)(1), (2),
(3) or (7) under the Securities Act and in compliance with all applicable
securities laws of the states of the United States and other jurisdictions.
Accordingly, the Owner hereby further certifies as follows:
(1) Rule 144A Transfers. If the transfer is being effected in
-------------------
accordance with Rule 144A:
(A) the Specified Notes are being transferred to a person
that the Owner and any person acting on its behalf reasonably believe
is a "qualified institutional buyer" within the meaning of Rule 144A,
acquiring for its own account or for the account of a qualified
institutional buyer; and
(B) the Owner and any person acting on its behalf have taken
reasonable steps to ensure that the Transferee is aware that the Owner
may be relying on Rule 144A in connection with the transfer; and
(2) Rule 144 Transfers. If the transfer is being effected
------------------
pursuant to Rule 144:
(A) the transfer is occurring after a holding period of at
least one year (computed in accordance with paragraph (d) of Rule 144)
has elapsed since the Specified Notes were last acquired from the
Company or from an affiliate of the Company, whichever is later, and
is being effected in accordance with the applicable amount, manner of
sale and notice requirements of Rule 144; or
(B) the transfer is occurring after a holding period of at
least two years has elapsed since the Specified Notes were last
acquired from the Company or from an affiliate of the Company,
whichever is later, and the Owner is not, and during the preceding
three months has not been, an affiliate of the Company.
(3) Institutional Accredited Investor Transfers. If the
-------------------------------------------
transfer is being effected to an Institutional Accredited Investor as
defined under Rule 501(a)(1), (2), (3) or (7), the Specified Notes are
being transferred to such an Institutional Accredited Investor as therein
so defined who is purchasing for investment purposes and not for
distribution.
<PAGE>
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company and the Purchasers.
Dated:
_________________________________________________
(Print the name of the Undersigned, as such
term is defined in the second paragraph of this
certificate.)
By:_________________________________________________
Name:
Title:
(If the Undersigned is a corporation,
partnership or fiduciary, the title of the
person signing on behalf of the Undersigned
must be stated.)
<PAGE>
ANNEX C -- Form of Unrestricted
Notes Certificate
UNRESTRICTED NOTES CERTIFICATE
(For removal of Securities Act Legends pursuant to (S) 2.08c)
of the Indenture)
United States Trust Company of New York,
as Trustee
114 West 47th Street
New York, New York 10036
Attention:
Re: 9 1/2% Senior Notes due November 1, 2008
of McLeodUSA Incorporated (the "Notes")
-----------------------------------------------
Reference is made to the Indenture, dated as of October 30, 1998 (the
"Indenture"), between McLeodUSA Incorporated (the "Company") and United States
Trust Company of New York, as Trustee. Terms used herein and defined in the
Indenture or in Regulation S or Rule 144 under the U.S. Securities Act of 1933,
as amended (the "Securities Act") are used herein as so defined.
This certificate relates to U.S. $_________________ principal amount
of Notes, which are evidenced by the following certificate(s) (the "Specified
Notes"):
CUSIP No(s). _________________________________
CERTIFICATE No(s). ___________________________
The person in whose name this certificate is executed below (the "Undersigned")
hereby certifies that either (i) it is the sole beneficial owner of the
Specified Notes or (ii) it is acting on behalf of all the beneficial owners of
the Specified Notes and is duly authorized by them to do so. Such beneficial
owner or owners are referred to herein collectively as the "Owner". If the
Specified Notes are represented by a Global Security, they are held through the
Depositary or an Agent Member in the name of the Undersigned, as or on behalf of
the
<PAGE>
Owner. If the Specified Notes are not represented by a Global Security, they are
registered in the name of the Undersigned, as or on behalf of the Owner.
The Owner has requested that the Specified Notes be exchanged for
Notes bearing no Securities Act Legend pursuant to Section 2.08(c) of the
Indenture. In connection with such exchange, the Owner hereby certifies that
the exchange is occurring after a holding period of at least two years (computed
in accordance with paragraph (d) of Rule 144) has elapsed since the Specified
Notes were last acquired from the Company or from an affiliate of the Company,
whichever is later, and the Owner is not, and during the preceding three months
has not been, an affiliate of the Company. The Owner also acknowledges that any
future transfers of the Specified Notes must comply with all applicable
securities laws of the states of the United States and other jurisdictions.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company and the Purchasers.
Dated:
_______________________________________________
(Print the name of the Undersigned, as such
term is defined in the second paragraph of this
certificate.)
By:_______________________________________________
Name:
Title:
(If the Undersigned is a corporation, partnership
or fiduciary, the title of the person signing on
behalf of the Undersigned must be stated.)
<PAGE>
Exhibit 4.20
THIS NOTE IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER
REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF.
THIS NOTE MAY NOT BE EXCHANGEABLE IN WHOLE OR IN PART FOR A NOTE REGISTERED, AND
NO TRANSFER OF THIS NOTE IN WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF
ANY PERSON OTHER THAN SUCH DEPOSITARY OR A NOMINEE THEREOF, EXCEPT IN THE
LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER 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 IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING THIS SECURITY,
AGREES FOR THE BENEFIT OF THE COMPANY AND THE INITIAL PURCHASERS OF THIS
SECURITY THAT THIS SECURITY MAY NOT BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED
(X) PRIOR TO THE SECOND ANNIVERSARY OF THE ISSUANCE HEREOF (OR A PREDECESSOR
SECURITY HERETO) OR (Y) BY ANY HOLDER THAT WAS AN AFFILIATE OF THE COMPANY AT
ANY TIME DURING THE THREE MONTHS PRECEDING THE DATE OF SUCH TRANSFER, IN EITHER
CASE OTHER THAN (1) TO THE COMPANY, (2) SO LONG AS THIS SECURITY IS ELIGIBLE FOR
RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON
WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN
THE MEANING OF RULE 144A, PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR
OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A (AS INDICATED BY THE BOX
CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS
SECURITY), (3) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH REGULATION S UNDER
THE SECURITIES ACT (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE
CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS SECURITY), AND, IF SUCH TRANSFER
IS BEING EFFECTED BY CERTAIN TRANSFERORS SPECIFIED IN THE INDENTURE (AS DEFINED
BELOW) PRIOR TO DECEMBER 9, 1998, A CERTIFICATE WHICH MAY BE OBTAINED FROM THE
COMPANY OR THE TRUSTEE IS DELIVERED BY THE TRANSFEREE TO THE COMPANY AND THE
TRUSTEE, (4) TO AN INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN
RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT (AS INDICATED BY THE
BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE OF
THIS SECURITY) THAT IS ACQUIRING THIS SECURITY FOR INVESTMENT PURPOSES AND NOT
FOR DISTRIBUTION, AND A CERTIFICATE IN THE FORM ATTACHED TO THIS SECURITY IS
DELIVERED BY THE TRANSFEREE TO THE COMPANY AND THE TRUSTEE (PROVIDED THAT
CERTAIN HOLDERS SPECIFIED IN THE INDENTURE MAY NOT TRANSFER THIS SECURITY
PURSUANT TO THIS CLAUSE (4) ON OR PRIOR TO DECEMBER 9, 1998) OR (5) PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES. AN INSTITUTIONAL ACCREDITED INVESTOR HOLDING THIS SECURITY AGREES IT
WILL FURNISH TO THE COMPANY AND THE TRUSTEE SUCH CERTIFICATES AND OTHER
INFORMATION AS THEY MAY REASONABLY REQUIRE TO CONFIRM THAT ANY TRANSFER BY IT OF
THIS SECURITY COMPLIES WITH THE FOREGOING RESTRICTIONS. THE HOLDER HEREOF, BY
PURCHASING THIS SECURITY, REPRESENTS AND AGREES FOR THE BENEFIT OF THE COMPANY
AND THE INITIAL PURCHASERS THAT IT IS (1) A QUALIFIED INSTITUTIONAL BUYER WITHIN
THE MEANING OF RULE 144A OR (2) AN INSTITUTION THAT IS AN "ACCREDITED INVESTOR"
AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT AND THAT
IT IS HOLDING THIS SECURITY FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION OR
(3) A NON-U.S. PERSON OUTSIDE THE UNITED STATES WITHIN THE MEANING OF (OR AN
ACCOUNT SATISFYING THE REQUIREMENTS OF PARAGRAPH (o)(2) OF RULE 902 UNDER)
REGULATION S UNDER THE SECURITIES ACT.
9 1/2% SENIOR NOTES DUE NOVEMBER 1, 2008
CUSIP NO.
No. R- $
McLeodUSA Incorporated, a corporation duly organized and existing under the
laws of Delaware (herein called the "Company", which term includes any successor
Person under the Indenture hereinafter referred to), for value received, hereby
promises to pay to CEDE & CO., or registered assigns, the principal sum of
(which principal amount may from time to time be increased or decreased to such
other principal amounts (which, taken together with the principal amounts of all
other outstanding Notes, shall not exceed THREE HUNDRED MILLION DOLLARS
($300,000,000) in the aggregate at any time) by adjustments made on the records
of the Trustee hereinafter referred to in accordance with the Indenture) on
November 1, 2008, and to pay interest thereon from the Issue Date, semi-annually
in arrears on November 1 and May 1 of each year, commencing May 1, 1999, at the
rate of 9.5% per annum, until the principal hereof is paid or
<PAGE>
made available for payment; PROVIDED, HOWEVER, that if (i) the Company has not
filed a registration statement (the "Exchange Offer Registration Statement")
under the Securities Act of 1933, as amended (the "Act"), registering a security
substantially identical to this Note (except that such Note will not contain
terms with respect to the Special Interest payments described below or transfer
restrictions) pursuant to an exchange offer (the "Registered Exchange Offer")
(or, in lieu thereof, a registration statement registering this Note for resale
(a "Shelf Registration Statement")) by December 29, 1999, or (ii) the Exchange
Offer Registration Statement relating to the Registered Exchange Offer has not
become or been declared effective by March 29, 1999 or (iii) neither the
Registered Exchange Offer has been consummated nor the Shelf Registration
Statement has been declared effective prior to April 28, 1999, or (iv) either
the Exchange Offer Registration Statement or, if applicable, the Shelf
Registration Statement is filed and declared effective (except as specifically
permitted therein) but shall thereafter cease to be effective without being
succeeded promptly by an additional registration statement filed and declared
effective, in each case (i) through (iv) upon the terms and conditions set forth
in the Registration Agreement (each such event referred to in clauses (i)
through (iv), a "Registration Default"), then interest will accrue (in addition
to any stated interest on the Notes) (the "Step-Up") at a rate of 0.5% per
annum, during the 90-day period from and including the date on which any such
Registration Default shall occur to but excluding the date on which all
Registration Defaults have been cured and shall increase by 0.25% per annum at
the end of each subsequent 90-day period, but in no event shall such rate exceed
2.00% per annum, in the aggregate regardless of the number of Registration
Defaults. Interest accruing as a result of the Step-Up is referred to herein as
"Special Interest." Accrued Special Interest, if any, shall be paid semi-
annually on November 1 and May 1 of each year; and the amount of accrued Special
Interest shall be determined on the basis of the number of days actually
elapsed. Any accrued and unpaid interest (including Special Interest) on this
Note upon the issuance of an Exchange Note (as defined in the Indenture) in
exchange for this Note shall cease to be payable to the Holder hereof but such
accrued and unpaid interest (including Special Interest) shall be payable on the
next Interest Payment Date for such Exchange Note to the Holder thereof on the
related Regular Record Date. The interest so payable, and punctually paid or
duly provided for, on any Interest Payment Date will, as provided in such
Indenture, be paid to the Person in whose name this Note (or one or more
Predecessor Notes) is registered at the close of business on the Regular Record
Date for such interest, which shall be October 15 or April 15 (whether or not a
Business Day), as the case may be, immediately preceding such Interest Payment
Date. Any such interest not so punctually paid or duly provided for will
forthwith cease to be payable to the Holder on such Regular Record Date and may
either be paid to the Person in whose name this Note (or one or more Predecessor
Notes) is registered at the close of business on a Special Record Date for the
payment of such Defaulted Interest to be fixed by the Trustee, notice whereof
shall be given to Holders of Notes not more than 15 calendar days and not less
than 10 calendar days prior to such Special Record Date, or be paid at any time
in any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Notes may be listed, and upon such notice as
may be required by such exchange, all as more fully provided in said Indenture.
The principal of this Note shall accrue interest at the rate of 9.5% per
annum, and in the case of a default in payment of principal and premium, if any,
upon acceleration or redemption, in which case interest shall be payable
pursuant to the preceding paragraph on such overdue principal (and premium, if
any), such interest shall be payable on demand and, if not so paid on demand,
such interest shall itself bear interest at the rate of 10.5% per annum (to the
extent that the payment of such interest shall be legally enforceable), and
shall accrue from the date
<PAGE>
of such demand for payment to the date payment of such interest has been made or
duly provided for, and such interest on unpaid interest shall also be payable on
demand.
Payment of the principal of (and premium, if any) and interest on this Note
will be made at the corporate trust office of the Trustee and at the office or
agency of the Company maintained for that purpose in the Borough of Manhattan,
The City of New York, New York, and at any other office or agency maintained by
the Company for such purpose, in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts; PROVIDED, HOWEVER, that at the option of the Company payment of
interest may be made by check mailed to the address of the Person entitled
thereto as such address shall appear in the Note Register.
Reference is hereby made to the further provisions of this Note set forth
on the reverse hereof, which further provisions shall for all purposes have the
same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Note shall
not be entitled to any benefit under the Indenture or be valid or obligatory for
any purpose.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
Dated:
MCLEODUSA INCORPORATED
By________________________
Attest:
__________________________
This is one of the Notes referred to in the within-mentioned Indenture.
Dated:
UNITED STATES TRUST COMPANY
OF NEW YORK,
as Trustee
By________________________
Authorized Signatory
<PAGE>
This Note is one of a duly authorized issue of Notes of the Company
designated as its 9 1/2% Senior Notes due November 1, 2008 (the "Notes") issued
under an Indenture, dated as of October 30, 1998 (herein called the
"Indenture"), between the Company and United States Trust Company of New York,
as trustee (herein called the "Trustee", which term includes any successor
trustee under the Indenture). The Notes are limited in aggregate principal
amount to $300,000,000. Reference is hereby made to the Indenture and all
indentures supplemental thereto for a statement of the respective rights,
limitations of rights, duties and immunities thereunder of the Company, the
Trustee and the Holders of the Notes and of the terms upon which the Notes are,
and are to be, authenticated and delivered.
The Notes are subject to redemption upon not less than 30 nor more than 60
days' notice by mail to each Holder of Notes to be redeemed at such Holder's
address appearing in the Note Register, in amounts of $1,000 or an integral
multiple of $1,000, at any time on or after November 1, 2003 and prior to
maturity, as a whole or in part, at the election of the Company, at the
following Redemption Prices (expressed as percentages of the principal amount)
plus accrued interest to but excluding the Redemption Date (subject to the right
of Holder on the relevant Regular Record Date to receive interest due on an
Interest Payment Date that is on or prior to the Redemption Date), if redeemed
during the 12-month period beginning November 1 of each of the years indicated
below:
<TABLE>
<CAPTION>
Redemption
Year Price
---- -----
<S> <C>
2003 106.750%
2004 105.400%
2005 104.050%
2006 102.700%
2007 101.350%
2008 100.000%
</TABLE>
and thereafter at a Redemption Price equal to 100% of the principal amount,
together in the case of any such redemption with accrued interest to but
excluding the Redemption Date, but interest installments whose Stated Maturity
is on or prior to such Redemption Date will be payable to the Holders of such
Notes, or one or more Predecessor Notes, of record at the close of business on
the relevant Regular Record Dates referred to on the face hereof, all as
provided in the Indenture.
The Notes are further subject to redemption prior to November 1, 2001, only
in the event that the Company receives net proceeds from any sale of its Common
Stock in a Strategic Equity Investment on or before November 1, 2001 in which
case the Company may, at its option, use all or a portion of any such net
proceeds to redeem Notes in a principal amount of up to an aggregate amount
equal to 33 1/3% of the original principal amount of the Notes, PROVIDED,
HOWEVER, that Notes in an amount equal to at least 66 2/3% of the original
principal amount of the Notes remain outstanding after such redemption. Such
redemption must occur on a
<PAGE>
Redemption Date within 90 days of any such sale and upon not less than 30 nor
more than 60 days' notice by mail to each Holder of Notes to be redeemed at such
Holder's address appearing in the Note Register, in amounts of $1,000 or an
integral multiple of $1,000 at a Redemption Price equal to 111.5% of the
principal amount of the Notes so redeemed, plus accrued and unpaid interest
thereon (if any) to but excluding the Redemption Date.
The Notes do not have the benefit of any sinking fund obligations.
The Indenture provides that, subject to certain conditions, if (i) a Change
of Control (as defined in the Indenture) occurs or (ii) certain Excess Proceeds
are available to the Company as a result of any Asset Sale, the Company shall be
required to make a Change of Control Offer or an Asset Sale Offer, as the case
may be, for all or a specified portion of the Notes.
In the event of a deposit or withdrawal of an interest in this Note
(including upon an exchange, transfer, redemption or repurchase of this Note in
part only) effected in accordance with the Applicable Procedures, the Note
Registrar, upon receipt of notice of such event from the Depositary's custodian
for this Note, shall make an adjustment on its records to reflect an increase or
decrease of the outstanding principal amount of this Note resulting from such
deposit or withdrawal, as the case may be.
If an Event of Default shall occur and be continuing, the principal of all
the Notes may be declared due and payable in the manner and with the effect
provided in the Indenture.
The Indenture contains provisions for defeasance at any time of (i) the
entire indebtedness of this Note, or (ii) certain restrictive covenants and
Events of Default with respect to this Note, in each case upon compliance with
certain conditions set forth therein.
Unless the context otherwise requires, the Original Notes (as defined in
the Indenture) and the Exchange Notes (as defined in the Indenture) shall
constitute one series for all purposes under the Indenture, including without
limitation, amendments, waivers, redemptions, Change of Control Offers and Asset
Sale Offers.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Notes under the Indenture at any
time by the Company and the Trustee with the consent of the Holders of a
majority in aggregate principal amount of the Notes at the time outstanding. The
Indenture also contains provisions permitting the Holders of specified
percentages in aggregate principal amount of the Notes at the time outstanding,
on behalf of the Holders of all the Notes, to waive compliance by the Company
with certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Note shall be conclusive and binding upon such Holder and upon all future
Holders of this Note and of any Note issued upon the registration of transfer
hereof or in exchange herefor or in lieu hereof, whether or not notation of such
consent or waiver is made upon this Note.
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 premium, if any) and
interest on this Note at the times, place and rate, and in the coin or currency,
herein prescribed.
<PAGE>
As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Note is registrable in the Note Register, upon
surrender of this Note for registration of transfer at the office or agency of
the Company in the Borough of Manhattan, The City of New York, New York, duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Note Registrar duly executed by, the Holder
hereof or his attorney duly authorized in writing, and thereupon one or more new
Notes, of authorized denominations and like tenor and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.
The Notes are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, Notes are
exchangeable for a like tenor and aggregate principal amount of Notes of a
different authorized denomination, as requested by the Holder surrendering the
same.
No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Note for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name this Note is registered as the owner hereof for all
purposes, whether or not this Note be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
Interest on this Note shall be computed on the basis of a 360-day year of
twelve 30-day months; PROVIDED, HOWEVER, that Special Interest shall be computed
on the basis of a 365- or 366-day year, as the case may be, and the number of
days actually elapsed.
THE INDENTURE AND THE NOTES, INCLUDING THIS NOTE, SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED IN SUCH STATE.
All terms used in this Note which are defined in the Indenture shall have
the meanings assigned to them in the Indenture.
<PAGE>
CERTIFICATE OF TRANSFER
The transferor hereof (the "Transferor") hereby certifies in connection
with the transfer of this Note as follows:
(Please check one)
[_] The Transferor has requested that this Note be transferred to a person
(the "Transferee") who will take delivery in the form of a Regulation S Note. In
connection with such transfer, the Transferor hereby certifies that, unless such
transfer is being effected pursuant to an effective registration statement under
the Securities Act, it is being effected in accordance with Rule 904 or Rule 144
under the Securities Act and with all applicable securities laws of the states
of the United States and other jurisdictions. Accordingly, the Transferor hereby
further certifies as follows:
(1) Rule 904 Transfers. If the transfer is being effected in
------------------
accordance with Rule 904:
(A) the Transferor is not a distributor of the Notes, an
affiliate of the Company or any such distributor or a person acting on
behalf of any of the foregoing;
(B) the offer of this Note was not made to a person in the
United States;
(C) either:
(i) at the time the buy order was originated, the
Transferee was outside the United States or the Transferor and
any person acting on its behalf reasonably believed that the
Transferee was outside the United States, or
(ii) the transaction is being executed in, on or through
the facilities of the Eurobond market, as regulated by the
Association of International Bond Dealers, or another designated
offshore securities market and neither the Owner nor any person
acting on its behalf knows that the transaction has been
prearranged with a buyer in the United States;
(D) no directed selling efforts have been made in the United
States by or on behalf of the Transferor or any affiliate thereof;
(E) if the Transferor is a dealer in securities or has received
a selling concession, fee or other remuneration in respect of this
Note, and the transfer is to occur during the Restricted Period, then
the requirements of Rule 904(c)(1) have been satisfied; and
(F) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act.
<PAGE>
(2) Rule 144 Transfers. If the transfer is being effected pursuant to
------------------
Rule 144:
(A) the transfer is occurring after a holding period of at least
one year (computed in accordance with paragraph (d) of Rule 144) has
elapsed since this Note was last acquired from the Company or from an
affiliate of the Company, whichever is later, and is being effected in
accordance with the applicable amount, manner of sale and notice
requirements of Rule 144; or
(B) the transfer is occurring after a holding period of at least
two years has elapsed since this Note was last acquired from the
Company or from an affiliate of the Company, whichever is later, and
the Transferor is not, and during the preceding three months has not
been, an affiliate of the Company.
[_] The Transferor has requested that this Note be transferred to the
Transferee who will take delivery in the form of a Restricted Note. In
connection with such transfer, the Transferor hereby certifies that, unless such
transfer is being effected pursuant to an effective registration statement under
the Securities Act, it is being effected in accordance with Rule 144A, Rule 144
or to an Institutional Accredited Investor under Rule 501(a)(1), (2), (3) or (7)
under the Securities Act and in compliance with all applicable securities laws
of the states of the United States and other jurisdictions. Accordingly, the
Transferor hereby further certifies as follows:
(1) Rule 144A Transfers. If the transfer is being effected in
-------------------
accordance with Rule 144A:
(A) this Note is being transferred to a person that the
Transferor and any person acting on its behalf reasonably believe is a
"qualified institutional buyer" within the meaning of Rule 144A,
acquiring for its own account or for the account of a qualified
institutional buyer; and
(B) the Transferor and any person acting on its behalf have
taken reasonable steps to ensure that the Transferee is aware that the
Transferor may be relying on Rule 144A in connection with the
transfer; and
(2) Rule 144 Transfers. If the transfer is being effected pursuant to
------------------
Rule 144:
(A) the transfer is occurring after a holding period of at least
one year (computed in accordance with paragraph (d) of Rule 144) has
elapsed since this Note was last acquired from the Company or from an
affiliate of the Company, whichever is later, and is being effected in
accordance with the applicable amount, manner of sale and notice
requirements of Rule 144; or
(B) the transfer is occurring after a holding period of at least
two years has elapsed since this Note was last acquired from the
Company or from an affiliate of the Company, whichever is later, and
the Transferor is not, and during the preceding three months has not
been, an affiliate of the Company.
(3) Institutional Accredited Investor Transfers. If the transfer is
being effected to an Institutional Accredited Investor as defined under
Rule 501(a)(1), (2), (3) or (7),
<PAGE>
this Note is being transferred to such an Institutional Accredited Investor
as therein so defined who is purchasing for investment purposes and not for
distribution.
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company pursuant to
Section 4.07 or 4.08 of the Indenture, check the box:
[_]
If you want to elect to have only a part of this Note purchased by the
Company pursuant to Section 4.07 or 4.08 of the Indenture, state the amount:
$_________________
Dated:____________________ Your Signature:____________________
(Sign exactly as name appears
on the other side of this Note)
Signature Guarantee:____________________________________________________________
Notice: Signature(s) must be guaranteed by an "eligible
guarantor institution" meeting the requirements of the
Note Registrar which requirements will include membership
or participation in STAMP or such other "signature guarantee
program" as may be determined by the Trustee in addition to,
or in substitution for STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.
<PAGE>
Exhibit 4.21
MCLEODUSA INCORPORATED
9 1/2 Senior Notes Due 2008
REGISTRATION AGREEMENT
New York, New York
October 30, 1998
Salomon Smith Barney Inc.
Morgan Stanley & Co. Incorporated
Bear, Stearns & Co. Inc.
Chase Securities Inc.
c/o Salomon Smith Barney Inc.
Seven World Trade Center
New York, New York 10048
Dear Sirs:
McLeodUSA Incorporated, a Delaware corporation (the "Company"), proposes to
issue and sell to certain purchasers (the "Purchasers"), upon the terms set
forth in a purchase agreement dated October 22, 1998 (the "Purchase Agreement"),
its 9 1/2% Senior Notes due 2008(the "Securities") (the "Initial Placement").
As an inducement to the Purchasers to enter into the Purchase Agreement and in
satisfaction of a condition to your obligations thereunder, the Company agrees
with you, (i) for your benefit and (ii) for the benefit of the holders from time
to time of the Securities (including you and the other Purchasers) (each of the
foregoing a "Holder" and together the "Holders"), as follows:
1. Definitions. Capitalized terms used herein without definition shall
-----------
have their respective meanings set forth in the Purchase Agreement. As used in
this Registration Agreement (the "Agreement"), the following capitalized defined
terms shall have the following meanings:
"Act" means the Securities Act of 1933, as amended, and the rules and
---
regulations of the Commission promulgated thereunder.
"Affiliate" of any specified person means any other person which, directly
---------
or indirectly, is in control of, is controlled by, or is under common control
with, such specified person. For purposes of this definition, control of a
person means the power, direct or indirect, to direct or cause the direction of
the management and policies of such person whether
<PAGE>
2
by contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"Closing Date" has the meaning set forth in the Purchase Agreement.
------------
"Commission" means the Securities and Exchange Commission.
----------
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
------------
the rules and regulations of the Commission promulgated thereunder.
"Exchange Offer Registration Period" means the 1 year period following the
----------------------------------
consummation of the Registered Exchange Offer, exclusive of any period during
which any stop order shall be in effect suspending the effectiveness of the
Exchange Offer Registration Statement.
"Exchange Offer Registration Statement" means a registration statement of
-------------------------------------
the Company on an appropriate form under the Act with respect to the Registered
Exchange Offer, all amendments and supplements to such registration statement,
including post-effective amendments, in each case including the Prospectus
contained therein, all exhibits thereto and all material incorporated by
reference therein.
"Exchanging Dealer" means any Holder (which may include the Purchasers)
-----------------
which is a broker-dealer, electing to exchange Securities acquired for its own
account as a result of market-making activities or other trading activities, for
New Securities.
"Final Memorandum" has the meaning set forth in the Purchase Agreement.
----------------
"Holder" has the meaning set forth in the preamble hereto.
------
"Indenture" means the Indenture relating to the Securities dated as of
---------
October 30, 1998, between the Company and United States Trust Company of New
York as trustee, as the same may be amended from time to time in accordance with
the terms thereof.
"Initial Placement" has the meaning set forth in the preamble hereto.
-----------------
<PAGE>
3
"Majority Holders" means the Holders of a majority of the aggregate
----------------
principal amount of securities registered under a Registration Statement.
"Managing Underwriters" means the investment banker or investment bankers
---------------------
and manager or managers that shall administer an underwritten offering.
"New Securities" means debt securities of the Company identical in all
--------------
material respects to the Securities (except that the interest rate step up
provisions and the transfer restrictions will be modified or eliminated, as
appropriate), to be issued under the Indenture or the New Securities Indenture.
"New Securities Indenture" means an indenture between the Company and the
------------------------
New Securities Trustee, identical in all material respects with the Indenture
(except that the interest rate step up provisions will be modified or
eliminated, as appropriate).
"New Securities Trustee" means a bank or trust company reasonably
----------------------
satisfactory to the Purchaser, as trustee with respect to the New Securities
under the New Securities Indenture.
"Prospectus" means the prospectus included in any Registration Statement
----------
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A under the Act), as amended or supplemented
by any prospectus supplement, with respect to the terms of the offering of any
portion of the Securities or the New Securities, covered by such Registration
Statement, and all amendments and supplements to the Prospectus, including post-
effective amendments.
"Registered Exchange Offer" means the proposed offer to the Holders to
-------------------------
issue and deliver to such Holders, in exchange for the Securities, a like
principal amount of the New Securities.
"Registration Statement" means any Exchange Offer Registration Statement or
----------------------
Shelf Registration Statement that covers any of the Securities or the New
Securities pursuant to the provisions of this Agreement, amendments and
supplements to such registration statement, including post-effective amendments,
in each case including the Prospectus contained therein, all exhibits thereto
and all material incorporated by reference therein.
<PAGE>
4
"Securities" has the meaning set forth in the preamble hereto.
----------
"Shelf Registration" means a registration effected pursuant to Section 3
------------------
hereof.
"Shelf Registration Period" has the meaning set forth in Section 3(b)
-------------------------
hereof.
"Shelf Registration Statement" means a "shelf" registration statement of
----------------------------
the Company pursuant to the provisions of Section 3 hereof which covers some or
all of the Securities or New Securities, as applicable, on an appropriate form
under Rule 415 under the Act, or any similar rule that may be adopted by the
Commission, amendments and supplements to such registration statement, including
post-effective amendments, in each case including the Prospectus contained
therein, all exhibits thereto and all material incorporated by reference
therein.
"Trustee" means the trustee with respect to the Securities under the
-------
Indenture.
"Underwriter" means any underwriter of Securities in connection with an
-----------
offering thereof under a Shelf Registration Statement.
2. Registered Exchange Offer; Resales of New Securities by Exchanging
------------------------------------------------------------------
Dealers; Private Exchange. (a) Except as set forth in Section 3(i) below, the
- -------------------------
Company shall prepare and, not later than 60 days following the Closing Date,
shall file with the Commission the Exchange Offer Registration Statement with
respect to the Registered Exchange Offer. The Company shall use its best
efforts to cause the Exchange Offer Registration Statement to become effective
under the Act within 150 days of the Closing Date.
(b) Upon the effectiveness of the Exchange Offer Registration Statement,
the Company shall promptly commence the Registered Exchange Offer, it being the
objective of such Registered Exchange Offer to enable each Holder electing to
exchange Securities for New Securities (assuming that such Holder is not an
affiliate of the Company within the meaning of the Act, acquires the New
Securities in the ordinary course of such Holder's business and has no
arrangements with any person to participate in the distribution of the New
Securities) to trade such New Securities from and after their receipt without
any limitations or restrictions under the Act and without material restrictions
under the securities laws of a substantial proportion of the several states of
the United States.
<PAGE>
5
(c) In connection with the Registered Exchange Offer, the Company
shall:
(i) mail to each Holder a copy of the Prospectus forming part of
the Exchange Offer Registration Statement, together with an appropriate
letter of transmittal and related documents;
(ii) keep the Registered Exchange Offer open for not less than 30
days and not more than 45 days after the date notice thereof is mailed to
the Holders (or longer if required by applicable law);
(iii) utilize the services of a depositary for the Registered
Exchange Offer with an address in the Borough of Manhattan, The City of New
York; and
(iv) comply in all material respects with all applicable laws.
(d) As soon as practicable after the close of the Registered
Exchange Offer, the Company shall:
(i) accept for exchange all Securities tendered and not validly
withdrawn pursuant to the Registered Exchange Offer;
(ii) deliver to the Trustee for cancellation all securities so
accepted for exchange; and
(iii) cause the Trustee or the New Securities Trustee, as the case
may be, promptly to authenticate and deliver to each Holder of Securities
New Securities equal in principal amount to the Securities of such Holder
so accepted for exchange.
(e) The Purchasers and the Company acknowledge that, pursuant to
interpretations by the Commission's staff of Section 5 of the Act, and in the
absence of an applicable exemption therefrom, each Exchanging Dealer is required
to deliver a Prospectus in connection with a sale of any New Securities received
by such Exchanging Dealer pursuant to the Registered Exchange Offer in exchange
for Securities acquired for its own account as a result of market-making
activities or other trading activities. Accordingly, the Company shall:
(i) include the information set forth in Annex A hereto on the
cover of the Exchange Offer Registration Statement, in Annex B hereto in
the forepart of the Exchange
<PAGE>
6
Offer Registration Statement in a section setting forth details of the
Exchange Offer, and in Annex C hereto in the underwriting or plan of
distribution section of the Prospectus forming a part of the Exchange Offer
Registration Statement, and include the information set forth in Annex D
hereto in the Letter of Transmittal delivered pursuant to the Registered
Exchange Offer; and
(ii) use its best efforts to keep the Exchange Offer Registration Statement
continuously effective under the Act during the Exchange Offer Registration
Period for delivery by Exchanging Dealers in connection with sales of New
Securities received pursuant to the Registered Exchange Offer, as
contemplated by Section 4(h) below.
(f) In the event that any Purchaser determines that it is not eligible to
participate in the Registered Exchange Offer with respect to the exchange of
Securities constituting any portion of an unsold allotment, at the request of
such Purchaser, the Company shall issue and deliver to such Purchaser or the
party purchasing New Securities registered under a Shelf Registration Statement
as contemplated by Section 3 hereof from such Purchaser, in exchange for such
Securities, a like principal amount of New Securities. The Company shall seek
to cause the CUSIP Service Bureau to issue the same CUSIP number for such New
Securities as for New Securities issued pursuant to the Registered Exchange
Offer.
3. Shelf Registration. If, (i) because of any change in law or
------------------
applicable interpretations thereof by the Commission's staff, the Company
determines upon advice of its outside counsel that it is not permitted to effect
the Registered Exchange Offer as contemplated by Section 2 hereof, or (ii) for
any other reason the Exchange Offer Registration Statement has not been filed
with the Commission within 60 days of the Closing Date, or (iii) for any other
reason the Registered Exchange Offer is not consummated within 180 days of the
Closing Date, or (iv) any Purchaser so requests with respect to Securities held
by it following consummation of the Registered Exchange Offer, or (v) in the
case of any Purchaser that participates in the Registered Exchange Offer or
acquires New Securities pursuant to Section 2(f) hereof, such Purchaser does not
receive freely tradeable New Securities in exchange for Securities constituting
any portion of an unsold allotment (it being understood that, for purposes of
this Section 3, (x) the requirement that a Purchaser deliver a Prospectus
containing the information required by Items 507 and/or 508 of Regulation S-K
under the Act in connection with sales of New Securities acquired in exchange
for such Securities shall result in such New Securities being not "freely
tradeable"
<PAGE>
7
but (y) the requirement that an Exchanging Dealer deliver a Prospectus in
connection with sales of New Securities acquired in the Registered Exchange
Offer in exchange for Securities acquired as a result of market-making
activities or other trading activities shall not result in such New Securities
being not "freely tradeable"), the following provisions shall apply:
(a) The Company shall as promptly as practicable (but in no event
more than 30 days after so required or requested pursuant to this Section 3),
file with the Commission and thereafter shall use its best efforts to cause to
be declared effective under the Act a Shelf Registration Statement relating to
the offer and sale of the Securities or the New Securities, as applicable, by
the Holders from time to time in accordance with the methods of distribution
elected by such Holders and set forth in such Shelf Registration Statement;
provided, that with respect to New Securities received by a Purchaser in
- --------
exchange for Securities constituting any portion of an unsold allotment, the
Company may, if permitted by current interpretations by the Commission's staff,
file a post-effective amendment to the Exchange Offer Registration Statement
containing the information required by Regulation S-K Items 507 and/or 508, as
applicable, in satisfaction of its obligations under this paragraph (a) with
respect thereto, and any such Exchange Offer Registration Statement, as so
amended, shall be referred to herein as, and governed by the provisions herein
applicable to, a Shelf Registration Statement.
(b) The Company shall use its best efforts to keep the Shelf
Registration Statement continuously effective in order to permit the Prospectus
forming part thereof to be usable by Holders for a period of two years from the
date the Shelf Registration Statement is declared effective by the Commission or
such shorter period that will terminate when all the Securities or New
Securities, as applicable, covered by the Shelf Registration Statement have been
sold pursuant to the Shelf Registration Statement (in any such case, such period
being called the "Shelf Registration Period"). The Company shall be deemed not
to have used its best efforts to keep the Shelf Registration Statement effective
during the requisite period if it voluntarily takes any action that would result
in Holders of securities covered thereby not being able to offer and sell such
securities during that period, unless (i) such action is required by applicable
law, or (ii) such action is taken by the Company in good faith and for valid
business reasons (not including avoidance of the Company's obligations
hereunder), including the acquisition or divestiture of assets, so long as the
Company promptly thereafter complies with the requirements of Section 4(k)
hereof, if applicable.
<PAGE>
8
(c) No Holder of Securities may include any of its Securities in any Shelf
Registration Statement pursuant to this Agreement unless such Holder furnishes
to the Company in writing, within 10 days after receipt of a request therefor,
such information as the Company may reasonably request for use in connection
with any Shelf Registration Statement or Prospectus or preliminary Prospectus
included therein, and each such Holder agrees to furnish promptly to the Company
all information required to be disclosed in order to make the information
previously furnished to the Company by such Holder not materially misleading.
4. Registration Procedures. In connection with any Shelf Registration
-----------------------
Statement and, to the extent applicable, any Exchange Offer Registration
Statement, the following provisions shall apply:
(a) The Company shall furnish to you, prior to the filing thereof with
the Commission, a copy of any Shelf Registration Statement and any Exchange
Offer Registration Statement, and each amendment thereof and each amendment
or supplement, if any, to the Prospectus included therein and shall use its
best efforts to reflect in each such document, when so filed with the
Commission, such comments as you and your counsel reasonably may propose.
(b) The Company shall ensure that (i) any Registration Statement and any
amendment thereto and any Prospectus forming part thereof and any amendment
or supplement thereto complies in all material respects with the Act and the
rules and regulations thereunder, (ii) any Registration Statement and any
amendment thereto does not, when it becomes effective, contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading and
(iii) any Prospectus forming part of any Registration Statement, and any
amendment or supplement to such Prospectus, does not include an untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements, in the light of the circumstances under which
they were made, not misleading.
(c) (1) The Company shall advise you and, in the case of a Shelf
Registration Statement, the Holders of securities covered thereby, and, if
requested by you or any such Holder, confirm such advice in writing:
(i) when a Registration Statement and any amendment thereto has been
filed with the Commission
<PAGE>
9
and when the Registration Statement or any post-effective amendment thereto
has become effective; and
(ii) of any request by the Commission for amendments or supplements
to the Registration Statement or the Prospectus included therein or for
additional information.
(2) The Company shall, during the Shelf Registration Period or the
Exchange Offer Registration Period, as applicable, advise you and, in the case
of a Shelf Registration Statement, the Holders of securities covered thereby,
and, in the case of an Exchange Offer Registration Statement, any Exchanging
Dealer which has provided in writing to the Company a telephone or facsimile
number and address for notices, and, if requested by you or any such Holder or
Exchanging Dealer, confirm such advice in writing:
(i) of the issuance by the Commission of any stop order suspending
the effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose;
(ii) of the receipt by the Company of any notification with respect
to the suspension of the qualification of the securities included therein
for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose; and
(iii) of the happening of any event that requires the making of any
changes in the Registration Statement or the Prospectus so that, as of such
date, the statements therein are not misleading and do not omit to state a
material fact required to be stated therein or necessary to make the
statements therein (in the case of the Prospectus, in light of the
circumstances under which they were made) not misleading (which advice
shall be accompanied by an instruction to suspend the use of the Prospectus
until the requisite changes have been made).
(d) The Company shall use its best efforts to obtain the withdrawal of any
order suspending the effectiveness of any Registration Statement at the earliest
possible time.
(e) The Company shall furnish to each Holder of securities included within
the coverage of any Shelf Registration Statement, without charge, at least one
copy of such Shelf Registration Statement and any post-effective
<PAGE>
10
amendment thereto, including financial statements and schedules, and, if the
Holder so requests in writing, all exhibits (including those incorporated by
reference).
(f) The Company shall, during the Shelf Registration Period, deliver to
each Holder of securities included within the coverage of any Shelf Registration
Statement, without charge, as many copies of the Prospectus (including each
preliminary Prospectus) included in such Shelf Registration Statement and any
amendment or supplement thereto as such Holder may reasonably request; and the
Company consents to the use of the Prospectus or any amendment or supplement
thereto by each of the selling Holders of securities in connection with the
offering and sale of the securities covered by the Prospectus or any amendment
or supplement thereto.
(g) The Company shall furnish to each Exchanging Dealer which so requests,
without charge, at least one copy of the Exchange Offer Registration Statement
and any post-effective amendment thereto, including financial statements and
schedules, any documents incorporated by reference therein, and, if the
Exchanging Dealer so requests in writing, all exhibits (including those
incorporated by reference).
(h) The Company shall, during the Exchange Offer Registration Period,
promptly deliver to each Exchanging Dealer, without charge, as many copies of
the Prospectus included in such Exchange Offer Registration Statement and any
amendment or supplement thereto as such Exchanging Dealer may reasonably request
for delivery by such Exchanging Dealer in connection with a sale of New
Securities received by it pursuant to the Registered Exchange Offer; and the
Company consents to the use of the Prospectus or any amendment or supplement
thereto by any such Exchanging Dealer, as aforesaid.
(i) Prior to the Registered Exchange Offer or any other offering of
securities pursuant to any Registration Statement, the Company shall register or
qualify or cooperate with the Holders of securities included therein and their
respective counsel in connection with the registration or qualification of such
securities for offer and sale under the securities or blue sky laws of such
jurisdictions as any such Holders reasonably request in writing and do any and
all other acts or things necessary or advisable to enable the offer and sale in
such jurisdictions of the securities covered by such Registration Statement;
<PAGE>
11
provided, however, that the Company will not be required to qualify
-------- -------
generally to do business in any jurisdiction where it is not then so
qualified or to take any action which would subject it to general service
of process or to taxation in any such jurisdiction where it is not then so
subject.
(j) The Company shall cooperate with the Holders of Securities to
facilitate the timely preparation and delivery of certificates representing
Securities to be sold pursuant to any Registration Statement free of any
restrictive legends and in such denominations and registered in such names
as Holders may request prior to sales of securities pursuant to such
Registration Statement.
(k) Upon the occurrence of any event contemplated by paragraph
(c)(2)(iii) above, the Company shall promptly prepare a post-effective
amendment to any Registration Statement or an amendment or supplement to
the related Prospectus or file any other required document so that, as
thereafter delivered to purchasers of the securities included therein, the
Prospectus will not include an untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(l) Not later than the effective date of any such Registration
Statement hereunder, the Company shall provide a CUSIP number for the
Securities or New Securities, as the case may be, registered under such
Registration Statement, and provide the applicable trustee with printed
certificates for such Securities or New Securities, in a form eligible for
deposit with The Depository Trust Company.
(m) The Company shall use its best efforts to comply with all
applicable rules and regulations of the Commission and shall make generally
available to its security holders as soon as practicable after the
effective date of the applicable Registration Statement an earnings
statement satisfying the provisions of Section 11(a) of the Act.
(n) The Company shall cause the Indenture or the New Securities
Indenture, as the case may be, to be qualified under the Trust Indenture
Act in a timely manner.
(o) The Company may require each Holder of securities to be sold
pursuant to any Shelf Registration Statement to furnish to the Company such
information regarding the holder
<PAGE>
12
and the distribution of such securities as the Company may from time to
time reasonably require for inclusion in such Registration Statement.
(p) The Company shall, if requested, promptly incorporate in a
Prospectus supplement or post-effective amendment to a Shelf Registration
Statement, such information as the Managing Underwriters and Majority
Holders reasonably agree should be included therein and shall make all
required filings of such Prospectus supplement or post-effective amendment
as soon as notified of the matters to be incorporated in such Prospectus
supplement or post-effective amendment.
(q) In the case of any Shelf Registration Statement, the Company shall
enter into such agreements (including underwriting agreements) and take all
other appropriate actions in order to expedite or facilitate the
registration or the disposition of the Securities, and in connection
therewith, if an underwriting agreement is entered into, cause the same to
contain indemnification provisions and procedures no less favorable than
those set forth in Section 6 (or such other provisions and procedures
acceptable to the Majority Holders and the Managing Underwriters, if any)
with respect to all parties to be indemnified pursuant to Section 6 from
Holders of Securities to the Company.
(r) In the case of any Shelf Registration Statement, the Company shall
(i) make reasonably available for inspection by the Holders of securities
to be registered thereunder, any underwriter participating in any
disposition pursuant to such Registration Statement, and any attorney,
accountant or other agent retained by the Holders or any such underwriter
such financial and other books and records of the Company as shall be
necessary to conduct a reasonable investigation; (ii) cause the Company's
officers, directors and employees to supply all relevant information
reasonably requested by the Holders or any such underwriter, attorney,
accountant or agent in connection with any such Registration Statement as
is customary for similar due diligence examinations; provided, however,
-------- -------
that any information that is designated in writing by the Company, in good
faith, as confidential at the time of delivery of such information shall be
kept confidential by the Holders or any such underwriter, attorney,
accountant or agent, unless such disclosure is made in connection with a
court proceeding or required by law, or such information becomes available
to the public generally or through a third party without an
<PAGE>
13
accompanying obligation of confidentiality; (iii) make such representations
and warranties to the Holders of securities registered thereunder and the
underwriters, if any, in form, substance and scope as are customarily made
by issuers to underwriters in primary underwritten offerings and covering
matters including, but not limited to, those set forth in the Purchase
Agreement; (iv) obtain opinions of counsel to the Company and updates
thereof (which counsel and opinions (in form, scope and substance) shall be
reasonably satisfactory to the Managing Underwriters, if any) addressed to
each selling Holder and the underwriters, if any, covering such matters as
are customarily covered in opinions requested in underwritten offerings and
such other matters as may be reasonably requested by such Holders and
underwriters; (v) obtain "cold comfort" letters and updates thereof from
the independent certified public accountants of the Company (and, if
necessary, any other independent certified public accountants of any
subsidiary of the Company or of any business acquired by the Company for
which financial statements and financial data are, or are required to be,
included in the Registration Statement), addressed to each selling Holder
of securities registered thereunder and the underwriters, if any, in
customary form and covering matters of the type customarily covered in
"cold comfort" letters in connection with primary underwritten offerings;
and (vi) deliver such documents and certificates as may be reasonably
requested by the Majority Holders and the Managing Underwriters, if any,
including those to evidence compliance with Section 4(k) and with any
customary conditions contained in the underwriting agreement or other
agreement entered into by the Company. The foregoing actions set forth in
clauses (iii), (iv), (v) and (vi) of this Section 4(r) shall be performed
at (A) the effectiveness of such Registration Statement and each post-
effective amendment thereto and (B) each closing under any underwriting or
similar agreement as and to the extent required thereunder.
(s) In the case of any Exchange Offer Registration Statement, the
Company shall (i) make reasonably available for inspection by such
Purchaser, and any attorney, accountant or other agent retained by such
Purchaser, such financial and other information and books and records of
the Company as shall be necessary to conduct a reasonable investigation;
(ii) cause the Company's officers, directors and employees to supply all
relevant information reasonably requested by such Purchaser or any such
attorney, accountant or agent in connection with any such Registration
Statement as is customary for similar due diligence examinations;
<PAGE>
14
provided, however, that any information that is designated in writing by
-------- -------
the Company, in good faith, as confidential at the time of delivery of such
information shall be kept confidential by such Purchaser or any such
attorney, accountant or agent, unless such disclosure is made in connection
with a court proceeding or required by law, or such information becomes
available to the public generally or through a third party without an
accompanying obligation of confidentiality; (iii) make such representations
and warranties to such Purchaser, in form, substance and scope as are
customarily made by issuers to underwriters in primary underwritten
offerings and covering matters including, but not limited to, those set
forth in the Purchase Agreement; (iv) obtain opinions of counsel to the
Company and updates thereof (which counsel and opinions (in form, scope and
substance) shall be reasonably satisfactory to such Purchaser and its
counsel, addressed to such Purchaser, covering such matters as are
customarily covered in opinions requested in underwritten offerings and
such other matters as may be reasonably requested by such Purchaser or its
counsel; (v) obtain "cold comfort" letters and updates thereof from the
independent certified public accountants of the Company (and, if necessary,
any other independent certified public accountants of any subsidiary of the
Company or of any business acquired by the Company for which financial
statements and financial data are, or are required to be, included in the
Registration Statement), addressed to such Purchaser, in customary form and
covering matters of the type customarily covered in "cold comfort" letters
in connection with primary underwritten offerings, or if requested by such
Purchaser or its counsel in lieu of a "cold comfort" letter, an agreed-upon
procedures letter under Statement on Auditing Standards No. 35, covering
matters requested by such Purchaser or its counsel; and (vi) deliver such
documents and certificates as may be reasonably requested by such Purchaser
or its counsel, including those to evidence compliance with Section 4(k)
and with conditions customarily contained in underwriting agreements. The
foregoing actions set forth in clauses (iii), (iv), (v), and (vi) of this
Section 4(s) shall be performed at the close of the Registered Exchange
Offer and the effective date of any post-effective amendment to the
Exchange Offer Registration Statement.
5. Registration Expenses. The Company shall bear all expenses
---------------------
incurred in connection with the performance of its obligations under Sections 2,
3 and 4 hereof and, in the event of any Shelf Registration Statement, will
reimburse the Holders for the reasonable fees and disbursements of one firm or
counsel
<PAGE>
15
designated by the Majority Holders to act as counsel for the Holders in
connection therewith, and, in the case of any Exchange Offer Registration
Statement, will reimburse the Purchasers for the reasonable fees and
disbursements of counsel acting in connection therewith. Notwithstanding the
foregoing, the Holders of any Securities or New Securities being registered on
the Shelf Registration Statement shall pay all agency or brokerage fees and
commissions and underwriting discounts and commissions attributable to the sale
of such Securities or New Securities and the fees and disbursements of any
counsel retained by such Holders other that counsel referred to above.
6. Indemnification and Contribution.
--------------------------------
(a) In connection with any Registration Statement, the Company agrees
to indemnify and hold harmless each Holder of securities covered thereby
(including each Purchaser and, with respect to any Prospectus delivery as
contemplated in Section 4(h) hereof, each Exchanging Dealer), the
directors, officers, employees and agents of each such Holder and each
person who controls any such Holder within the meaning of either the Act or
the Exchange Act against any and all losses, claims, damages or
liabilities, joint or several, to which they or any of them may become
subject under the Act, the Exchange Act or other Federal or state statutory
law or regulation, at common law or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of
or are based upon any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement as originally filed
or in any amendment thereof, or in any preliminary Prospectus or
Prospectus, or in any amendment thereof or supplement thereto, or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and agrees to reimburse each such
indemnified party, as incurred, for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such
loss, claim, damage, liability or action; provided, however, that the
-------- -------
Company will not be liable in any case to the extent that any such loss,
claim, damage or liability arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon and in conformity with written information
furnished to the Company by or on behalf of any such Holder specifically
for inclusion therein. This indemnity agreement will be in addition to any
liability which the Company may otherwise have.
<PAGE>
16
The Company also agrees to indemnify or contribute to Losses of, as
provided in Section 6(d), any underwriters of Securities registered under a
Shelf Registration Statement, their officers and directors and each person
who controls such underwriters on substantially the same basis as that of
the indemnification of the Purchaser and the selling Holders provided in
this Section 6(a) and shall, if requested by any Holder, enter into an
underwriting agreement reflecting such agreement, as provided in Section
4(q) hereof.
(b) Each Holder of securities covered by a Registration Statement
(including each Purchaser and, with respect to any Prospectus delivery as
contemplated in Section 4(h) hereof, each Exchanging Dealer) severally
agrees to indemnify and hold harmless (i) the Company, (ii) each of its
directors, (iii) each of its officers who signs such Registration Statement
and (iv) each person who controls the Company within the meaning of either
the Act or the Exchange Act to the same extent as the foregoing indemnity
from the Company to each such Holder, but only with reference to written
information relating to such Holder furnished to the Company by or on
behalf of such Holder specifically for inclusion in the documents referred
to in the foregoing indemnity. This indemnity agreement will be in addition
to any liability which any such Holder may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
6 or notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against the indemnifying party
under this Section 6, notify the indemnifying party in writing of the
commencement thereof; but the failure so to notify the indemnifying party
(i) will not relieve it from liability under paragraph (a) or (b) above
unless and to the extent it did not otherwise learn of such action and such
failure results in the forfeiture by the indemnifying party of substantial
rights and defenses and (ii) will not, in any event, relieve the
indemnifying party from any obligations to any indemnified party other than
the indemnification obligation provided in paragraph (a) or (b) above. The
indemnifying party shall be entitled to appoint counsel of the indemnifying
party's choice at the indemnifying party's expense to represent the
indemnified party in any action for which indemnification is sought (in
which case the indemnifying party shall not thereafter be responsible for
the fees and expenses of any separate counsel retained by the indemnified
party or parties except as set forth below); provided, however, that such
-------- -------
counsel shall be satisfactory
<PAGE>
17
to the indemnified party. Notwithstanding the indemnifying party's election
to appoint counsel to represent the indemnified party in an action, the
indemnified party shall have the right to employ separate counsel
(including local counsel), and the indemnifying party shall bear the
reasonable fees, costs and expenses of such separate counsel (and local
counsel) if (i) the use of counsel chosen by the indemnifying party to
represent the indemnified party would present such counsel with a conflict
of interest, (ii) the actual or potential defendants in, or targets of, any
such action include both the indemnified party and the indemnifying party
and the indemnified party shall have reasonably concluded that there may be
legal defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party,
(iii) the indemnifying party shall not have employed counsel satisfactory
to the indemnified party to represent the indemnified party within a
reasonable time after notice of the institution of such action or (iv) the
indemnifying party shall authorize the indemnified party to employ separate
counsel at the expense of the indemnifying party. An indemnifying party
will not, without the prior written consent of the indemnified parties,
settle or compromise or consent to the entry of any judgment with respect
to any pending or threatened claim, action, suit or proceeding in respect
of which indemnification or contribution may be sought hereunder (whether
or not the indemnified parties are actual or potential parties to such
claim or action) unless such settlement, compromise or consent includes an
unconditional release of each indemnified party from all liability arising
out of such claim, action, suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a) or (b)
of this Section 6 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, then each applicable indemnifying party,
in lieu of indemnifying such indemnified party, shall have a joint and
several obligation to contribute to the aggregate losses, claims, damages
and liabilities (including legal or other expenses reasonably incurred in
connection with investigating or defending same) (collectively "Losses") to
which such indemnified party may be subject in such proportion as is
appropriate to reflect the relative benefits received by such indemnifying
party, on the one hand, and such indemnified party, on the other hand, from
the Initial Placement and the Registration Statement which resulted in such
Losses; provided, however, that in no case shall any Purchaser or any
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subsequent Holder of any Security
<PAGE>
18
or New Security be responsible, in the aggregate, for any amount in excess
of the purchase discount or commission applicable to such Security, or in
the case of a New Security, applicable to the Security which was
exchangeable into such New Security, as set forth on the cover page of the
Final Memorandum, nor shall any underwriter be responsible for any amount
in excess of the underwriting discount or commission applicable to the
securities purchased by such underwriter under the Registration Statement
which resulted in such Losses. If the allocation provided by the
immediately preceding sentence is unavailable for any reason, the
indemnifying party and the indemnified party shall contribute in such
proportion as is appropriate to reflect not only such relative benefits but
also the relative fault of such indemnifying party, on the one hand, and
such indemnified party, on the other hand, in connection with the
statements or omissions which resulted in such Losses as well as any other
relevant equitable considerations. Benefits received by the Company shall
be deemed to be equal to the sum of (x) the total net proceeds from the
Initial Placement (before deducting expenses) as set forth on the cover
page of the Final Memorandum and (y) the total amount of additional
interest which the Company was not required to pay as a result of
registering the securities covered by the Registration Statement which
resulted in such Losses. Benefits received by the Purchasers shall be
deemed to be equal to the total purchase discounts and commissions as set
forth on the cover page of the Final Memorandum, and benefits received by
any other Holders shall be deemed to be equal to the value of receiving
Securities or New Securities, as applicable, registered under the Act.
Benefits received by any underwriter shall be deemed to be equal to the
total underwriting discounts and commissions, as set forth on the cover
page of the Prospectus forming a part of the Registration Statement which
resulted in such Losses. Relative fault shall be determined by reference to
whether any alleged untrue statement or omission relates to information
provided by the indemnifying party, on the one hand, or by the indemnified
party, on the other hand. The parties agree that it would not be just and
equitable if contribution were determined by pro rata allocation or any
other method of allocation which does not take account of the equitable
considerations referred to above. Notwithstanding the provisions of this
paragraph (d), no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. For
purposes of this Section
<PAGE>
19
6, each person who controls a Holder within the meaning of either the Act
or the Exchange Act and each director, officer, employee and agent of such
Holder shall have the same rights to contribution as such Holder, and each
person who controls the Company within the meaning of either the Act or the
Exchange Act, each officer of the Company who shall have signed the
Registration Statement and each director of the Company shall have the same
rights to contribution as the Company, subject in each case to the
applicable terms and conditions of this paragraph (d).
(e) The provisions of this Section 6 will remain in full force and
effect, regardless of any investigation made by or on behalf of any Holder
or the Company or any of the officers, directors or controlling persons
referred to in Section 6 hereof, and will survive the sale by a Holder of
securities covered by a Registration Statement.
7. Underwritten Offerings. No Holder may participate in any
----------------------
underwritten Shelf Registration Statement hereunder unless such Holder (i)
agrees to sell such Holder's Securities on the basis provided in any
underwriting arrangements entered into in connection therewith and (ii)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements.
8. Miscellaneous.
-------------
(a) No Inconsistent Agreements. The Company has not, as of the date
--------------------------
hereof, entered into, nor shall it, on or after the date hereof, enter
into, any agreement with respect to its securities that is inconsistent
with the rights granted to the Holders herein or otherwise conflicts with
the provisions hereof.
(b) Amendments and Waivers. The provisions of this Agreement,
----------------------
including the provisions of this sentence, may not be amended, qualified,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given, unless the Company has obtained the
written consent of the Holders of at least a majority of the then
outstanding aggregate principal amount of Securities (or, after the
consummation of any Exchange Offer in accordance with Section 2 hereof, of
Securities and New Securities); provided that, with respect to any matter
--------
that directly or indirectly affects the rights of any Purchaser hereunder,
the Company shall obtain the written consent of each such Purchaser against
which such amendment,
<PAGE>
20
qualification, supplement, waiver or consent is to be effective.
Notwithstanding the foregoing (except the foregoing proviso), a waiver or
consent to departure from the provisions hereof with respect to a matter
that relates exclusively to the rights of Holders whose securities are
being sold pursuant to a Registration Statement and that does not directly
or indirectly affect the rights of other Holders may be given by the
Majority Holders, determined on the basis of securities being sold rather
than registered under such Registration Statement.
(c) Notices. All notices and other communications provided for or
-------
permitted hereunder shall be made in writing by hand-delivery, first-class
mail, telex, telecopier, or air courier guaranteeing overnight delivery:
(1) if to a Holder, at the most current address given by such
holder to the Company in accordance with the provisions of this
Section 7(c), which address initially is, with respect to each Holder,
the address of such Holder maintained by the Registrar under the
Indenture, with a copy in like manner to Salomon Smith Barney Inc.;
(2) if to you, initially at the respective addresses set forth in
the Purchase Agreement; and
(3) if to the Company, initially at its address set forth in the
Purchase Agreement.
All such notices and communications shall be deemed to have been duly
given at the time delivered by hand, if personally delivered, five business
days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt acknowledged, if telecopied; and on
the next business day, if timely delivered to an air courier guaranteeing
overnight delivery.
The Purchasers or the Company by notice to the other may designate
additional or different addresses for subsequent notices or communications.
(d) Successors and Assigns. This Agreement shall inure to the benefit
----------------------
of and be binding upon the successors and assigns of each of the parties,
including, without the need for an express assignment or any consent by the
Company thereto, subsequent Holders of Securities and/or New Securities.
The Company hereby agrees to extend the benefits of this Agreement to any
Holder of Securities
<PAGE>
21
and/or New Securities and any such Holder may specifically enforce the
provisions of this Agreement as if an original party hereto.
(e) Counterparts. This agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
(f) Headings. The headings in this agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(g) Governing Law. This agreement shall be governed by and construed
-------------
in accordance with the laws of the State of New York applicable to
agreements made and to be performed in said State.
(h) Severability. In the event that any one or more of the provisions
------------
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions hereof shall not be in any way
impaired or affected thereby, it being intended that all of the rights and
privileges of the parties shall be enforceable to the fullest extent
permitted by law.
(i) Securities Held by the Company, etc. Whenever the consent or
-----------------------------------
approval of Holders of a specified percentage of principal amount of
Securities or New Securities is required hereunder, Securities or New
Securities, as applicable, held by the Company or its Affiliates (other
than subsequent Holders of Securities or New Securities if such subsequent
Holders are deemed to be Affiliates solely by reason of their holdings of
such Securities or New Securities) shall not be counted in determining
whether such consent or approval was given by the Holders of such required
percentage.
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
between the Company and you.
Very truly yours,
MCLEODUSA INCORPORATED
By: __________________________
Name:
Title:
Accepted in New York, New York
October 30, 1998
SALOMON SMITH BARNEY INC.
By: _______________________
Name:
Title:
BEAR, STEARNS & CO. INC.
By: _______________________
Name:
Title:
MORGAN STANLEY & CO. INCORPORATED
By: ________________________
Name:
Title:
CHASE SECURITIES INC.
By: ________________________
Name:
Title:
<PAGE>
[FORM OF OFFERING MEMORANDUM DESCRIPTION OF
REGISTRATION AGREEMENT]
EXCHANGE OFFER; REGISTRATION RIGHTS
The Company and the Initial Purchasers will enter into the Registration
Agreement on or prior to the Closing Date. The Company will agree, pursuant to
the Registration Agreement with the Initial Purchasers, for the benefit of the
holders, that the Company will, at its cost, (i) no later than 60 days after the
Closing Date file the Exchange Offer Registration Statement with the Commission
relating to the Registered Exchange Offer to exchange the Notes for Exchange
Notes having terms substantially identical in all material respects to the Notes
(except that the Exchange Notes will not contain terms with respect to transfer
restrictions) and (ii) use its best efforts to cause the Exchange Offer
Registration Statement to be declared effective under the Securities Act not
later than 150 days after the Closing Date. Upon the effectiveness of the
Exchange Offer Registration Statement, the Company will offer the Exchange Notes
in exchange for surrender of the Notes. The Company will keep the Registered
Exchange Offer open for not less than 30 days and not more than 45 days (or
longer if required by applicable law) after the date notice of the Registered
Exchange Offer is mailed to the holders. For each Note surrendered to the
Company pursuant to the Registered Exchange Offer, the holder of such Note will
receive an Exchange Note having a principal amount equal to that of the
surrendered Note. Interest on each Exchange Note will accrue from the last
Interest Payment Date on which interest was paid on the Note surrendered in
exchange therefor, or, if no interest has been paid on such Note, from the date
of its original issue. Under existing Commission interpretations, the Exchange
Notes would be freely transferable by holders other than affiliates of the
Company after the Registered Exchange Offer without further registration under
the Securities Act if the holder of the Exchange Notes represents that it is
acquiring the Exchange Notes in the ordinary course of its business, that it has
no arrangement or understanding with any person to participate in the
distribution of the Exchange Notes and that it is not an affiliate of the
Company, as such terms are interpreted by the Commission; provided that broker-
dealers ("Participating Broker-Dealers") receiving Exchange Notes in the
Registered Exchange Offer will have a prospectus delivery requirement with
respect to
<PAGE>
2
resales of such Exchange Notes. The Commission has taken the position that
Participating Broker-Dealers may fulfill their prospectus delivery requirements
with respect to Exchange Notes (other than a resale of an unsold allotment from
the original sale of the Notes) with the prospectus contained in the Exchange
Offer Registration Statement. Under the Registration Agreement, the Company is
required to allow Participating Broker-Dealers and other persons, if any, with
similar prospectus delivery requirements to use the prospectus contained in the
Exchange Offer Registration Statement in connection with the resale of such
Exchange Notes.
A holder of Notes (other than certain specified holders) who wishes to
exchange such Notes for Exchange Notes in the Registered Exchange Offer will be
required to represent that any Exchange Notes to be received by it will be
acquired in the ordinary course of its business, and that at the time of the
commencement of the Registered Exchange Offer it has no arrangement or
understanding with any person to participate in the distribution (within the
meaning of the Securities Act) of the Exchange Notes and that it is not an
"affiliate" of the Company, as defined in Rule 405 of the Securities Act, or if
it is an affiliate, that it will comply with the registration and prospectus
delivery requirements of the Securities Act to the extent applicable.
In the event that applicable interpretations of the staff of the Commission
do not permit the Company to effect such a Registered Exchange Offer, or if for
any other reason the Registered Exchange Offer is not consummated within 180
days after the Closing Date, or if the Initial Purchasers so request with
respect to Notes not eligible to be exchanged for Exchange Notes in the
Registered Exchange Offer, or if any holder of Notes does not receive freely
tradeable Exchange Notes in the Registered Exchange Offer, the Company will, at
its cost, (a) as promptly as practicable, file a Shelf Registration Statement
covering resales of the Notes or the Exchange Notes, as the case may be, (b) use
its best efforts to cause the Shelf Registration Statement to be declared
effective under the Securities Act and (c) keep the Shelf Registration Statement
effective until two years after its effective date or such shorter period ending
when all resales of Notes or Exchange Notes covered by such Shelf Registration
Statement have been made. The Company will, in the event a Shelf Registration
Statement is filed, among other things, provide to each holder for whom such
Shelf Registration Statement was filed copies of the prospectus which is a part
of the Shelf Registration Statement, notify each such holder when the Shelf
Registration Statement has become effective and take certain other actions as
are required to permit unrestricted
<PAGE>
3
resales of the Notes or the Exchange Notes, as the case may be. A holder selling
such Notes or Exchange Notes pursuant to the Shelf Registration Statement
generally would be required to be named as a selling security holder in the
related prospectus and to deliver a prospectus to purchasers, will be subject to
certain of the civil liability provisions under the Securities Act in connection
with such sales and will be bound by the provisions of the Registration
Agreement which are applicable to such holder (including certain indemnification
obligations).
If (i) within 60 days after the Closing Date, neither the Exchange Offer
Registration Statement nor the Shelf Registration Statement has been filed with
the Commission; (ii) within 150 days after the Closing Date the Exchange Offer
Registration Statement has not been declared effective; (iii) within 180 days
after the Closing Date, neither the Registered Exchange Offer has been
consummated nor the Shelf Registration Statement has been declared effective; or
(iv) after either the Exchange Offer Registration Statement or the Shelf
Registration Statement has been declared effective, such Registration Statement
thereafter ceases to be effective or usable (subject to certain exceptions) in
connection with resales of Notes or Exchange Notes in accordance with and during
the periods specified in the Registration Agreement, Special Interest will
accrue and be payable semi-annually on the Notes and the Exchange Notes (in
addition to the stated interest on the Notes and the Exchange Notes) from and
including the date on which any such Registration Default shall occur to but
excluding the date on which all Registration Defaults have been cured. Special
Interest will accrue and be payable semi-annually at a rate of 0.50% per annum
during the 90-day period immediately following the occurrence of any
Registration Default and shall increase by 0.25% per annum at the end of each
subsequent 90-day period, but in no event shall such rate exceed 2.00% per annum
in the aggregate regardless of the number of Registration Defaults.
The summary herein of certain provisions of the Registration Agreement does
not purport to be complete and is subject to, and is qualified in its entirety
by reference to, all the provisions of the Registration Agreement, a copy of
which is available upon request to the Company.
<PAGE>
ANNEX A
Each broker-dealer that receives New Securities for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Securities. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of New
Securities received in exchange for Securities where such New Securities were
acquired by such broker-dealer as a result of market-making activities or other
trading activities. The Company has agreed that, starting on the Expiration
Date (as defined herein) and ending on the close of business on the first
anniversary of the Expiration Date, it will make this Prospectus available to
any broker-dealer for use in connection with any such resale. See "Plan of
Distribution."
<PAGE>
ANNEX B
Each broker-dealer that receives New Securities for its own account in exchange
for Securities, where such Securities were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such New
Securities. See "Plan of Distribution."
<PAGE>
ANNEX C
PLAN OF DISTRIBUTION
--------------------
Each broker-dealer that receives New Securities for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Securities. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of New Securities received in
exchange for Securities where such Securities were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that, starting on the Expiration Date and ending on the close of business on the
first anniversary of the Expiration Date, it will make this Prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale.
The Company will not receive any proceeds from any sale of New Securities
by broker-dealers. New Securities received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Securities or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Securities. Any broker-
dealer that resells New Securities that were received by it for its own account
pursuant to the Exchange Offer and any broker or dealer that participates in a
distribution of such New Securities may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit of any such resale of New
Securities and any commissions or concessions received by any such persons may
be deemed to be underwriting compensation under the Securities Act. The Letter
of Transmittal states that by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
For a period of 1 year after the Expiration Date, the Company will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any broker-dealer that requests such documents in the Letter
of Transmittal. The Company has agreed to pay all expenses incident to the
Exchange Offer (including the expenses of one counsel for the
<PAGE>
holders of the Securities) other than commissions or concessions of any brokers
or dealers and will indemnify the holders of the Securities (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
[If applicable, add information required by Regulation S-K Items 507 and/or
508.]
<PAGE>
ANNEX D
Rider A
-------
CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10
ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR
SUPPLEMENTS THERETO.
Name:________________________________
Address:_____________________________
_____________________________
Rider B
-------
If the undersigned is not a broker-dealer, the undersigned represents that it is
not engaged in, and does not intend to engage in, a distribution of New
Securities. If the undersigned is a broker-dealer that will receive New
Securities for its own account in exchange for Securities, it represents that
the Securities to be exchanged for New Securities were acquired by it as a
result of market-making activities or other trading activities and acknowledges
that it will deliver a prospectus in connection with any resale of such New
Securities; however, by so acknowledging and by delivering a prospectus, the
undersigned will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
<PAGE>
Exhibit 5.1
-----------
[Hogan & Hartson L.L.P. Letterhead]
December 23, 1998
McLeodUSA Incorporated
McLeodUSA Technology Park
6400 C Street, SW
P.O. Box 3177
Cedar Rapids, IA 52406
Ladies and Gentlemen:
This firm has acted as special counsel to McLeodUSA Incorporated, a
Delaware corporation (the "Company"), in connection with its Registration
Statement on Form S-4, as amended (the "Registration Statement"), filed with the
Securities and Exchange Commission relating to the proposed offering of up to
$300,000,000 in aggregate principal amount of 9-1/2% Senior Notes due November
1, 2008 (the "Exchange Notes") in exchange for up to $300,000,000 in aggregate
principal amount of the Company's outstanding 9-1/2% Senior Notes Due November
1, 2008 (the "Outstanding Notes"). 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 the Registration
Statement.
For purposes of this opinion letter, we have examined copies of the
following documents:
1. An executed copy of the Registration Statement.
2. An executed copy of the Indenture dated October 30, 1998 (the
"Indenture"), by and between the Company and United States Trust
Company of New York, including the form of Exchange Note to be issued
pursuant thereto, as filed as Exhibit 4.20 to the Registration
Statement.
3. The Amended and Restated Certificate of Incorporation of the Company,
as certified by the Secretary of State of the State of Delaware on
October 22, 1998 (the "Amended and Restated Certificate"), the
Certificate of Amendment of Amended and
<PAGE>
December 23, 1998
Page 2
Restated Certificate of Incorporation of the Company, as certified by
the Secretary of State of the State of Delaware on October 22, 1998
(the "Certificate of Amendment") , the Certificate of Change of
Registered Agent and Registered Office of the Company, as certified by
the Secretary of State of the State of Delaware on October 22, 1998
(together with the Amended and Restated Certificate and the
Certificate of Amendment, the "Certificate of Incorporation"), and the
Certificate of Incorporation as certified by the Secretary of the
Company on the date hereof as being complete, accurate and in effect.
4. The Amended and Restated By-laws of the Company, as certified by the
Secretary of the Company on the date hereof as being complete,
accurate and in effect.
5. Resolutions of the Board of Directors of the Company adopted on
September 30, 1998, as certified by the Secretary of the Company on
the date hereof as being complete, accurate and in effect, relating to
the issuance and sale of the Exchange Notes and arrangements in
connection therewith.
In our examination of the aforesaid documents, we have assumed the
genuineness of all signatures, the legal capacity of all natural persons, the
accuracy and completeness of all documents submitted to us, the authenticity of
all original documents, and the conformity to authentic original documents of
all documents submitted to us as copies (including telecopies). This opinion
letter is given, and all statements herein are made, in the context of the
foregoing.
This opinion letter is based as to matters of law solely on applicable
provisions of the General Corporation Law of the State of Delaware. We express
no opinion herein as to any other laws, statutes, ordinances, rules or
regulations not specifically referred to above.
Based upon, subject to and limited by the foregoing, we are of the opinion
that the Exchange Notes have been duly authorized on behalf of the Company and
that, (i) following the effectiveness of the Registration Statement and receipt
by the Company of the Outstanding Notes in exchange for the Exchange Notes as
<PAGE>
December 23, 1998
Page 3
specified in the resolutions of the Board of Directors referred to above, and
(ii) assuming due execution, authentication, issuance and delivery of the
Exchange Notes as provided in the Indenture, the Exchange Notes will constitute
valid and binding obligations of the Company entitled to the benefits of the
Indenture and enforceable in accordance with their terms, except as may be
limited by bankruptcy, insolvency, reorganization, moratorium or other laws
affecting creditors' rights (including, without limitation, the effect of
statutory and other law 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 Exchange Notes are considered in a
proceeding in equity or at law).
We assume no obligation to advise you of any changes in the foregoing
subsequent to the delivery of this opinion letter. This opinion letter has been
prepared solely for your use in connection with the filing of the Registration
Statement on the date of this opinion letter and should not be quoted in whole
or in part or otherwise referred to, nor filed with or furnished to any
governmental agency or other person or entity, without the prior written consent
of this firm.
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.
<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 on Form S-4 of our McLeodUSA
Incorporated reports dated January 28, 1998, our Consolidated Communications
Inc. report dated March 14, 1997 and to all references to our Firm included in
or made part of this Registration Statement.
ARTHUR ANDERSEN LLP
Chicago, Illinois
December 21, 1998
<PAGE>
EXHIBIT 24.2
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
----------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
----------------
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(B)(2)
----------------
UNITED STATES TRUST COMPANY OF NEW YORK
(EXACT NAME OF TRUSTEE AS SPECIFIED IN ITS CHARTER)
NEW YORK 13-3818954
(I. R. S. EMPLOYER IDENTIFICATION
(JURISDICTION OF INCORPORATION IF NO.)
NOT A U. S. NATIONAL BANK)
10036-1532
114 WEST 47TH STREET
NEW YORK, NEW YORK (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
----------------
MCLEODUSA INCORPORATED
(EXACT NAME OF OBLIGOR AS SPECIFIED IN ITS CHARTER)
DELAWARE 42-1407240
(STATE OR OTHER JURISDICTION OF (I. R. S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) NO.)
MCLEODUSA TECHNOLOGY PARK 52406-3177
6400 C STREET, SW. P. O. BOX 3177 (ZIP CODE)
CEDAR RAPIDS, IA
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
----------------
9 1/2% SENIOR NOTES DUE NOVEMBER 1, 2008
(TITLE OF THE INDENTURE SECURITIES)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
GENERAL
1. GENERAL INFORMATION
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
Federal Reserve Bank of New York (2nd District), New York, New York
(Board of Governors of the Federal Reserve System)
Federal Deposit Insurance Corporation, Washington, D.C.
New York State Banking Department, Albany, New York
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. AFFILIATIONS WITH THE OBLIGOR
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None
3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15:
The obligor currently is not in default under any of its outstanding
securities for which United States Trust Company of New York is Trustee.
Accordingly, responses to Items 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15
of Form T-1 are not required under General Instruction B.
16. LIST OF EXHIBITS
<TABLE>
<C> <S>
T-1.1 --Organization Certificate, as amended, issued by the State of New York
Banking Department to transact business as a Trust Company, is
incorporated by reference to Exhibit T-1.1 to Form T-1 filed on
September 15, 1995 with the Commission pursuant to the Trust Indenture
Act of 1939, as amended by the Trust Indenture Reform Act of 1990
(Registration No. 33-97056).
T-1.2 --Included in Exhibit T-1.1.
T-1.3 --Included in Exhibit T-1.1.
</TABLE>
2
<PAGE>
16. LIST OF EXHIBITS (CONTINUED)
<TABLE>
<C> <S>
T-1.4 --The By-Laws of United States Trust Company of New York, as amended,
is incorporated by reference to Exhibit T-1.4 to Form T-1 filed on
September 15, 1995 with the Commission pursuant to the Trust Indenture
Act of 1939, as amended by the Trust Indenture Reform Act of 1990
(Registration No. 33-97056).
T-1.6 --The consent of the trustee required by Section 321(b) of the Trust
Indenture Act of 1939, as amended by the Trust Indenture Reform Act of
1990.
T-1.7 --A copy of the latest report of condition of the trustee pursuant to
law or the requirements of its supervising or examining authority.
</TABLE>
NOTE
As of December 22, 1998, the trustee had 2,999,020 shares of Common Stock
outstanding, all of which are owned by its parent company, U.S. Trust
Corporation. The term "trustee" in Item 2, refers to each of United States
Trust Company of New York and its parent company, U. S. Trust Corporation.
In answering Item 2 in this statement of eligibility as to matters
peculiarly within the knowledge of the obligor or its directors, the trustee
has relied upon information furnished to it by the obligor and will rely on
information to be furnished by the obligor and the trustee disclaims
responsibility for the accuracy or completeness of such information.
----------------
Pursuant to the requirements of the Trust Indenture Act of 1939, the
trustee, United States Trust Company of New York, a corporation organized and
existing under the laws of the State of New York, has duly caused this
statement of eligibility to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of New York, and State of New York,
on the 22nd day of December 1998.
UNITED STATES TRUST COMPANY
OF NEW YORK, Trustee
/s/ James E. Logan
By: _________________________________
James E. Logan
Vice President
3
<PAGE>
EXHIBIT T-1.6
THE CONSENT OF THE TRUSTEE REQUIRED BY SECTION 321(B) OF THE ACT.
UNITED STATES TRUST COMPANY OF NEW YORK
114 WEST 47TH STREET
NEW YORK, NY 10036
September 1, 1995
Securities and Exchange Commission
450 5th Street, N.W.
Washington, DC 20549
Gentlemen:
Pursuant to the provisions of Section 321(b) of the Trust Indenture Act of
1939, as amended by the Trust Indenture Reform Act of 1990, and subject to the
limitations set forth therein, United States Trust Company of New York ("U.S.
Trust") hereby consents that reports of examinations of U.S. Trust by Federal,
State, Territorial or District authorities may be furnished by such
authorities to the Securities and Exchange Commission upon request therefor.
Very truly yours,
UNITED STATES TRUST COMPANY
OF NEW YORK
By: _________________________________
Gerard F. Ganey
Senior Vice President
4
<PAGE>
EXHIBIT T-1.7
UNITED STATES TRUST COMPANY OF NEW YORK
CONSOLIDATED STATEMENT OF CONDITION
SEPTEMBER 30, 1998
($ IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Cash and Due from Banks............................................. $ 339,287
Short-Term Investments.............................................. 161,493
Securities, Available for Sale...................................... 563,176
Loans............................................................... 1,954,456
Less: Allowance for Credit Losses................................... 16,860
----------
Net Loans......................................................... 1,937,596
Premises and Equipment.............................................. 58,809
Other Assets........................................................ 120,308
----------
TOTAL ASSETS...................................................... $3,180,669
==========
LIABILITIES
Deposits:
Non-Interest Bearing.............................................. $ 646,593
Interest Bearing.................................................. 1,838,108
----------
Total Deposits.................................................. 2,484,701
Short-Term Credit Facilities........................................ 375,849
Accounts Payable and Accrued Liabilities............................ 142,513
----------
TOTAL LIABILITIES................................................. $3,003,068
==========
STOCKHOLDER'S EQUITY
Common Stock........................................................ 14,995
Capital Surplus..................................................... 49,541
Retained Earnings................................................... 109,648
Unrealized Gains on Securities Available for Sale (Net of Taxes).... 3,422
----------
TOTAL STOCKHOLDER'S EQUITY.......................................... 177,606
----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY........................ $3,180,669
==========
</TABLE>
I, Richard E. Brinkmann, Managing Director & Comptroller of the named
bank do hereby declare that this Statement of Condition has been prepared in
conformance with the instructions issued by the appropriate regulatory
authority and is true to the best of my knowledge and belief.
Richard E. Brinkmann, Managing Director & Controller
November 2, 1998
5
<PAGE>
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE
AT 5:00 P.M., NEW YORK CITY TIME, ON , 1999,
UNLESS EXTENDED (THE "EXPIRATION DATE").
MCLEODUSA INCORPORATED
LETTER OF TRANSMITTAL
OFFER TO EXCHANGE ITS 9 1/2% SENIOR NOTES DUE NOVEMBER 1, 2008
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS OUTSTANDING
9 1/2% SENIOR NOTES DUE NOVEMBER 1, 2008
PURSUANT TO THE PROSPECTUS DATED , 1999
The Exchange Agent
for the Exchange Offer is:
UNITED STATES TRUST COMPANY OF NEW YORK
By Facsimile: By Mail:
(212) 780-0592 United States Trust Company of New York
Attention: Customer Service P.O. Box 843 Cooper Station
Confirm by Telephone to: (800) 548-6565 New York, New York 10276
Attention: Corporate Trust Services
By Hand before 4:30 p.m.: By Overnight Courier and
By Hand after 4:30 p.m.:
United States Trust Company of New York
111 Broadway United States Trust Company of New York
New York, New York 10006 770 Broadway, 13th Floor
Attention: Lower Level Corporate Trust New York, New York 10003
Window
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE TO A
NUMBER OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS
LETTER OF TRANSMITTAL IS COMPLETED.
<PAGE>
Capitalized terms used but not defined herein shall have the same meaning
given them in the Prospectus (as defined below).
This Letter of Transmittal is to be completed by holders of Outstanding
Notes (as defined below) either if Outstanding Notes are to be forwarded
herewith or if tenders of Outstanding Notes are to be made by book-entry
transfer to an account maintained by United States Trust Company of New York
(the "Exchange Agent") at The Depository Trust Company ("DTC") pursuant to the
procedures set forth in "The Exchange Offer--Procedures for Tendering
Outstanding Notes" in the Prospectus.
Holders of Outstanding Notes whose certificates (the "Certificates") for
such Outstanding Notes are not immediately available or who cannot deliver
their Certificates, this Letter of Transmittal and all other required
documents to the Exchange Agent on or prior to the Expiration Date or who
cannot complete the procedures for book-entry transfer on a timely basis, may
tender their Outstanding Notes according to the guaranteed delivery procedures
set forth in "The Exchange Offer--Procedures for Tendering Outstanding Notes"
in the Prospectus.
DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE
AGENT.
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
List below the Outstanding Notes of which you are a holder. If the space
provided below is inadequate, list the certificate numbers and principal
amount on a separate signed schedule and attach that schedule to this Letter
of Transmittal. See Instruction 3.
ALL TENDERING HOLDERS COMPLETE THIS BOX:
DESCRIPTION OF OUTSTANDING NOTES TENDERED
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S)
(FILL IN, IF BLANK) OUTSTANDING NOTES TENDERED
- --------------------------------------------------------------------------------------------------------
CERTIFICATE
NUMBER(S)*
(ATTACH ADDITIONAL PRINCIPAL AMOUNT PRINCIPAL AMOUNT
LIST (ATTACH ADDITIONAL TENDERED (IF LESS
IF NECESSARY) LIST IF NECESSARY) THAN ALL)**
--------------------------------------------------------------------
<S> <C> <C> <C>
$
--------------------------------------------------------------------
--------------------------------------------------------------------
--------------------------------------------------------------------
--------------------------------------------------------------------
--------------------------------------------------------------------
TOTAL AMOUNT TENDERED: $ $
</TABLE>
- -------------------------------------------------------------------------------
* Need not be completed by book-entry holders. Such holders should check
the appropriate box below and provide the requested information.
** Need not be completed if tendering for exchange all Outstanding Notes
held. Outstanding Notes may be tendered in whole or in part in integral
multiples of $1,000 principal amount. All Outstanding Notes held shall
be deemed tendered unless a lesser number is specified in this column.
See Instruction 4.
2
<PAGE>
(BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY. SEE INSTRUCTION 1)
[_]CHECK HERE IF TENDERED OUTSTANDING NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT AT DTC AND
COMPLETE THE FOLLOWING:
Name of Tendering Institution: ______________________________________________
DTC Account Number: _________________________________________________________
Transaction Code Number: ____________________________________________________
[_]CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF
TENDERED OUTSTANDING NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE
FOLLOWING:
Name(s) of Registered Holder(s): ____________________________________________
Window Ticket Number (if any): ______________________________________________
Date of Notice of Guaranteed Delivery: ______________________________________
Institution Which Guaranteed Delivery: ______________________________________
If Guaranteed Delivery is to be made by book-entry transfer:
Name of Tendering Institution: ______________________________________________
DTC Account Number: _________________________________________________________
Transaction Code Number: ____________________________________________________
[_]CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED OUTSTANDING NOTES FOR
YOUR OWN ACCOUNT AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING
ACTIVITIES (A "PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10
ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR
SUPPLEMENTS THERETO.
Name: _______________________________________________________________________
Address: ____________________________________________________________________
_____________________________________________________________________
Telephone Number and Contact Person: ________________________________________
3
<PAGE>
LADIES AND GENTLEMEN:
The undersigned hereby tenders to McLeodUSA Incorporated, a Delaware
corporation (the "Company"), the above described principal amount of the
Company's 9 1/2% Senior Notes due November 1, 2008 (the "Outstanding Notes")
in exchange for a like principal amount of the Company's 9 1/2% Senior Notes
due November 1, 2008 (the "Exchange Notes"), which have been registered under
the Securities Act of 1933 (the "Securities Act"), upon the terms and subject
to the conditions set forth in the Prospectus dated ,1999 (as the same may
be amended or supplemented from time to time, the "Prospectus"), receipt of
which is hereby acknowledged, and in this Letter of Transmittal (which,
together with the Prospectus, constitute the "Exchange Offer").
Subject to and effective upon the acceptance for exchange of the Outstanding
Notes tendered herewith, the undersigned hereby sells, assigns and transfers
to or upon the order of the Company all right, title and interest in and to
such Outstanding Notes as are being tendered herewith. The undersigned hereby
irrevocably constitutes and appoints the Exchange Agent as its agent and
attorney-in-fact (with full knowledge that the Exchange Agent is also acting
as agent of the Company in connection with the Exchange Offer and as Trustee
under the October 1998 Indenture for the Outstanding Notes and the Exchange
Notes) with respect to the tendered Outstanding Notes, with full power of
substitution (such power of attorney being an irrevocable power coupled with
an interest), subject only to the right of withdrawal described in the
Prospectus, to: (i) deliver such Outstanding Notes to the Company together
with all accompanying evidences of transfer and authenticity to, or upon the
order of, the Company upon receipt by the Exchange Agent, as the undersigned's
agent, of the Exchange Notes to be issued in exchange for such Outstanding
Notes; (ii) present Certificates for such Outstanding Notes for transfer, and
to transfer such Outstanding Notes on the account books maintained by DTC; and
(iii) receive for the account of the Company all benefits and otherwise
exercise all rights of beneficial ownership of such Outstanding Notes, all in
accordance with the terms and conditions of the Exchange Offer.
THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT THE UNDERSIGNED HAS FULL
POWER AND AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER THE
OUTSTANDING NOTES TENDERED HEREBY AND THAT, WHEN THE SAME ARE ACCEPTED FOR
EXCHANGE, THE COMPANY WILL ACQUIRE GOOD, MARKETABLE AND UNENCUMBERED TITLE
THERETO, FREE AND CLEAR OF ALL LIENS, RESTRICTIONS, CHARGES AND ENCUMBRANCES,
AND THAT THE OUTSTANDING NOTES TENDERED HEREBY ARE NOT SUBJECT TO ANY ADVERSE
CLAIMS OR PROXIES. THE UNDERSIGNED WILL, UPON REQUEST, EXECUTE AND DELIVER ANY
ADDITIONAL DOCUMENTS DEEMED BY THE COMPANY OR THE EXCHANGE AGENT TO BE
NECESSARY OR DESIRABLE TO COMPLETE THE EXCHANGE, SALE, ASSIGNMENT AND TRANSFER
OF THE OUTSTANDING NOTES TENDERED HEREBY. THE UNDERSIGNED HAS READ AND AGREES
TO ALL OF THE TERMS OF THE EXCHANGE OFFER.
The name(s) and address(es) of the registered holder(s) of the Outstanding
Notes tendered hereby should be printed above, if they are not already set
forth above, as they appear on the Certificates representing such Outstanding
Notes. The Certificate number(s) and the Outstanding Notes that the
undersigned wishes to tender should be indicated in the appropriate boxes
above.
If any tendered Outstanding Notes are not exchanged pursuant to the Exchange
Offer for any reason, or if Certificates are submitted for more Outstanding
Notes than are tendered or accepted for exchange, Certificates for such
nonexchanged or nontendered Outstanding Notes will be returned (or, in the
case of Outstanding Notes tendered by book-entry transfer, such Outstanding
Notes will be credited to an account maintained at DTC), without expense to
the tendering holder promptly following the expiration or termination of the
Exchange Offer.
4
<PAGE>
The undersigned understands that tenders of Outstanding Notes pursuant to
any one of the procedures described in "The Exchange Offer--Procedures for
Tendering Outstanding Notes" in the Prospectus and in the instructions herein
will, upon the Company's acceptance for exchange of such tendered Outstanding
Notes, constitute a binding agreement between the undersigned and the Company
upon the terms and subject to the conditions of the Exchange Offer. The
undersigned recognizes that, under certain circumstances set forth in the
Prospectus, the Company may not be required to accept for exchange any of the
Outstanding Notes tendered hereby.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, the undersigned hereby directs that the Exchange Notes be
issued in the name(s) of the undersigned or, in the case of a book-entry
transfer of Outstanding Notes, that such Exchange Notes be credited to the
account indicated above maintained at DTC. If applicable, substitute
Certificates representing Outstanding Notes not exchanged or not accepted for
exchange will be issued to the undersigned or, in the case of a book-entry
transfer of Outstanding Notes, will be credited to the account indicated above
maintained at DTC. Similarly, unless otherwise indicated under "Special
Delivery Instructions," please deliver Exchange Notes to the undersigned at
the address shown below the undersigned's signature.
BY TENDERING OUTSTANDING NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL, THE
UNDERSIGNED HEREBY REPRESENTS AND AGREES THAT: (i) THE UNDERSIGNED IS NOT AN
"AFFILIATE" OF THE COMPANY (WITHIN THE MEANING OF RULE 405 UNDER THE
SECURITIES ACT), OR IF THE UNDERSIGNED IS AN AFFILIATE, THE UNDERSIGNED WILL
COMPLY WITH THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE
SECURITIES ACT TO THE EXTENT APPLICABLE; (ii) ANY EXCHANGE NOTES TO BE
RECEIVED BY THE UNDERSIGNED ARE BEING ACQUIRED IN THE ORDINARY COURSE OF ITS
BUSINESS; AND (iii) THE UNDERSIGNED HAS NO ARRANGEMENT OR UNDERSTANDING WITH
ANY PERSON TO PARTICIPATE IN A DISTRIBUTION (WITHIN THE MEANING OF THE
SECURITIES ACT) OF EXCHANGE NOTES TO BE RECEIVED IN THE EXCHANGE OFFER. IF THE
UNDERSIGNED IS NOT A BROKER-DEALER, BY TENDERING OUTSTANDING NOTES AND
EXECUTING THIS LETTER OF TRANSMITTAL, THE UNDERSIGNED REPRESENTS AND AGREES
THAT IT IS NOT ENGAGED IN, AND DOES NOT INTEND TO ENGAGE IN, A DISTRIBUTION OF
EXCHANGE NOTES. IF THE UNDERSIGNED IS A BROKER-DEALER THAT WILL RECEIVE
EXCHANGE NOTES FOR ITS OWN ACCOUNT IN EXCHANGE FOR OUTSTANDING NOTES PURSUANT
TO THE EXCHANGE OFFER, BY TENDERING OUTSTANDING NOTES AND EXECUTING THIS
LETTER OF TRANSMITTAL, THE UNDERSIGNED REPRESENTS AND AGREES THAT SUCH
OUTSTANDING NOTES WERE ACQUIRED BY SUCH BROKER-DEALER FOR ITS OWN ACCOUNT AS A
RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES AND IT WILL
DELIVER A PROSPECTUS MEETING THE REQUIREMENTS OF THE SECURITIES ACT IN
CONNECTION WITH ANY RESALE OF EXCHANGE NOTES (PROVIDED THAT, BY SO
ACKNOWLEDGING AND BY DELIVERING A PROSPECTUS, SUCH BROKER-DEALER WILL NOT BE
DEEMED TO ADMIT THAT IT IS AN "UNDERWRITER" WITHIN THE MEANING OF THE
SECURITIES ACT). THE COMPANY HAS AGREED THAT STARTING ON THE EXPIRATION DATE
AND ENDING ON THE CLOSE OF BUSINESS ON THE FIRST ANNIVERSARY OF THE EXPIRATION
DATE, IT WILL MAKE THE PROSPECTUS AVAILABLE TO ANY PARTICIPATING BROKER-DEALER
IN CONNECTION WITH ANY SUCH RESALE.
All authority herein conferred or agreed to be conferred in this Letter of
Transmittal shall survive the death or incapacity of the undersigned and any
obligation of the undersigned hereunder shall be binding upon the heirs,
executors, administrators, personal representatives, trustees in bankruptcy,
legal representatives, successors and assigns of the undersigned. Except as
stated in the Prospectus and in the Instructions contained in this Letter of
Transmittal, this tender is irrevocable.
5
<PAGE>
PLEASE SIGN HERE
PLEASE SIGN HERE
_____________________________________ _______________________________________
Authorized Signature
Authorized Signature
Name:________________________________
Name:__________________________________
Title:_______________________________
Title:_________________________________
Address:_____________________________
Address:_______________________________
_____________________________________
_______________________________________
Telephone Number:____________________
Telephone Number:______________________
Dated:_______________________________
Dated:_________________________________
_____________________________________ _______________________________________
Taxpayer Identification or Social Taxpayer Identification or Social
Security Number Security Number
(NOTE: Signature(s) must be guaranteed if required by Instructions 2 and 5.
This Letter of Transmittal must be signed by the registered holder(s) exactly
as the name(s) appear(s) on Certificate(s) for the Outstanding Notes hereby
tendered or on a security position listing, or by any person(s) authorized to
become the registered holder(s) by endorsements and documents transmitted
herewith, including such opinions of counsel, certifications and other
information as may be required by the Company or the Trustee for the
Outstanding Notes to comply with the restrictions on transfer applicable to
the Outstanding Notes. If signature is by an attorney-in-fact, executor,
administrator, trustee, guardian, officer of a corporation or another acting
in a fiduciary capacity or representative capacity, please set forth the
signer's full title. See Instructions 2 and 5. Please complete substitute Form
W-9 below.)
6
<PAGE>
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED--SEE INSTRUCTIONS 2 AND 5)
Signature(s) Guaranteed by an
Eligible Institution:____________________________ Date:______________________
AUTHORIZED SIGNATURE
Name of Eligible Institution
Guaranteeing Signature:______________________________________________________
Address:______________________________
______________________________________
Capacity (full title):____________ ______________________________________
Telephone Number:_________________
SPECIAL ISSUANCE INSTRUCTIONS(SEE SPECIAL DELIVERY INSTRUCTIONS (SEE
INSTRUCTIONS 2, 5 AND 6) INSTRUCTIONS 2, 5 AND 6)
To be completed ONLY if the Ex- To be completed ONLY if Exchange
change Notes or any Outstanding Notes or any Outstanding Notes
Notes that are not tendered are to that are not tendered are to be
be issued in the name of someone sent to someone other than the
other than the registered hold- registered holder(s) of the
er(s) of the Outstanding Notes Outstanding Notes whose name(s)
whose name(s) appear(s) above. appear(s) above, or to such
registered holder(s) at an address
other than that shown above.
Issue: Mail:
[_] Outstanding Notes not tendered, [_] Outstanding Notes not tendered,
to: to:
[_] Exchange Notes, to: [_] Exchange Notes, to:
Name(s) ___________________________ Address ___________________________
Address ___________________________ Name(s)____________________________
___________________________________ ___________________________________
Telephone Number:__________________ Telephone Number:__________________
___________________________________ ___________________________________
(TAX IDENTIFICATION OR SOCIAL (TAX IDENTIFICATION OR SOCIAL
SECURITY NUMBER) SECURITY NUMBER)
7
<PAGE>
INSTRUCTIONS
(FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER)
1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED DELIVERY
PROCEDURES. This Letter of Transmittal is to be completed either if (a)
Certificates are to be forwarded herewith or (b) tenders are to be made
pursuant to the procedures for tender by book-entry transfer set forth in "The
Exchange Offer--Procedures for Tendering Outstanding Notes" in the Prospectus.
Certificates, or timely confirmation of a book-entry transfer of such
Outstanding Notes into the Exchange Agent's account at DTC, as well as this
Letter of Transmittal (or facsimile thereof), properly completed and duly
executed, with any required signature guarantees and any other documents
required by this Letter of Transmittal, must be received by the Exchange Agent
at its address set forth herein on or prior to the Expiration Date. The term
"book-entry confirmation" means a timely confirmation of book-entry transfer
of Outstanding Notes into the Exchange Agent's account at DTC. Outstanding
Notes may be tendered in whole or in part in integral multiples of $1,000
principal amount.
Holders who wish to tender their Outstanding Notes and: (i) whose
Certificates for such Outstanding Notes are not immediately available; (ii)
who cannot deliver their Certificates, this Letter of Transmittal and all
other required documents to the Exchange Agent prior to the Expiration Date;
or (iii) who cannot complete the procedures for delivery by book-entry
transfer on a timely basis, may tender their Outstanding Notes by properly
completing and duly executing a Notice of Guaranteed Delivery pursuant to the
guaranteed delivery procedures set forth in "The Exchange Offer--Procedures
for Tendering Outstanding Notes" in the Prospectus. Pursuant to such
procedures: (i) such tender must be made by or through an Eligible Institution
(as defined below); (ii) a properly completed and duly executed Notice of
Guaranteed Delivery, substantially in the form accompanying this Letter of
Transmittal, must be received by the Exchange Agent prior to the Expiration
Date; and (iii) the Certificates (or a book-entry confirmation) representing
all tendered Outstanding Notes, in proper form for transfer, together with a
Letter of Transmittal (or facsimile thereof), properly completed and duly
executed, with any required signature guarantees and any other documents
required by this Letter of Transmittal, must be received by the Exchange Agent
within three New York Stock Exchange trading days after the date of execution
of such Notice of Guaranteed Delivery, all as provided in "The Exchange
Offer--Procedures for Tendering Outstanding Notes" in the Prospectus.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted by
facsimile or mail to the Exchange Agent and must include a guarantee by an
Eligible Institution in the form set forth in the Notice of Guaranteed
Delivery. For Outstanding Notes to be properly tendered pursuant to the
guaranteed delivery procedure, the Exchange Agent must receive a Notice of
Guaranteed Delivery prior to the Expiration Date. As used herein and in the
Prospectus, "Eligible Institution" means a firm or other entity identified in
Rule 17Ad-15 under the Exchange Act as "an eligible guarantor institution,"
including (as such terms are defined therein): (i) a bank; (ii) a broker,
dealer, municipal securities broker or dealer or government securities broker
or dealer; (iii) a credit union; (iv) a national securities exchange,
registered securities association or clearing agency; or (v) a savings
association that is a participant in a Securities Transfer Association.
THE METHOD OF DELIVERY OF OUTSTANDING NOTES, THIS LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING
HOLDER, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE
EXCHANGE AGENT. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS
USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY AND PROPER INSURANCE SHOULD BE
OBTAINED. NO LETTER OF TRANSMITTAL OR OUTSTANDING NOTES SHOULD BE SENT TO THE
COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL
BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THESE TRANSACTIONS FOR SUCH
HOLDERS.
8
<PAGE>
The Company will not accept any alternative, conditional or contingent
tenders. Each tendering holder, by execution of a Letter of Transmittal (or
facsimile thereof), waives any right to receive any notice of the acceptance
of such tender.
2. GUARANTEE OF SIGNATURES. No signature guarantee on this Letter of
Transmittal is required if: (i) this Letter of Transmittal is signed by the
registered holder (which shall include any participant in DTC whose name
appears on a security position listing as the owner of the Outstanding Notes)
of Outstanding Notes tendered herewith, unless such holder has completed
either the box entitled "Special Issuance Instructions" or the box entitled
"Special Delivery Instructions" above; or (ii) such Outstanding Notes are
tendered for the account of a firm that is an Eligible Institution. In all
other cases, an Eligible Institution must guarantee the signature(s) on this
Letter of Transmittal. See Instruction 5.
3. INADEQUATE SPACE. If the space provided in the box captioned "Description
of Outstanding Notes Tendered" is inadequate, the Certificate number(s) and/or
the principal amount of Outstanding Notes and any other required information
should be listed on a separate signed schedule and attached to this Letter of
Transmittal.
4. PARTIAL TENDERS AND WITHDRAWAL RIGHTS. Tenders of Outstanding Notes will
be accepted only in integral multiples of $1,000 principal amount. If less
than all the Outstanding Notes evidenced by any Certificate submitted are to
be tendered, fill in the principal amount of Outstanding Notes which are to be
tendered in the box entitled "Principal Amount Tendered (if less than all)."
In such case, new Certificate(s) for the remainder of the Outstanding Notes
that were evidenced by the old Certificate(s) will be sent to the tendering
holder, unless the appropriate boxes on this Letter of Transmittal are
completed, promptly after the Expiration Date. All Outstanding Notes
represented by Certificates delivered to the Exchange Agent will be deemed to
have been tendered unless otherwise indicated.
Except as otherwise provided herein, tenders of Outstanding Notes may be
withdrawn at any time prior to the Expiration Date. In order for a withdrawal
to be effective, a written, telegraphic or facsimile transmission of such
notice of withdrawal must be timely received by the Exchange Agent at its
address set forth above prior to the Expiration Date. Any such notice of
withdrawal must specify the name of the person who tendered the Outstanding
Notes to be withdrawn, the aggregate principal amount of Outstanding Notes to
be withdrawn, and (if Certificates for such Outstanding Notes have been
tendered) the name of the registered holder of the Outstanding Notes as set
forth on the Certificate(s), if different from that of the person who tendered
such Outstanding Notes. If Certificates for Outstanding Notes have been
delivered or otherwise identified to the Exchange Agent, the notice of
withdrawal must specify the serial numbers on the particular Certificates for
the Outstanding Notes to be withdrawn and the signature on the notice of
withdrawal must be guaranteed by an Eligible Institution, except in the case
of Outstanding Notes tendered for the account of an Eligible Institution. If
Outstanding Notes have been tendered pursuant to the procedures for book-entry
transfer set forth in "The Exchange Offer--Procedures for Tendering
Outstanding Notes," the notice of withdrawal must specify the name and number
of the account at DTC to be credited with the withdrawal of Outstanding Notes
and must otherwise comply with the procedures of DTC. Withdrawals of tenders
of Outstanding Notes may not be rescinded. Outstanding Notes properly
withdrawn will not be deemed validly tendered for purposes of the Exchange
Offer, but may be retendered at any subsequent time prior to the Expiration
Date by following any of the procedures described in the Prospectus under "The
Exchange Offer--Procedures for Tendering Outstanding Notes."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Company, in its
sole discretion, which determination shall be final and binding on all
parties. Neither the Company, any affiliates of the Company, the Exchange
Agent or any other person shall be under any duty to give any notification of
any defects or irregularities in any notice
9
<PAGE>
of withdrawal or incur any liability for failure to give any such
notification. Any Outstanding Notes which have been tendered but which are
withdrawn will be returned to the holder thereof promptly after withdrawal.
5. SIGNATURES ON LETTER OF TRANSMITTAL, ASSIGNMENTS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the
Outstanding Notes tendered hereby, the signature(s) must correspond exactly
with the name(s) as written on the face of the Certificate(s) or on a security
position listing, without alteration, enlargement or any change whatsoever.
If any of the Outstanding Notes tendered hereby are owned of record by two
or more joint owners, all such owners must sign this Letter of Transmittal.
If any tendered Outstanding Notes are registered in different names on
several Certificates, it will be necessary to complete, sign and submit as
many separate Letters of Transmittal (or facsimiles thereof) as there are
names in which Certificates are registered.
If this Letter of Transmittal or any Certificates or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity,
such persons should so indicate when signing and must submit proper evidence
satisfactory to the Company, in its sole discretion, of such persons'
authority to so act.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Outstanding Notes listed and transmitted hereby,
the Certificate(s) must be endorsed or accompanied by appropriate bond
power(s), signed exactly as the name(s) of the registered owner appear(s) on
the Certificate(s), and also must be accompanied by such opinions of counsel,
certifications and other information as the Company or the Trustee for the
Outstanding Notes may require in accordance with the restrictions on transfer
applicable to the Outstanding Notes. Signature(s) on such Certificate(s) or
bond power(s) must be guaranteed by an Eligible Institution.
6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If Exchange Notes or
Certificates for Outstanding Notes not exchanged are to be issued in the name
of a person other than the signer of this Letter of Transmittal, or are to be
sent to someone other than the signer of this Letter of Transmittal or to an
address other than that shown above, the appropriate boxes on this Letter of
Transmittal should be completed. In the case of issuance in a different name,
the taxpayer identification number of the person named must also be indicated.
Holders tendering Outstanding Notes by book-entry transfer may request that
Outstanding Notes not exchanged be credited to such account maintained at DTC
as such holder may designate. If no such instructions are given, Outstanding
Notes not exchanged will be returned by mail or, if tendered by book-entry
transfer, by crediting the account indicated above maintained at DTC.
7. IRREGULARITIES. The Company will determine, in its sole discretion, all
questions as to the form of documents, validity, eligibility (including time
of receipt) and acceptance for exchange of any tender of Outstanding Notes,
which determination shall be final and binding on all parties. The Company
reserves the absolute right, in its sole and absolute discretion, to reject
any and all tenders determined by it not to be in proper form or the
acceptance for exchange of which may, in the view of counsel to the Company,
be unlawful. The Company also reserves the absolute right, subject to
applicable law, to waive any of the conditions of the Exchange Offer set forth
in the Prospectus under "The Exchange Offer--Conditions to the Exchange Offer"
or any defect or irregularity in any tender of Outstanding Notes of any
particular holder whether or not similar defects or irregularities are waived
in the case of other holders. The Company's interpretation of the terms and
conditions of the Exchange Offer (including this Letter of Transmittal and the
instructions hereto) will be final and binding. No tender of Outstanding Notes
will be deemed to have been validly made until all defects or irregularities
with respect to such tender have been cured or waived. Neither the Company,
any affiliates of the Company, the Exchange Agent, or any other person shall
be under any duty to give any notification of any defects or irregularities in
tenders or incur any liability for failure to give any such notification.
10
<PAGE>
8. QUESTIONS, REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES. Questions and
requests for assistance may be directed to the Exchange Agent at its address
and telephone number set forth above. Additional copies of the Prospectus, the
Notice of Guaranteed Delivery and the Letter of Transmittal may be obtained
from the Exchange Agent or from your broker, dealer, commercial bank, trust
company or other nominee.
9. BACKUP WITHHOLDING; SUBSTITUTE FORM W-9. Under U.S. Federal income tax
law, a holder whose tendered Outstanding Notes are accepted for exchange is
required to provide the Exchange Agent with such holder's correct taxpayer
identification number ("TIN") on Substitute Form W-9 below. If the Exchange
Agent is not provided with the correct TIN, the Internal Revenue Service (the
"IRS") may subject the holder or other payee to a $50 penalty. In addition,
payments to such holders or other payees with respect to Outstanding Notes
exchanged pursuant to the Exchange Offer may be subject to 31% backup
withholding.
The box in Part 3 of the Substitute Form W-9 may be checked if the tendering
holder has not been issued a TIN and has applied for a TIN or intends to apply
for a TIN in the near future. If the box in Part 3 is checked, the holder or
other payee must also complete the Certificate of Awaiting Taxpayer
Identification Number below in order to avoid backup withholding.
Notwithstanding that the box in Part 3 is checked and the Certificate of
Awaiting Taxpayer Identification Number is completed, the Exchange Agent will
withhold 31% of all payments made prior to the time a properly certified TIN
is provided to the Exchange Agent. The Exchange Agent will retain such amounts
withheld during the 60 day period following the date of the Substitute Form W-
9. If the holder furnishes the Exchange Agent with its TIN within 60 days
after the date of the Substitute Form W-9, the amounts retained during the 60
day period will be remitted to the holder and no further amounts shall be
retained or withheld from payments made to the holder thereafter. If, however,
the holder has not provided the Exchange Agent with its TIN within such 60 day
period, amounts withheld will be remitted to the IRS as backup withholding. In
addition, 31% of all payments made thereafter will be withheld and remitted to
the IRS until a correct TIN is provided.
The holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the registered owner of
the Outstanding Notes or of the last transferee appearing on the transfers
attached to, or endorsed on, the Outstanding Notes. If the Outstanding Notes
are registered in more than one name or are not in the name of the actual
owner, consult the Instructions to Form W-9 (Request for Identification Number
and Certification) for additional guidance on which number to report.
Certain holders (including, among others, corporations, financial
institutions and certain foreign persons) may not be subject to these backup
withholding and reporting requirements. Such holders should nevertheless
complete the attached Substitute Form W-9 below, and write "exempt" on the
face thereof, to avoid possible erroneous backup withholding. A foreign person
may qualify as an exempt recipient by submitting a properly completed IRS Form
W-8, signed under penalties of perjury, attesting to that holder's exempt
status. Please consult the Instructions to Form W-9 (Request for
Identification Number and Certification) for additional guidance on which
holders are exempt from backup withholding.
Backup withholding is not an additional U.S. federal income tax. Rather, the
U.S. federal income tax liability of a person subject to backup withholding
will be reduced by the amount of tax withheld. If withholding results in an
overpayment of taxes, a refund may be obtained.
10. MUTILATED, LOST, DESTROYED OR STOLEN CERTIFICATES. If any Certificate
representing Outstanding Notes has been mutilated, lost, destroyed or stolen,
the holder should promptly notify the Exchange Agent. The holder will then be
instructed as to the steps that must be taken in order to replace the
Certificate. This Letter of Transmittal and related documents cannot be
processed until the procedures for replacing mutilated, lost, destroyed or
stolen Certificates have been followed.
11
<PAGE>
11. SECURITY TRANSFER TAXES. Holders who tender their Outstanding Notes for
exchange will not be obligated to pay any transfer taxes in connection
therewith, except that if Exchange Notes are to be delivered to, or are to be
issued in the name of, any person other than the registered holder of the
Outstanding Notes tendered, or if a transfer tax is imposed for any reason
other than the exchange of Outstanding Notes in connection with the Exchange
Offer, then the amount of any such transfer tax (whether imposed on the
registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such transfer tax or exemption
therefrom is not submitted with the Letter of Transmittal, the amount of such
transfer tax will be billed directly to such tendering holder.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE THEREOF), TOGETHER
WITH CERTIFICATES REPRESENTING TENDERED OUTSTANDING NOTES OR A BOOK ENTRY
CONFIRMATION AND ALL OTHER REQUIRED DOCUMENTS, MUST BE RECEIVED BY THE
EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE.
12
<PAGE>
TO BE COMPLETED BY ALL TENDERING SECURITY HOLDERS:
(SEE INSTRUCTION 9)
PAYER'S NAME: UNITED STATES TRUST COMPANY OF NEW YORK
PART 1--PLEASE PROVIDE YOUR
TIN ON THE LINE AT RIGHT AND
CERTIFY BY SIGNING AND
DATING BELOW
SOCIAL SECURITY NUMBER OR
EMPLOYER IDENTIFICATION
NUMBER
SUBSTITUTE
FORM W-9 -----------------------
----------------------------------------------------------
DEPARTMENT OF PART 2--CERTIFICATION--Under penalties of perjury, I
THE TREASURY certify that:
INTERNAL (1) The number shown on this form is my correct
REVENUE SERVICE taxpayer identification number (or I am waiting for
a number to be issued to me);
PAYER'S (2) I am not subject to backup withholding either
REQUEST FOR because: (a) I am exempt from backup withholding;
TAXPAYER'S (b) I have not been notified by the Internal
IDENTIFICATION Revenue Service ("IRS") that I am subject to backup
NUMBER (TIN) withholding as a result of a failure to report all
interest or dividends; or (c) the IRS has notified
me that I am no longer subject to backup
withholding; and
(3) Any other information provided on this form is true
and correct.
CERTIFICATION INSTRUCTIONS--You must cross out item (2)
above if you have been notified by the IRS that you are
subject to backup withholding because of underreporting
interest or dividends on your tax return and you have
not been notified by the IRS that you are no longer
subject to backup withholding.
----------------------------------------------------------
SIGNATURE ____________________________ PART 3--
Awaiting
TIN [_]
DATE _________________________________
----------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY IN
CERTAIN CIRCUMSTANCES RESULT IN BACKUP WITHHOLDING OF
31% OF ANY AMOUNTS PAID TO YOU PURSUANT TO THE EXCHANGE
OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR
CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON
SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
----------------------------------------------------------
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU
CHECKED THE BOX IN PART 3 OF THE SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer
identification number has not been issued to me, and
either (1) I have mailed or delivered an application to
receive a taxpayer identification number to the
appropriate Internal Revenue Service Center or Social
Security Administration Office or (2) I intend to mail
or deliver an application in the near future. I
understand that if I do not provide a taxpayer
identification number by the time of payment, 31% of
all payments made to me on account of the Exchange
Notes shall be retained until I provide a taxpayer
identification number to the Exchange Agent and that,
if I do not provide my taxpayer identification number
within 60 days, such retained amounts shall be remitted
to the Internal Revenue Service as backup withholding
and 31% of all reportable payments made to me
thereafter will be withheld and remitted to the
Internal Revenue Service until I provide a taxpayer
identification number.
SIGNATURE: _________________ DATE: __________________
13
<PAGE>
NOTICE OF GUARANTEED DELIVERY
FOR TENDER OF
9 1/2% SENIOR NOTES DUE NOVEMBER 1, 2008
(THE "OUTSTANDING NOTES")
OF
MCLEODUSA INCORPORATED
This Notice of Guaranteed Delivery, or one substantially equivalent to this
form, must be used to tender Outstanding Notes pursuant to the Exchange Offer
described in the Prospectus dated , 1999 (as the same may be amended or
supplemented from time to time, the "Prospectus") of McLeodUSA Incorporated, a
Delaware corporation (the "Company"), if certificates for the Outstanding
Notes are not immediately available, or time will not permit the Outstanding
Notes, the Letter of Transmittal and all other required documents to be
delivered to United States Trust Company of New York (the "Exchange Agent")
prior to 5:00 p.m., New York City time, on , 1999 or such later date and
time to which the Exchange Offer may be extended (the "Expiration Date"), or
the procedures for delivery by book-entry transfer cannot be completed on a
timely basis. This Notice of Guaranteed Delivery, or one substantially
equivalent to this form, must be delivered by hand or sent by facsimile
transmission or mail to the Exchange Agent, and must be received by the
Exchange Agent prior to the Expiration Date. See "The Exchange Offer--
Procedures for Tendering Outstanding Notes" in the Prospectus. Capitalized
terms used but not defined herein shall have the same meaning given them in
the Prospectus.
The Exchange Agent for the Exchange Offer is:
UNITED STATES TRUST COMPANY OF NEW YORK
By Mail: By Hand before 4:30
By Facsimile: p.m.:
United States Trust
(212) 780-0592 Company of New York United States Trust
Company of New York
P.O. Box 843 Cooper
Attention: Customer Station 111 Broadway
Service Confirm by New York, New York 10276 New York, New York 10006
Telephone to: (800) 548- Attention: Corporate Attention: Lower Level
6565 Trust Services Corporate Trust Window
By Overnight Courier and By Hand after 4:30 p.m.:
United States Trust Company of New York
770 Broadway, 13th Floor
New York, New York 10003
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY VIA
FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an "Eligible Institution" under the instructions thereto, such
signature guarantee must appear in the applicable space provided in the
signature box on the Letter of Transmittal.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to the Company, upon the terms and subject to
the conditions set forth in the Prospectus and the related Letter of
Transmittal, the Outstanding Notes indicated below pursuant to the guaranteed
delivery procedures set forth in the Prospectus under the caption "The
Exchange Offer--Procedures for Tendering Outstanding Notes."
Name(s) of Registered Holder(s): ______________________________________________
(Please Print or Type)
Signature(s): _________________________________________________________________
Address(es): __________________________________________________________________
_______________________________________________________________________________
Area Code(s) and Telephone Number(s): _________________________________________
Account Number: _______________________________________________________________
Date: _________________________________________________________________________
Certificate No(s). Principal Amount of Outstanding
(if available) Notes Tendered*
_________________________________ _____________________________________
_________________________________ _____________________________________
_________________________________ _____________________________________
_________________________________ _____________________________________
_________________________________ _____________________________________
_________________________________ _____________________________________
* Must be in integral multiples of $1,000 principal amount.
GUARANTEE OF DELIVERY
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member firm of a registered national securities exchange
or of the National Association of Securities Dealers, Inc., a commercial bank
or trust company having an office or a correspondent in the United States or
an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under
the Securities Exchange Act of 1934, as amended, hereby guarantees that the
undersigned will deliver to the Exchange Agent the certificates representing
the Outstanding Notes being tendered hereby in proper form for transfer (or a
confirmation of book-entry transfer of such Outstanding Notes, into the
Exchange Agent's account at the book-entry transfer facility of The Depository
Trust Company ("DTC")) with delivery of a properly completed and duly executed
Letter of Transmittal (or facsimile thereof), with any required signature
guarantees and any other required documents, all within three New York Stock
Exchange trading days after the date of execution of the Notice of Guaranteed
Delivery.
Name of Firm: ___________________ _____________________________________
Address: ________________________ Authorized Signature
_________________________________ Name: _______________________________
Zip Code Please Print or Type
Telephone No.: __________________ Title: ______________________________
Dated: ______________________________
The institution that completes this form must communicate the guarantee to
the Exchange Agent and must deliver the certificates representing any
Outstanding Notes (or a confirmation of book-entry transfer of such
Outstanding Notes into the Exchange Agent's account at DTC) and the Letter of
Transmittal to the Exchange Agent within the time period shown herein. Failure
to do so could result in a financial loss to such institution.
2
<PAGE>
MCLEODUSA INCORPORATED
OFFER TO EXCHANGE ITS
9 1/2% SENIOR NOTES DUE NOVEMBER 1, 2008
WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS OUTSTANDING
9 1/2% SENIOR NOTES DUE NOVEMBER 1, 2008
PURSUANT TO THE PROSPECTUS DATED , 1999
TO: BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES AND OTHER NOMINEES:
McLeodUSA Incorporated (the "Company") is offering to exchange (the
"Exchange Offer"), upon and subject to the terms and conditions set forth in
the enclosed Prospectus, dated , 1999 (the "Prospectus"), and the enclosed
Letter of Transmittal (the "Letter of Transmittal"), its 9 1/2% Senior Notes
due November 1, 2008 which have been registered under the Securities Act of
1933 (the "Exchange Notes") for any and all of its outstanding 9 1/2% Senior
Notes due November 1, 2008 (the "Outstanding Notes"). The Exchange Offer is
being made in order to satisfy certain obligations of the Company contained in
the Registration Agreement dated as of October 30, 1998, among the Company,
Salomon Smith Barney Inc., Bear, Stearns & Co. Inc., Morgan Stanley & Co.
Incorporated and Chase Securities Inc.
In connection with the Exchange Offer, we are requesting that you contact
your clients for whom you hold Outstanding Notes registered in your name or in
the name of your nominee, or who hold Outstanding Notes registered in their
own names. The Company will not pay any fees or commissions to any broker,
dealer or other person in connection with the solicitation of tenders pursuant
to the Exchange Offer. However, you will, upon request, be reimbursed for
reasonable out-of-pocket expenses incurred in connection with soliciting
acceptances of the Exchange Offer. The Company will pay or cause to be paid
all transfer taxes applicable to the exchange of Outstanding Notes pursuant to
the Exchange Offer, except as set forth in the Prospectus and the Letter of
Transmittal.
For your information and for forwarding to your clients, we are enclosing
the following documents:
1. Prospectus dated , 1999;
2. A Letter of Transmittal for your use and for the information of your
clients;
3. A form of Notice of Guaranteed Delivery; and
4. A form of letter which may be sent to your clients for whose account you
hold Outstanding Notes registered in your name or the name of your
nominee, with space provided for obtaining such clients' instructions
with regard to the Exchange Offer.
YOUR PROMPT ACTION IS REQUESTED. THE EXCHANGE OFFER WILL EXPIRE AT 5:00
P.M., NEW YORK CITY TIME, ON , 1999 (THE "EXPIRATION DATE"), UNLESS
EXTENDED BY THE COMPANY (IN WHICH CASE THE TERM "EXPIRATION DATE" SHALL MEAN
THE LATEST DATE AND TIME TO WHICH THE EXCHANGE OFFER IS EXTENDED). THE
OUTSTANDING NOTES TENDERED PURSUANT TO THE EXCHANGE OFFER MAY BE WITHDRAWN,
SUBJECT TO THE PROCEDURES DESCRIBED IN THE PROSPECTUS AND THE LETTER OF
TRANSMITTAL, AT ANY TIME PRIOR TO THE EXPIRATION DATE.
To participate in the Exchange Offer, a duly executed and properly completed
Letter of Transmittal (or facsimile thereof), with any required signature
guarantees and any other required documents, should be sent to the Exchange
Agent and certificates representing the Outstanding Notes should be delivered
to the Exchange Agent, all in accordance with the instructions set forth in
the Prospectus and the Letter of Transmittal.
<PAGE>
If holders of Outstanding Notes wish to tender, but it is impracticable for
them to forward their certificates for Outstanding Notes prior to the
expiration of the Exchange Offer or to comply with the book-entry transfer
procedures on a timely basis, a tender may be effected by following the
guaranteed delivery procedures described in the Prospectus and the Letter of
Transmittal.
Any inquiries you may have with respect to the Exchange Offer, or requests
for additional copies of the enclosed materials, should be directed to the
Exchange Agent for the Outstanding Notes, at its address and telephone number
set forth on the front of the Letter of Transmittal.
Very truly yours,
McLeodUSA Incorporated
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY
OTHER PERSON AS AN AGENT OF THE COMPANY OR THE EXCHANGE AGENT, OR AUTHORIZE
YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENTS ON BEHALF
OF EITHER OF THEM WITH RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS
EXPRESSLY MADE IN THE PROSPECTUS OR THE LETTER OF TRANSMITTAL.
2
<PAGE>
MCLEODUSA INCORPORATED
OFFER TO EXCHANGE ITS
9 1/2% SENIOR NOTES DUE NOVEMBER 1, 2008
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS OUTSTANDING
9 1/2% SENIOR NOTES DUE NOVEMBER 1, 2008
TO OUR CLIENTS:
Enclosed for your consideration is a Prospectus, dated , 1999 (the
"Prospectus"), and a form of Letter of Transmittal (the "Letter of
Transmittal"), relating to the offer (the "Exchange Offer") of McLeodUSA
Incorporated (the "Company") to exchange its 9 1/2% Senior Notes due November
1, 2008, which have been registered under the Securities Act of 1933 (the
"Exchange Notes"), for any and all of its outstanding 9 1/2% Senior Notes due
November 1, 2008 (the "Outstanding Notes"), upon the terms and subject to the
conditions described in the Prospectus and the Letter of Transmittal. The
Exchange Offer is being made in order to satisfy certain obligations of the
Company contained in the Registration Agreement dated as of October 30, 1998,
among the Company, Salomon Smith Barney Inc., Bear, Stearns & Co. Inc., Morgan
Stanley & Co. Incorporated and Chase Securities Inc.
This material is being forwarded to you as the beneficial owner of the
Outstanding Notes carried by us in your account but not registered in your
name. A TENDER OF SUCH OUTSTANDING NOTES MAY ONLY BE MADE BY US AS THE HOLDER
OF RECORD AND PURSUANT TO YOUR INSTRUCTIONS.
Accordingly, we request instructions as to whether you wish us to tender on
your behalf the Outstanding Notes held by us for your account, pursuant to the
terms and conditions set forth in the enclosed Prospectus and Letter of
Transmittal.
Your instructions should be forwarded to us as promptly as possible in order
to permit us to tender the Outstanding Notes on your behalf in accordance with
the provisions of the Exchange Offer. The Exchange Offer will expire at 5:00
p.m., New York City time, on , 1999, unless extended by the Company (the
"Expiration Date"). Any Outstanding Notes tendered pursuant to the Exchange
Offer may be withdrawn, subject to the procedures described in the Prospectus
and the Letter of Transmittal, at any time prior to the Expiration Date.
If you wish to have us tender your Outstanding Notes, please so instruct us
by completing, executing and returning to us the instruction form included
with this letter. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR
INFORMATION ONLY AND MAY NOT BE USED DIRECTLY BY YOU TO TENDER OUTSTANDING
NOTES.
<PAGE>
INSTRUCTIONS WITH RESPECT TO
THE EXCHANGE OFFER
The undersigned acknowledge(s) receipt of your letter and the enclosed
material referred to therein, including the Prospectus and the accompanying
form of Letter of Transmittal, relating to the Exchange Offer made by
McLeodUSA Incorporated with respect to its Outstanding Notes.
This will instruct you as to the action to be taken by you relating to the
Exchange Offer with respect to the Outstanding Notes held by you for the
account of the undersigned, upon and subject to the terms and conditions set
forth in the Prospectus and the Letter of Transmittal.
The aggregate principal amount of the Outstanding Notes held by you for the
account of the undersigned is (fill in amount):
$ ___________________________________
of the 9 1/2% Senior
Notes due November 1, 2008
With respect to the Exchange Offer, the undersigned hereby instructs you
(check appropriate box):
[_]To TENDER the following Outstanding Notes held by you for the account of
the undersigned (insert aggregate principal amount at maturity of
Outstanding Notes to be tendered, in integral multiples of $1,000):
$ ___________________________________
of the 9 1/2% Senior
Notes due November 1, 2008
[_]NOT to tender any Outstanding Notes held by you for the account of the
undersigned.
2
<PAGE>
If the undersigned instructs you to tender the Outstanding Notes held by you
for the account of the undersigned, it is understood that you are authorized
to make, on behalf of the undersigned (and the undersigned, by its signature
below, hereby makes to you), the representations, warranties and agreements
contained in the Letter of Transmittal that are to be made with respect to the
undersigned as beneficial owner.
SIGN HERE
Name of beneficial owner(s): __________________________________________________
Signature(s): _________________________________________________________________
Name(s) (please print): _______________________________________________________
Address: ______________________________________________________________________
Telephone Number: _____________________________________________________________
Taxpayer Identification or Social Security Number(s): _________________________
Date: _________________________________________________________________________
None of the Outstanding Notes held by us for your account will be tendered
unless we receive written instructions from you to do so. Unless a specific
contrary instruction is given in the space provided, your signature(s) hereon
shall constitute an instruction to us to tender all the Outstanding Notes held
by us for your account.
3
