<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 28, 1999
REGISTRATION NO. 333-78561
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
MCLEODUSA INCORPORATED
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 42-1407240
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>
------------------------
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)
------------------------------
COPY 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
possible after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM PROPOSED
OFFERING MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE PRICE PER SHARE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED (1) OFFERING PRICE (1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Class A common stock, $.01 par value per share 939,847 $57.28 $53,834,437 $14,966(2)
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(2) Previously paid.
------------------------------
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>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THESE
SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE OR JURISDICTION WHERE THE OFFER OR SALE IS NOT
PERMITTED.
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 28, 1999
<TABLE>
<S> <C>
P R O S P E C T U S [LOGO]
</TABLE>
939,847 SHARES
MCLEODUSA INCORPORATED
CLASS A COMMON STOCK
----------------
McLeodUSA provides communications services to business and residential
customers in the Midwestern and Rocky Mountain regions of the United States.
This prospectus relates to the offer and sale from time to time of up to 939,847
shares of McLeodUSA Class A common stock by the McLeodUSA stockholders named in
this prospectus. McLeodUSA will not receive any proceeds from the sale of the
shares by the selling stockholders.
Our Class A common stock is quoted on The Nasdaq Stock Market under the
symbol "MCLD." The last reported sale price of our Class A common stock on The
Nasdaq Stock Market on May 28, 1999, was $ per share.
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
telephone number is (319) 364-0000.
------------------------
INVESTING IN OUR CLASS A COMMON STOCK INVOLVES VARIOUS RISKS. SEE "RISK
FACTORS" BEGINNING ON PAGE 3.
---------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
------------------------
, 1999
<PAGE>
If it is against the law in any state to make an offer to sell the shares
(or to solicit an offer from someone to buy the shares), then this prospectus
does not apply to any person in that state, and no offer or solicitation is made
by this prospectus to any such person.
You should rely only on the information provided or incorporated by
reference in this prospectus or any supplement. Neither we nor any of the
selling stockholders have authorized anyone to provide you with different
information. You should not assume that the information in this prospectus or
any supplement is accurate as of any date other than the date on the front of
such documents.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Risk Factors.......................................................................... 3
Cautionary Note Regarding Forward-Looking Statements.................................. 10
About McLeodUSA....................................................................... 11
Use of Proceeds....................................................................... 13
Pro Forma Financial Data.............................................................. 14
Selling Stockholders.................................................................. 17
Plan of Distribution.................................................................. 18
Legal Matters......................................................................... 20
Experts............................................................................... 20
Where You Can Find More Information................................................... 20
</TABLE>
2
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AND THE OTHER
INFORMATION IN THIS PROSPECTUS BEFORE INVESTING IN OUR CLASS A COMMON STOCK. 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 CONSIDERED A PART OF THIS
PROSPECTUS. SEE "WHERE YOU CAN FIND MORE INFORMATION."
FLUCTUATIONS IN THE MARKET PRICE OF OUR CLASS A COMMON STOCK MAY MAKE IT MORE
DIFFICULT FOR US TO RAISE CAPITAL.
The market price of our Class A common stock is extremely volatile and has
fluctuated over a wide range. These fluctuations may impair our ability to raise
capital by offering equity securities. The market price may continue to
fluctuate significantly in response to various factors, including:
- market conditions in the industry
- announcements or actions by competitors
- low trading volume
- sales of large amounts of our Class A common stock in the public market or
the perception that such sales could occur
- quarterly variations in operating results or growth rates
- changes in estimates by securities analysts
- regulatory and judicial actions
- general economic conditions
WE MAY NOT BE ABLE TO SUCCESSFULLY INTEGRATE ACQUIRED COMPANIES INTO OUR
OPERATIONS, WHICH COULD SLOW OUR GROWTH.
The integration of acquired companies into our operations involves a number
of risks, including:
- difficulty integrating new operations and personnel
- diversion of management attention
- potential disruption of ongoing business
- inability to retain key personnel or customers
- inability to successfully incorporate new assets and rights into our
service offerings
- inability to maintain uniform standards, controls, procedures and policies
- impairment of relationships with employees, customers or vendors
Failure to overcome these risks or any other problems encountered in
connection with acquisition transactions could slow our growth or lower the
quality of our services, which could reduce customer demand.
CONTINUED RAPID GROWTH OF OUR NETWORK, SERVICES AND SUBSCRIBER BASE COULD BE
SLOWED IF WE CANNOT MANAGE THIS GROWTH.
We have rapidly expanded and developed our network, services and subscriber
base. For example, we recently announced plans to offer high-speed digital
access and data services. Our expansion and development have placed and will
continue to place significant demands on our management, operational and
financial systems and procedures and controls. We may not be able to manage our
anticipated growth effectively, which would harm our business, results of
operations and financial condition.
Further expansion and development will depend on a number of factors,
including:
- cooperation of the existing local telephone companies
- regulatory, judicial 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
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<PAGE>
- 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 as we grow. We must also develop, train and
manage our employees.
WE EXPECT TO INCUR SIGNIFICANT LOSSES OVER THE NEXT SEVERAL YEARS.
If we do not become profitable in the future, the value of our Class A
common stock may fall and we could have difficulty obtaining funds to continue
our operations. We have incurred net losses every year since we began
operations. Since January 1, 1994, our net losses have been as follows:
NET LOSSES
<TABLE>
<CAPTION>
PERIOD AMOUNT
- ------------------------------------ ----------------
<S> <C>
1994................................ $ 11.4 million
1995................................ $ 11.3 million
1996................................ $ 22.3 million
1997................................ $ 79.9 million
1998................................ $ 124.9 million
</TABLE>
We expect to incur net losses during the next several years while we develop
our businesses, expand our fiber optic communications network and develop
wireless services.
FAILURE TO RAISE NECESSARY CAPITAL COULD RESTRICT OUR ABILITY TO DEVELOP OUR
NETWORK AND SERVICES AND ENGAGE IN STRATEGIC ACQUISITIONS.
We need significant capital to continue to expand our operations,
facilities, network and services. We cannot assure you that our capital
resources will permit us to fund our planned network deployment and operations
or achieve operating profitability. Our failure to generate or raise sufficient
funds may require us to delay or abandon some of our expansion plans or
expenditures, which could harm our business and competitive position.
As of March 31, 1999, based on our business plan, capital requirements and
growth projections as of that date, we estimated that we would require
approximately $1.3 billion through 2001 to fund our capital expenditures and
operating expenses. Our estimated aggregate capital requirements include the
projected costs of:
- building our fiber optic communications network, including intra-city
fiber optic networks
- expanding operations in existing and new markets
- developing wireless services
- funding general corporate expenses
- integrating acquisitions
- constructing, acquiring, developing or improving telecommunications assets
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:
- strategic acquisition costs and effects of acquisitions on our business
plan, capital requirements and growth projections
- unforeseen delays
- cost overruns
- engineering design changes
- changes in demand for our services
- regulatory, technological or competitive developments
- new opportunities
We also expect to evaluate potential acquisitions, joint ventures and
strategic alliances on an ongoing basis. We may require additional financing if
we pursue any of these opportunities.
We may meet any additional 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
4
<PAGE>
terms. If we do not have such access, we may not be able to expand our markets,
operations, facilities, network and services through acquisitions as we intend.
OUR HIGH LEVEL OF DEBT COULD LIMIT OUR FLEXIBILITY IN RESPONDING TO BUSINESS
DEVELOPMENTS AND PUT US AT A COMPETITIVE DISADVANTAGE.
We have substantial debt, which 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 our debt obligations rather than for other purposes, such as
working capital or capital expenditures
- making us more highly leveraged than some of our competitors, which may
place us at a competitive disadvantage
- making us more vulnerable to a downturn in our business
As of March 31, 1999, we had $1.8 billion of long-term debt and $785.4
million of stockholders' equity. As a result, we expect our fixed charges to
exceed our earnings for the foreseeable future.
COVENANTS IN DEBT INSTRUMENTS RESTRICT OUR CAPACITY TO BORROW AND INVEST, WHICH
COULD IMPAIR OUR ABILITY TO EXPAND OR FINANCE OUR OPERATIONS.
The indentures governing the terms of our long-term debt impose operating
and financial restrictions that limit our discretion on some business matters,
which could make it more difficult for us to expand, finance our operations or
engage in other business activities that may be in our interest. 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
- pledge or mortgage assets
- enter into transactions with related persons
- sell assets
- consolidate, merge or sell all or substantially all of our assets
If we fail to comply with these restrictions, all of our long-term debt could
become immediately due and payable.
WE ARE PROHIBITED FROM PAYING DIVIDENDS.
We have never paid any cash dividends. We do not anticipate paying any cash
dividends for the foreseeable future. The indentures governing our debt prohibit
us from paying cash dividends. You should therefore not expect to receive cash
dividends on shares of our Class A common stock you purchase in this offering.
OUR DEPENDENCE ON REGIONAL BELL OPERATING COMPANIES TO PROVIDE MOST OF OUR
COMMUNICATIONS SERVICES COULD MAKE IT HARDER FOR US TO OFFER OUR SERVICES AT A
PROFIT.
We depend on the regional Bell operating companies to provide most of our
core local and some of our long distance services. Today, without using the
communications facilities of these companies, we could not provide bundled local
and long distance services to most of our customers. Because of this dependence,
our communications services are highly susceptible to changes in the conditions
for access to these facilities and we may therefore have difficulty offering our
services at profitable and competitive rates.
U S WEST Communications, Inc., Ameritech Corporation and Southwestern Bell
Telephone Company are our primary suppliers of local lines to our customers and
communications services that allow us to transfer and connect calls. Their
communications facilities allow us to provide (1) local service, (2) long
distance service and (3) private lines dedicated to our
5
<PAGE>
customers' use. If these or other companies deny or limit our access to their
communications network elements or wholesale services, we may not be able to
offer profitable communications services.
Our plans to provide local service using our own communications network
equipment also depend on the regional Bell operating companies. In order to
interconnect our network equipment and other communications facilities to
network elements controlled by the regional Bell operating companies, we must
first negotiate and enter into interconnection agreements with them.
Interconnection obligations imposed on the regional Bell operating companies by
the Telecommunications Act of 1996 have been and continue to be subject to a
variety of legal proceedings, which could affect our ability to obtain
interconnection agreements on acceptable terms. We cannot assure you that we
will succeed in obtaining interconnection agreements on terms that would permit
us to offer local services using our own communications network facilities at
profitable and competitive rates.
ACTIONS BY U S WEST MAY MAKE IT MORE DIFFICULT FOR US TO OFFER OUR
COMMUNICATIONS SERVICES.
U S WEST has introduced several measures that may make it more difficult for
us to offer our communications services. For example, in February 1996, U S WEST
filed tariffs and other notices with the public utility commissions in its
fourteen-state service region to limit future Centrex access to its switches.
Centrex access allows us to aggregate lines, have control over several
characteristics of those lines and provide a set of standard features on those
lines. We use U S WEST's Centrex services to provide most of our local
communications services in U S WEST's service territories.
In January 1997, U S WEST also proposed interconnection surcharges in
several of the states in its service region, which would increase our costs of
providing communications services in those states.
We have challenged or are challenging these actions by U S WEST before the
FCC or applicable state public utility commissions. We cannot assure you we will
succeed in our challenges to these or other actions by U S WEST that would
prevent or deter us from using U S WEST's Centrex service or communications
network elements. If U S WEST successfully withdraws or limits our access to
Centrex services in any jurisdiction, we may not be able to offer communications
services in that jurisdiction, which could harm our business.
We anticipate that U S WEST will also pursue legislation 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.
COMPETITION IN THE COMMUNICATIONS SERVICES INDUSTRY COULD CAUSE US TO LOSE
CUSTOMERS AND REVENUE AND COULD MAKE IT MORE DIFFICULT FOR US TO ENTER NEW
MARKETS.
We face intense competition in all of our markets. This competition could
result in loss of customers and lower revenue for us. It could also make it more
difficult for us to enter new markets. Existing local telephone companies,
including U S WEST, Ameritech, Southwestern Bell and GTE, currently dominate
their local telecommunications markets. Three major competitors, AT&T, MCI
WorldCom and Sprint, dominate the long distance market. Hundreds of other
companies also compete in the long distance marketplace. AT&T, MCI WorldCom and
Sprint also offer local telecommunications services in many locations.
Our local and long distance services also compete with the services of other
communications services companies competing with the existing local telephone
companies in some markets.
Other competitors may include cable television companies, providers of
communications network facilities dedicated to particular customers, providers
of digital access and data services, microwave and satellite carriers, wireless
telecommunications providers, private networks owned by large end-users, and
telecommunications management companies.
6
<PAGE>
These and other firms may enter the markets where we focus our sales
efforts. Many of our existing and potential competitors have financial and other
resources far greater than our own. In addition, the trend toward mergers and
strategic alliances in the communications industry may strengthen some of our
competitors and could put us at a significant competitive disadvantage.
WE MAY NOT SUCCEED IN DEVELOPING OR MAKING A PROFIT FROM WIRELESS SERVICES.
Our proposal to offer wireless services involves a high degree of risk and
will impose significant demands on our management and financial resources.
Developing wireless services may require us to, among other things, spend
substantial time and money to acquire, build and test a wireless infrastructure
and enter into roaming arrangements with wireless operators in other markets. We
may not succeed in developing wireless services. Even if we spend substantial
amounts to develop wireless services, we may not make a profit from wireless
operations.
Our ability to successfully offer wireless services 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 wireless 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 wireless systems
- changes in wireless technologies that could render obsolete the technology
and equipment we choose for our wireless services
COMPETITION IN THE WIRELESS TELECOMMUNICATIONS INDUSTRY COULD MAKE IT HARDER FOR
US TO SUCCESSFULLY OFFER WIRELESS SERVICES.
The wireless telecommunications industry is experiencing increasing
competition and significant technological change. This will make it harder for
us to gain a share of the wireless communications market. We expect up to eight
wireless competitors in each of our target wireless markets. We could face
additional competition from mobile satellite services.
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, wireless telecommunications systems that encompass
most of the United States, which could give them a significant competitive
advantage, particularly if we only offer regional wireless services.
THE SUCCESS OF OUR COMMUNICATIONS SERVICES WILL DEPEND ON OUR ABILITY TO KEEP
PACE WITH RAPID TECHNOLOGICAL CHANGES IN OUR INDUSTRY.
Communications technology is changing rapidly. These changes influence the
demand for our services. We need to be able to anticipate these changes and to
develop new and enhanced products and services quickly enough for the changing
market. This will determine whether we can continue to increase our revenues and
number of subscribers and be competitive.
THE LOSS OF KEY PERSONNEL COULD WEAKEN OUR TECHNICAL AND OPERATIONAL EXPERTISE,
DELAY OUR INTRODUCTION OF NEW SERVICES OR ENTRY INTO NEW MARKETS AND LOWER THE
QUALITY OF OUR SERVICE.
We may not be able to attract, develop, motivate and retain experienced and
innovative personnel. There is intense competition for qualified personnel in
our business. The loss of the services of key personnel, or the inability to
attract additional qualified personnel, could cause us to make less successful
strategic decisions, which could hinder the introduction of new services or the
entry into new markets. We could also be less prepared for technological or
marketing problems, which could reduce our ability to serve our customers and
lower the quality of our services. As a result, our financial condition could
worsen.
Our future success depends on the continued employment of our senior
7
<PAGE>
management team, particularly Clark E. 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.
FAILURE TO OBTAIN AND MAINTAIN NECESSARY PERMITS AND RIGHTS-OF-WAY COULD DELAY
INSTALLATION OF OUR NETWORKS AND INTERFERE WITH OUR OPERATIONS.
To obtain access to rights-of-way needed to install our fiber optic cable,
we must reach agreements with state highway authorities, local governments,
transit authorities, local telephone companies, other utilities, railroads, long
distance carriers and other parties. The failure to obtain or maintain any
rights-of-way could delay our planned network expansion, interfere with our
operations and harm our business. For example, if we lose access to a
right-of-way, we may need to spend significant sums to remove and relocate our
facilities.
GOVERNMENT REGULATION MAY INCREASE OUR COST OF PROVIDING SERVICES, SLOW OUR
EXPANSION INTO NEW MARKETS AND SUBJECT OUR SERVICES TO ADDITIONAL COMPETITIVE
PRESSURES.
Our facilities and services are subject to federal, state and local
regulation. The time and expense of complying with these regulations could slow
down our expansion into new markets, increase our costs of providing services
and subject them to additional competitive pressures. One of the primary
purposes of the Telecommunications Act of 1996 was to open the local telephone
services market to competition. While this has presented us with opportunities
to enter local telephone markets, it also provides important benefits to the
existing local telephone companies, such as the ability, under specified
conditions, to provide out-of-region long distance service to customers in their
respective regions. In addition, we need to obtain and maintain licenses,
permits and other regulatory approvals in connection with some of our services.
Any of the following could harm our business:
- 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
OUR MANAGEMENT AND PRINCIPAL STOCKHOLDERS CAN CONTROL MCLEODUSA AND MAY HAVE
DIFFERENT INTERESTS THAN THOSE OF OTHER STOCKHOLDERS.
As of May 20, 1999, Interstate Energy Corporation, M/C Investors L.L.C.,
Media/ Communications Partners III Limited Partnership, 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 38.7% of our
outstanding Class A common stock. These stockholders can collectively control
management policy and may be able to control corporate actions requiring a
stockholder vote, including election of the board of directors. Conflicts of
interest may arise between the interests of these stockholders and our other
stockholders. For example, the fact that these stockholders hold so much Class A
common stock could make it more difficult for a third party to acquire us. You
should expect these stockholders to resolve any conflicts in their favor.
COMPUTER SYSTEMS MAY MALFUNCTION AND INTERRUPT OUR SERVICES IF WE AND OUR
SUPPLIERS DO NOT ATTAIN YEAR 2000 READINESS.
We and our major suppliers of communications services and network elements
rely greatly on computer systems and other technological devices. These may not
be capable of recognizing January 1, 2000 or subsequent dates. This problem
could cause any or all of our systems or services to malfunction or fail.
8
<PAGE>
We are reviewing our computer systems and programs and other technological
devices 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. This review may not be sufficient, however,
to prevent interruptions to our systems and services.
Some of our critical operations and services depend on other companies. For
example, we depend on the existing local telephone companies, primarily the
regional Bell operating companies, to provide most of our local and some of our
long distance services. To the extent U S WEST, Ameritech or Southwestern Bell
fail to address Year 2000 issues which might interfere with their ability to
fulfill their obligations to us, it could interfere with our operations. If we,
our major vendors, our material service providers or our customers fail to
address Year 2000 issues in a timely manner, our business, results of operations
and financial condition could be significantly harmed.
FUTURE SALES OF OUR CLASS A COMMON STOCK IN THE PUBLIC MARKET COULD ADVERSELY
AFFECT OUR STOCK PRICE AND OUR ABILITY TO RAISE FUNDS IN NEW STOCK OFFERINGS.
Future sales of substantial amounts of our Class A common stock in the
public market, or the perception that such sales could occur, could adversely
affect prevailing market prices of our Class A common stock and could impair our
ability to raise capital through future offerings of equity securities. Several
of our principal stockholders hold a significant portion of our Class A common
stock, and a decision by one or more of these stockholders to sell their shares,
or the perception that such sales could occur, could adversely affect the market
price of our Class A common stock.
There were 75.1 million shares of our Class A common stock outstanding as of
May 20, 1999. There were also options to purchase 13.4 million shares of Class A
common stock outstanding as of May 20, 1999. Interstate Energy, M/C Investors,
Media/Communications Partners III, Richard A. Lumpkin and various trusts for the
benefit of his family, Clark and Mary McLeod, and our directors and executive
officers owned approximately 32.6 million shares as of May 20, 1999, all of
which were eligible for sale in the public market either in accordance with Rule
144 under the Securities Act of 1933 or otherwise.
9
<PAGE>
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the information incorporated by reference in it include
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We intend
the forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements in these sections. All statements regarding our
expected financial position and operating results, our business strategy, our
financing plans, our future capital requirements, forecasted demographic and
economic trends relating to our industry, our ability to complete acquisitions,
to realize anticipated cost savings and other benefits from acquisitions and to
recover acquisition-related costs, and similar matters are forward-looking
statements. These statements are subject to known and unknown risks,
uncertainties and other factors that could cause our actual results to differ
materially from the statements. The forward-looking information is based on
various factors and was derived using numerous assumptions. In some cases, you
can identify these statements by our use of forward-looking words such as "may,"
"will," "should," "anticipate," "estimate," "expect," "plan," "believe,"
"predict," "potential" or "intend." You should be aware that these 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 our expectations include those discussed in this prospectus under the
caption "Risk Factors." We undertake no obligation to update or revise publicly
any forward-looking statements, whether as a result of new information, future
events or otherwise.
10
<PAGE>
ABOUT MCLEODUSA
OUR COMPANY
We provide communications services to business and residential customers in
the Midwestern and Rocky Mountain regions of the United States. We offer local,
long distance, Internet access, data, voice mail and paging services, from a
single company on a single bill. We believe we are the first company 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 communications 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 March 31, 1999, we served over 494,700 local lines
in 408 cities and towns.
In addition to our core business of providing competitive local, long
distance and related communications services, we also derive revenue from:
- sale of advertising space in telephone directories
- traditional local telephone company services in east central Illinois and
southeast South Dakota
- special access, private line and data services
- communications network maintenance services
- telephone equipment sales, leasing, service and installation
- video services
- telemarketing services
- computer networking services
- other communications services, including cellular, operator, payphone,
mobile radio, paging services and Web site development and hosting
In most of our markets, we compete with the existing local phone company by
leasing its lines and switches. In other markets, primarily in east central
Illinois and southeast South Dakota, we operate our own lines and switches. We
provide long distance services by using our own communications network
facilities and leasing capacity from long distance and local communications
providers. We are constructing fiber optic communications networks in Iowa,
Illinois, Wisconsin, Indiana, Missouri, Minnesota, South Dakota, North Dakota,
Colorado and Wyoming to carry additional communications traffic on our own
network.
OUR STRATEGY
We want to be the leading and most admired provider of communications
services in our markets. To achieve this goal, we are:
- aggressively capturing customer share and generating revenue using leased
communications network capacity
- concurrently building our own communications network
- migrating customers to our communications network to provide enhanced
services and to reduce our operating costs
11
<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 an
integrated product offering to business and residential customers.
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 telephone 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.
EMPHASIZE SMALL AND MEDIUM SIZED BUSINESSES. We primarily target small and
medium sized businesses because we believe we can rapidly capture customer share
by providing face-to-face business sales and strong service support to these
customers.
EXPAND OUR FIBER OPTIC COMMUNICATIONS NETWORK. We are building a
state-of-the-art fiber optic communications network to deliver multiple services
and reduce operating costs.
EXPAND OUR INTRA-CITY FIBER OPTIC COMMUNICATIONS NETWORK. 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
communications facilities from the existing local telephone company.
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 March 31, 1999, based on our business plan, capital requirements and
growth projections as of that date, we estimated that we would require
approximately $1.3 billion through 2001 to fund our planned capital expenditures
and operating expenses. Our estimated aggregate capital requirements include the
projected cost of:
- building our fiber optic communications network, including intra-city
fiber optic networks
- expanding operations in existing and new markets
- developing wireless services
- funding general corporate expenses
- integrating acquisitions
- constructing, acquiring, developing or improving telecommunication assets
We expect to use the following to address our capital needs:
- approximately $674.3 million of cash and investments on hand at March 31,
1999
- projected operating cash flow
- additional issuances of debt or equity securities
12
<PAGE>
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 is subject to risks and uncertainties and may differ
materially from our estimates. Accordingly, we may need additional capital to
continue to expand our markets, operations, facilities, network and services.
See "Risk Factors--Failure to Raise Necessary Capital Could Restrict Our Ability
to Develop Our Network and Services and Engage in Strategic Acquisitions."
USE OF PROCEEDS
The selling stockholders will sell all of the shares of Class A common stock
offered by this prospectus. Accordingly, McLeodUSA will not receive any of the
proceeds from the sale of these shares.
13
<PAGE>
PRO FORMA FINANCIAL DATA
The following unaudited pro forma financial information has been prepared to
give effect to:
- the issuance of $300 million aggregate principal amount of our 8 3/8%
senior notes in March 1998
- the issuance of $300 million aggregate principal amount of our 9 1/2%
senior notes in October 1998
- the issuance of $500 million aggregate principal amount of our 8 1/8%
senior notes in February 1999
- our acquisition of Ovation Communications, Inc. in March 1999
The Unaudited Pro Forma Condensed Consolidated Statements of Operations
reflects the Ovation acquisition using the purchase method of accounting, and
assumes that the Ovation acquisition and the issuance of the 8 3/8% senior
notes, the 9 1/2% senior notes and the 8 1/8% senior notes were consummated at
the beginning of 1998. The unaudited pro forma financial information is derived
from and should be read in conjunction with our consolidated financial
statements, Ovation's consolidated financial statements and the related notes
thereto incorporated by reference in this prospectus. The pro forma adjustments
are based upon available information and assumptions that management believes to
be reasonable. Depreciation and amortization were adjusted to include
amortization of intangibles acquired in the Ovation acquisition. The acquired
intangibles will be amortized over periods ranging from 3 to 30 years. For
purposes of this pro forma presentation, the issuance of the 8 3/8% senior
notes, the 9 1/2% senior notes and the 8 1/8% senior notes are collectively
referred to as the "Notes Offerings."
The adjustments for the Ovation acquisition reflect the preliminary
allocation of the net purchase price of Ovation to the assets of Ovation,
including intangible assets, and record the payment of $121.3 million in cash
and the issuance of 5,596,617 shares of our Class A common stock valued at
$33.76 per share. The value of $33.76 per share represents the average closing
price of our Class A common stock on The Nasdaq Stock Market for the eleven
trading days beginning five days prior to the date the agreement was announced,
January 7, 1999, and ending five days after such announcement. The adjustments
include the elimination of the Ovation equity components, including common
stock, treasury stock, other capital and retained deficit.
We have provided this unaudited pro forma financial data for informational
purposes only. This data does not necessarily indicate the operating results
that would have occurred had the Ovation acquisition been consummated at the
beginning of 1998, nor does it necessarily indicate future operating results or
financial position.
14
<PAGE>
MCLEODUSA INCORPORATED AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
--------------------------------------------------------------------------
PRO
ADJUSTMENTS FORMA ADJUSTMENTS
FOR THE FOR THE FOR THE
NOTES NOTES OVATION
MCLEODUSA OFFERINGS OFFERINGS OVATION ACQUISITION TOTAL
----------- ----------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS STATEMENT DATA:
Revenue................................... $ 604,146 $ -- $ 604,146 $ 21,035 $ -- $ 625,181
----------- ----------- ----------- --------- ----------- -----------
Operating expenses:
Cost of service......................... 323,208 -- 323,208 6,319 -- 329,527
Selling, general and administrative..... 260,931 -- 260,931 13,489 -- 274,420
Depreciation and amortization........... 89,107 -- 89,107 5,383 15,230 109,720
Other................................... 5,575 -- 5,575 -- -- 5,575
----------- ----------- ----------- --------- ----------- -----------
Total operating expenses.............. 678,821 -- 678,821 25,191 15,230 719,242
----------- ----------- ----------- --------- ----------- -----------
----------- ----------- ----------- --------- ----------- -----------
Operating loss............................ (74,675) -- (74,675) (4,156) (15,230) (94,061)
Interest expense, net..................... (52,234) (32,056) (84,290) (1,608) -- (85,898)
Other non-operating income................ 1,997 -- 1,997 -- -- 1,997
Income taxes.............................. -- -- -- -- -- --
----------- ----------- ----------- --------- ----------- -----------
Net loss................................ $(124,912) $ (32,056) $ (156,968) $ (5,764) $ (15,230) $ (177,962)
----------- ----------- ----------- --------- ----------- -----------
----------- ----------- ----------- --------- ----------- -----------
Loss per common share..................... $ (1.99) $ (2.50) $ (2.60)
----------- ----------- -----------
----------- ----------- -----------
Weighted average common shares
outstanding............................. 62,807 62,807 68,404
----------- ----------- -----------
----------- ----------- -----------
OTHER FINANCIAL DATA:
EBITDA(1)................................. $ 20,007 $ -- $ 20,007 $ 1,227 $ -- $ 21,234
</TABLE>
- ------------------------
(1) EBITDA consists of operating loss before depreciation, amortization and
other nonrecurring operating expenses. We have 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.
15
<PAGE>
MCLEODUSA INCORPORATED AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1999
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ADJUSTMENTS PRO FORMA ADJUSTMENTS
FOR THE FOR THE FOR THE
NOTES NOTES OVATION
MCLEODUSA OFFERINGS OFFERING OVATION ACQUISITION TOTAL
----------- ----------- ---------- --------- ----------- ----------
OPERATIONS STATEMENT DATA
Revenue............................ $ 181,109 $ -- $ 181,109 $ 19,696 $ -- $ 200,805
----------- ----------- ---------- --------- ----------- ----------
Operating expenses:
Cost of service.................. 92,459 -- 92,459 7,338 -- 99,797
Selling, general and
administrative................. 79,811 -- 79,811 10,880 -- 90,691
Depreciation and amortization.... 35,110 -- 35,110 2,829 3,741 41,680
Other............................ -- -- -- -- -- --
----------- ----------- ---------- --------- ----------- ----------
Total operating expenses....... 207,380 -- 207,380 21,047 3,741 232,168
----------- ----------- ---------- --------- ----------- ----------
Operating loss................... (26,271) -- (26,271) (1,351) (3,741) (31,363)
Interest expense, net............ (21,204) (2,487) (23,691) (2,388) -- (26,074)
Other non-operating income....... (1) -- (1) -- -- (1)
Income taxes..................... -- -- -- -- -- --
----------- ----------- ---------- --------- ----------- ----------
Net loss......................... $ (47,476) $ (2,487) $ (49,963) $ (3,734) $ (3,741) $ (57,438)
----------- ----------- ---------- --------- ----------- ----------
----------- ----------- ---------- --------- ----------- ----------
Loss per common share............ $ (0.72) $ (0.76) $ (.80)
----------- ---------- ----------
----------- ---------- ----------
Weighted average common shares
outstanding.................... 66,121 66,121 71,718
----------- ---------- ----------
----------- ---------- ----------
OTHER FINANCIAL DATA:
EBITDA(1).......................... $ 8,839 $ -- $ 8,839 $ 1,478 $ -- $ 10,317
</TABLE>
- ------------------------
(1) EBITDA consists of operating loss before depreciation, amortization and
other nonrecurring operating expenses. We have 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.
16
<PAGE>
SELLING STOCKHOLDERS
The selling stockholders include former stockholders of two telephone
directory companies we have acquired: Talking Directories, Inc.and Info America
Phone Books, Inc.. We issued a total of 2,556,390 shares of our Class A common
stock to the former stockholders of Talking Directories, who are the first two
persons listed in the table below, and 1,203,007 shares of our Class A common
stock to the former stockholders of Info America, including the first five
persons or entities listed in the table below. We have registered the shares
under the Securities Act in accordance with registration rights we granted to
the selling stockholders when we acquired Talking Directories and Info America.
Our registration of the shares does not necessarily mean that any selling
stockholder will sell all or any of such stockholder's shares.
The following table sets forth information with respect to the selling
stockholders as of May 20, 1999.
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY NUMBER OF BENEFICIALLY
OWNED PRIOR TO SHARES OWNED AFTER THE
NAME OF BENEFICIAL OWNER THE OFFERING PERCENT OFFERED OFFERING PERCENT
- ------------------------------------------------- -------------- ----------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C>
John P. Morgan................................... 1,365,421 1.8% 341,355 1,024,066 1.4%
Hendrik G. Meijer (1)............................ 1,308,273 1.8 469,909 838,364 1.1
Karri J. Gabridge Exempt Trust Under the Morgan
1997 Special Trust (2)......................... 171,446 * 42,861 128,585 *
Kacie K. McLean Exempt Trust Under the Morgan
1997 Special Trust (2)......................... 171,446 * 42,861 128,585 *
Joseph J. Morgan Exempt Trust Under the Morgan
1997 Special Trust (2)......................... 171,446 * 42,861 128,585 *
The Luxembourg Trust (1) (3)..................... 0 -- 469,909 0 --
</TABLE>
- ------------------------
* Less than one percent.
(1) Mr. Meijer has informed us that he intends to transfer by gift to The
Luxembourg Trust, a charitable remainder trust, the 469,909 shares of our
Class A common stock owned by him and offered hereby. The Luxembourg Trust
may then sell or distribute such shares from time to time.
(2) Jeffrey B. Lawson is the trustee for each of these trusts. John P. Morgan
has sole investment power and shares the voting power over the shares of our
Class A common stock owned by these trusts.
(3) Old Kent Bank is the trustee for this trust. Hendrik G. Meijer will have
sole voting power and will share the investment power over the shares of our
Class A common stock to be transfered by Mr. Meijer to this trust.
17
<PAGE>
PLAN OF DISTRIBUTION
The shares may be sold or distributed from time to time by the selling
stockholders named in this prospectus, by their donees or transferees, or by
their other successors in interest. The selling stockholders may sell their
shares at market prices prevailing at the time of sale, at prices related to
such prevailing market prices, at negotiated prices, or at fixed prices, which
may be changed. Each selling stockholder reserves the right to accept or reject,
in whole or in part, any proposed purchase of shares, whether the purchase is to
be made directly or through agents.
The selling stockholders may offer their shares at various times in one or
more of the following transactions:
- in ordinary brokers' transactions and transactions in which the broker
solicits purchasers
- in transactions involving cross or block trades or otherwise on The Nasdaq
Stock Market
- in transactions in which brokers, dealers or underwriters purchase the
shares as principal and resell the shares for their own accounts pursuant
to this prospectus
- in transactions "at the market" to or through market makers in the common
stock or into an existing market for the Class A common stock
- in other ways not involving market makers or established trading markets,
including direct sales of the shares to purchasers or sales of the shares
effected through agents
- through transactions in options, swaps or other derivatives which may or
may not be listed on an exchange
- in privately negotiated transactions
- in transactions to cover short sales
- in a combination of any of the foregoing transactions
The selling stockholders also may sell their shares in accordance with Rule
144 under the Securities Act of 1933.
From time to time, one or more of the selling stockholders may pledge or
grant a security interest in some or all of the shares owned by them. If the
selling stockholders default in performance of the secured obligations, the
pledgees or secured parties may offer and sell the shares from time to time. The
selling stockholders also may transfer and donate shares in other circumstances.
The number of shares beneficially owned by selling stockholders who transfer,
donate, pledge or grant a security interest in their shares will decrease as and
when the selling stockholders take these actions. The plan of distribution for
the shares offered and sold under this prospectus will otherwise remain
unchanged, except that the transferees, donees or other successors in interest
will be selling stockholders for purposes of this prospectus.
A selling stockholder may sell short the Class A common stock. The selling
stockholder may deliver this prospectus in connection with such short sales and
use the shares offered by this prospectus to cover such short sales.
A selling stockholder may enter into hedging transactions with
broker-dealers. The broker-dealers may engage in short sales of the Class A
common stock in the course of hedging the positions they assume with the selling
stockholder, including positions assumed in connection with distributions of the
shares by such broker-dealers. A selling stockholder also may enter into option
or other transactions with broker-dealers that involve the delivery of the
shares to the broker-dealers, who may then resell or otherwise transfer such
shares. In addition, a selling stockholder may loan or pledge shares to a
broker-
18
<PAGE>
dealer, which may sell the loaned shares or, upon a default by the selling
stockholder of the secured obligation, may sell or otherwise transfer the
pledged shares.
The selling stockholders may use brokers, dealers, underwriters or agents to
sell their shares. The persons acting as agents may receive compensation in the
form of commissions, discounts or concessions. This compensation may be paid by
the selling stockholders or the purchasers of the shares for whom such persons
may act as agent, or to whom they may sell as principal, or both. The
compensation as to a particular person may be less than or in excess of
customary commissions. The selling stockholders and any agents or broker-dealers
that participate with the selling stockholders in the offer and sale of the
shares may be deemed to be "underwriters" within the meaning of the Securities
Act. Any commissions they receive and any profit they realize on the resale of
the shares by them may be deemed to be underwriting discounts and commissions
under the Securities Act. Neither we nor any selling stockholders can presently
estimate the amount of such compensation.
If a selling stockholder sells shares in an underwritten offering, the
underwriters may acquire the shares for their own account and resell the shares
from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
at the time of sale. In such event, we will set forth in a supplement to this
prospectus the names of the underwriters and the terms of the transactions,
including any underwriting discounts, concessions or commissions and other items
constituting compensation of the underwriters and broker-dealers. The
underwriters from time to time may change any public offering price and any
discounts, concessions or commissions allowed or reallowed or paid to
broker-dealers. Unless otherwise set forth in a supplement, the obligations of
the underwriters to purchase the shares will be subject to certain conditions,
and the underwriters will be obligated to purchase all of the shares specified
in the supplement if they purchase any of the shares.
We have advised the selling stockholders that during such time as they may
be engaged in a distribution of the shares, they are required to comply with
Regulation M under the Securities Exchange Act. With certain exceptions,
Regulation M prohibits any selling stockholder, any affiliated purchasers and
any broker-dealer or other person who participates in such distribution from
bidding for or purchasing, or attempting to induce any person to bid for or
purchase, any security which is the subject of the distribution until the entire
distribution is complete. Regulation M also prohibits any bids or purchases made
in order to stabilize the price of a security in connection with the
distribution of that security. The foregoing restrictions may affect the
marketability of the shares.
Under our agreements with the selling stockholders, we are required to bear
the expenses relating to this offering, excluding any underwriting discounts or
commissions, brokerage fees, stock transfer taxes and fees of legal counsel to
the selling stockholders. We estimate these expenses will total approximately
$150,000.
We have agreed to indemnify the selling stockholders against certain
liabilities, including certain liabilities under the Securities Act.
It is possible that a significant number of shares could be sold at the same
time. Such sales, or the perception that such sales could occur, may adversely
affect prevailing market prices for the Class A common stock.
This offering by any selling stockholder will terminate one year from the
date of this prospectus or, if earlier, on the date on which the selling
stockholder has sold all of his shares.
19
<PAGE>
LEGAL MATTERS
The validity of our Class A common stock offered hereby is being passed upon
for McLeodUSA by Hogan & Hartson L.L.P., Washington, D.C., special counsel for
McLeodUSA.
EXPERTS
The consolidated financial statements and schedule of McLeodUSA and
subsidiaries as of December 31, 1998 and 1997, and for each of the three years
ended December 31, 1998, 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 Ovation Communications, Inc. as of
December 31, 1998 and 1997 and for the period from March 27, 1997 (inception) to
December 31, 1997 and the year ended December 31, 1998 incorporated by reference
in this registration statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report, and are incorporated by
reference herein in reliance upon such report given upon the authority of said
firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement of which this prospectus forms a
part. The registration statement, including the attached exhibits and schedules,
contain additional relevant information about our Class A common stock. The
rules and regulations of the SEC allow us to omit some of the information
included in the registration statement from this prospectus.
In addition, we have filed reports, proxy statements and other information
with the SEC under the Securities Exchange Act. You may read and copy any of
this information at the following locations of the SEC:
<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 obtain information on the operation of the SEC's Public Reference
Room by calling the SEC at 1-800-SEC-0330.
The SEC also maintains an Internet web site that contains reports, proxy
statements and other information regarding issuers, like McLeodUSA, that file
electronically with the SEC. The address of that site is http://www.sec.gov. The
SEC file number for our documents filed under the Securities Exchange Act is
0-20763.
The SEC allows us to "incorporate by reference" information into this
prospectus. This means we can disclose important information to you by referring
you to another document filed separately with the SEC. The information
incorporated by reference is considered to be a part of this prospectus, except
for any such information that is superseded by information included directly in
this document.
This prospectus incorporates by reference the documents listed below that we
have previously filed or will file with the SEC. They contain important
information about us and our financial condition.
- Our Annual Report on Form 10-K for our fiscal year ended December 31,
1998, filed on March 24, 1999, as amended by Form 10-K/A filed on April
22, 1999
20
<PAGE>
- Our Quarterly Report on Form 10-Q for our fiscal quarter ended March 31,
1999, filed on May 17, 1999
- Our Current Report on Form 8-K filed on April 15, 1999
- All documents filed with the SEC by us under Sections 13(a), 13(c), 14 and
15(d) of the Securities Exchange Act after the date of this prospectus and
before the offering is terminated, are considered to be a part of this
prospectus, effective the date such documents are filed
- The description of our common stock set forth in our registration
statement filed under Section 12 of the Securities Exchange Act on Form
8-A on May 12, 1998, as incorporated by reference from our registration
statement on Form S-1, as amended (File No. 333-4787), the description of
the Preferred Stock Purchase Rights set forth in our Form 8-A (Amendment
No. 1) filed on March 12, 1999 and any amendment or report filed with the
SEC for purpose of updating such descriptions.
- The consolidated financial statements of Ovation Communications, Inc. and
subsidiaries appearing on pages F-1 through F-17 of our definitive
prospectus dated March 24, 1999 and filed with the SEC on March 26, 1999
pursuant to Rule 424(b) under the Securities Act as part of our
Registration Statement on Form S-4 (Registration No. 333-71811).
In the event of conflicting information in these documents, the information
in the latest filed document should be considered correct.
You can obtain any of the documents listed above from the SEC, through the
SEC's Web site at the address described above, or directly from us, by
requesting them through our Website, ResortQuest.com by selecting the Investor
Relations icon.
We will provide a copy of any of these documents without charge, excluding
any exhibits unless the exhibit is specifically listed as an exhibit to the
registration statement of which this prospectus forms a part. If you request any
documents from us, we will mail them to you by first class mail, or another
equally prompt means, within two business days after we receive your request.
21
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
939,847 SHARES
MCLEODUSA INCORPORATED
CLASS A COMMON STOCK
[LOGO]
---------------------
PROSPECTUS
, 1999
---------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses payable by McLeodUSA
in connection with the sale and distribution of the securities being registered.
<TABLE>
<S> <C>
SEC Registration Fee.............................................. $ 14,966
Printing and Duplicating Expenses................................. 20,000
Legal Fees and Expenses........................................... 75,000
Accounting Fees and Expenses...................................... 35,000
Miscellaneous..................................................... 34
Transfer Agent and Registrar Fees................................. 5,000
---------
Total....................................................... $ 150,000
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the Delaware General Corporation Law ("DGCL"), a
corporation may indemnify its directors, officers, employees and agents and its
former directors, officers, employees and agents and those who serve, at the
corporation's request, in such capacities with another enterprise, against
expenses (including attorneys' fees), as well as judgments, fines and
settlements in nonderivative lawsuits, actually and reasonably incurred in
connection with the defense of any action, suit or proceeding in which they or
any of them were or are made parties or are threatened to be made parties by
reason of their serving or having served in such capacity. The DGCL provides,
however, that such person must have acted in good faith and in a manner such
person reasonably believed to be in (or not opposed to) the best interests of
the corporation and, in the case of a criminal action, such person must have had
no reasonable cause to believe his or her conduct was unlawful. In addition, the
DGCL does not permit indemnification in an action or suit by or in the right of
the corporation, where such person has been adjudged liable to the corporation,
unless, and only to the extent that, a court determines that such person fairly
and reasonably is entitled to indemnity for costs the court deems proper in
light of liability adjudication. Indemnity is mandatory to the extent a claim,
issue or matter has been successfully defended.
The Amended and Restated Certificate of Incorporation of McLeodUSA (the
"Restated Certificate") contains provisions that provide that no director of
McLeodUSA shall be liable for breach of fiduciary duty as a director except for
(1) any breach of the directors' duty of loyalty to McLeodUSA 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 McLeodUSA, McLeodUSA 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, McLeodUSA has entered into indemnity agreements with each of its
directors pursuant to which McLeodUSA has agreed to indemnify the directors as
permitted by the DGCL. McLeodUSA has obtained directors and officers liability
insurance against certain liabilities, including liabilities under the
Securities Act.
In the agreements with McLeodUSA pursuant to which the securities offered
hereby are being registered, the selling stockholders have agreed to indemnify
McLeodUSA, its directors, officers and
II-1
<PAGE>
agents and each person, if any, who controls McLeodUSA, against certain
liabilities, including certain liabilities under the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<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 Registration
Statement on Form S-1, File No. 333-3112 ("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 Registration Statement on Form S-4, File No. 333-27647 (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
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 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).
4.3 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).
4.4 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).
4.5 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., Clark 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).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
4.6 Stockholders' Agreement dated as of November 18, 1998 by and among McLeodUSA Incorporated, IES
Investments Inc., Clark 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).
4.7 Stockholders' Agreement dated as of January 7, 1999, by and among McLeodUSA Incorporated, IES
Investments Inc., Clark E. McLeod, Mary E. McLeod, Richard A. Lumpkin, Gail G. Lumpkin, M/C Investors
L.L.C. and Media/Communications Partners III Limited Partnership (Filed as Exhibit 4.1 to the Current
Report on Form 8-K, File No. 0-20763, filed with the Commission on January 14, 1999 and incorporated
herein by reference).
4.8 Amended and Restated Agreement and Plan of Merger dated as of January 7, 1999 by and among McLeodUSA
Incorporated, Publication Merge Co. and Info America Phone Books, Inc.
4.9 Amended and Restated Agreement and Plan of Merger dated as of January 7, 1999 by and among McLeodUSA
Incorporated, Pubco Merging Co. and Talking Directories, Inc.
4.10 Agreement Dated May 11, 1999 by and among McLeodUSA Incorporated, on its own behalf and on behalf of its
wholly owned subsidiaries Talking Directories, Inc. and Info America Phone Books, Inc., the Hendrik G.
Meijer GST Exempt 1997 Special Trust F/B/O Haley Elizabeth Meyer, the Hendrick G. Meijer GST Exempt 1997
Special Trust F/B/O Peter James Frederik Meyer, the Hendrik G. Meijer GST Exempt 1997 Special Trust
F/B/O Hanna Lee Meyer, Hendrik G. Meijer, individually and as Trustee of the Hendrik G. Meijer Trust
dated August 30, 1988, John P. Morgan, individually and as First Trustee of the John P. Morgan Trust and
certain other parties listed on the signature page thereto.
5.1 Opinion of Hogan & Hartson L.L.P.
23.1 Consent of Hogan & Hartson L.L.P. (included in Exhibit 5.1).
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Ernst & Young LLP.
*24.1 Power of attorney (included on signature page).
27.1 Financial Data Schedule (Filed as Exhibit 27.1 to the Annual Report on Form 10-K for the year ended
December 31, 1998, File No. 0-20763, filed with the Commission on March 24, 1999 and incorporated herein
by reference).
</TABLE>
- ------------------------
* Previously filed.
(b) Financial Statement Schedules.
The following financial statement schedule was filed with McLeodUSA's Annual
Report on Form 10-K (File No. 0-20763), filed with the Commission on March 24,
1999, 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 McLeodUSA
or notes thereto.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the 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 the
effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned registrant hereby undertakes that, for the purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described under Item 15 above 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 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 against the registrant 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 Act and will be governed by the final adjudication of each
issue.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECURITIES ACT, MCLEODUSA 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 28TH DAY
OF MAY, 1999.
<TABLE>
<S> <C> <C>
MCLEODUSA INCORPORATED
By: /s/ STEPHEN C. GRAY
-----------------------------------------
Stephen C. Gray
President and Chief Operating Officer
</TABLE>
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 28TH DAY OF MAY, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
Chairman, Chief Executive
* Officer and Director
- ------------------------------ (Principal Executive
Clark E. McLeod Officer)
*
- ------------------------------ Vice Chairman and Director
Richard A. Lumpkin
/s/ STEPHEN C. GRAY
- ------------------------------ President, Chief Operating
Stephen C. Gray Officer and Director
*
- ------------------------------ Group Vice President and
Blake O. Fisher, Jr. Director
Group Vice President,
Chief Financial Officer
* and Treasurer (Principal
- ------------------------------ Financial Officer and
J. Lyle Patrick Principal Accounting
Officer)
*
- ------------------------------ Director
Thomas M. Collins
*
- ------------------------------ Director
Robert J. Currey
*
- ------------------------------ Director
Lee Liu
*
- ------------------------------ Director
Paul D. Rhines
*
- ------------------------------ Director
Peter H.O. Claudy
/s/ STEPHEN C. GRAY
- ------------------------------
Stephen C. Gray
ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE>
INDEX TO EXHIBITS
<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 Registration
Statement on Form S-1, File No. 333-3112 ("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 Registration Statement on Form S-4, File No. 333-27647 (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
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 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).
4.3 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).
4.4 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).
4.5 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., Clark 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).
4.6 Stockholders' Agreement dated as of November 18, 1998 by and among McLeodUSA Incorporated, IES
Investments Inc., Clark 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).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
4.7 Stockholders' Agreement dated as of January 7, 1999, by and among McLeodUSA Incorporated, IES
Investments Inc., Clark E. McLeod, Mary E. McLeod, Richard A. Lumpkin, Gail G. Lumpkin, M/C Investors
L.L.C. and Media/Communications Partners III Limited Partnership (Filed as Exhibit 4.1 to the Current
Report on Form 8-K, File No. 0-20763, filed with the Commission on January 14, 1999 and incorporated
herein by reference).
4.8 Amended and Restated Agreement and Plan of Merger dated as of January 7, 1999 by and among McLeodUSA
Incorporated, Publication Merge Co. and Info America Phone Books, Inc
4.9 Amended and Restated Agreement and Plan of Merger dated as of January 7, 1999 by and among McLeodUSA
Incorporated, Pubco Merging Co. and Talking Directories, Inc.
4.10 Agreement Dated May 11, 1999 by and among McLeodUSA Incorporated, on its own behalf and on behalf of its
wholly owned subsidiaries Talking Directories, Inc. and Info America Phone Books, Inc., the Hendrik G.
Meijer GST Exempt 1997 Special Trust F/B/O Haley Elizabeth Meyer, the Hendrick G. Meijer GST Exempt 1997
Special Trust F/B/O Peter James Frederik Meyer, the Hendrik G. Meijer GST Exempt 1997 Special Trust
F/B/O Hanna Lee Meyer, Hendrik G. Meijer, individually and as Trustee of the Hendrik G. Meijer Trust
dated August 30, 1988, John P. Morgan, individually and as First Trustee of the John P. Morgan Trust and
certain other parties listed on the signature page thereto.
5.1 Opinion of Hogan & Hartson L.L.P.
23.1 Consent of Hogan & Hartson L.L.P. (included in Exhibit 5.1).
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Ernst & Young LLP.
*24.1 Power of attorney (included on signature page).
27.1 Financial Data Schedule (Filed as Exhibit 27.1 to the Annual Report on Form 10-K for the year ended
December 31, 1998, File No. 0-20763, filed with the Commission on March 24, 1999 and incorporated herein
by reference).
</TABLE>
- ------------------------
* Previously filed.
<PAGE>
Exhibit 4.8
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
MCLEODUSA INCORPORATED,
PUBLICATION MERGE CO.
and
INFO AMERICA PHONE BOOKS, INC.
Dated as of January 7, 1999
<PAGE>
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER, dated as of the
10th day of February, 1999, but to be effective as of January 7, 1999 (this
"MERGER AGREEMENT"), among McLeodUSA Incorporated, a Delaware corporation
("McLeod"), Publication Merge Co., an Iowa corporation ("PUBCO SUB") (a
wholly-owned subsidiary of McLeod), Info America Phone Books, Inc., a Michigan
corporation (the "COMPANY"), and each of the stockholders the Company listed as
signatories to this Merger Agreement (the "Principal Company Stockholders"),
amends and restates the Agreement and Plan of Merger between the parties hereto
dated January 7, 1999;
WHEREAS, Pubco Sub, upon the terms and subject to the conditions of this
Merger Agreement and in accordance with the General Corporation Law of the State
of Iowa ("IOWA LAW"), will merge with and into the Company (the "MERGER"); and
WHEREAS, immediately after the Merger, the Company will be a
wholly-owned subsidiary of McLeod, and McLeod will transfer all of the stock of
the Company to Media Group, Inc., a wholly-owned subsidiary of McLeod, and Media
Group, Inc. will then transfer all of the stock of the Company to McLeodUSA
Publishing Company, an Iowa corporation, and an indirect wholly-owned subsidiary
of McLeod; and
WHEREAS, the Board of Directors of the Company has (i) determined that
the Merger is fair to the holders of Company Common Stock (as defined in Section
2.01(a)) and is in the best interests of such stockholders and (ii) approved and
adopted this Merger Agreement and the transactions contemplated hereby and
recommended approval and adoption of this Merger Agreement by the stockholders
of the Company (the "COMPANY STOCKHOLDERS"); and
WHEREAS, the Board of Directors of McLeod has determined that the Merger
is in the best interests of McLeod and the Board of Directors of Pubco Sub have
approved and adopted this Merger Agreement and the transactions contemplated
hereby; and
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a tax-free reorganization under the provisions of Section
368(a) of the United States Internal Revenue Code of 1986, as amended (the
"CODE");
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this Merger
Agreement, and intending to be legally bound hereby, the parties hereto agree as
follows.
ARTICLE I
THE MERGER
SECTION 1.01. THE MERGER.
Upon the terms and subject to the conditions set forth in this Merger
Agreement, and in accordance with Iowa Law, at the Effective Time (as defined in
Section 1.02 below) Pubco Sub shall be merged with and into the Company. As a
result of
<PAGE>
the Merger, the separate corporate existence of Pubco Sub shall cease and the
Company shall continue as the surviving corporation of the Merger (the
"SURVIVING CORPORATION").
Subsequent to the Merger, McLeod intends to cause all of the stock of
the Company to be transferred directly or indirectly to McLeodUSA Publishing
Company ("Pubco"), a wholly-owned subsidiary of Media Group, Inc., a
wholly-owned subsidiary of McLeod.
The parties hereto acknowledge that the Merger will be treated as a
purchase for accounting purposes.
SECTION 1.02. EFFECTIVE TIME.
Subject to the provisions of Section 2.04, as promptly as practicable
after the satisfaction or, if permissible, waiver of the conditions set forth in
Article VII below, the parties hereto shall cause the Merger to be consummated
by filing this Merger Agreement, articles of merger or other appropriate
Documents (as defined in Article X) (in any such case, the "ARTICLES OF MERGER")
with the Secretary of State of the States of Michigan and Iowa, in such form as
required by, and executed in accordance with the relevant provisions of,
Michigan Law and Iowa Law (the date and time of such filing being the "EFFECTIVE
TIME").
SECTION 1.03. EFFECT OF THE MERGER.
At the Effective Time, the effect of the Merger shall be as provided in
the applicable provisions of Michigan and Iowa Law. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time, all the
property, rights, privileges, powers and franchises of Pubco Sub and the Company
shall vest in the Surviving Corporation, and all debts, liabilities and duties
of Pubco Sub and the Company shall become the debts, liabilities and duties of
the Surviving Corporation.
SECTION 1.04. CERTIFICATE OF INCORPORATION; BYLAWS.
(a) Unless otherwise determined by McLeod prior to the Effective Time,
at the Effective Time the certificate of incorporation of the Company shall be
amended in its entirety to conform to the certificate of incorporation of Pubco
Sub in effect immediately prior to the Effective Time, and shall become the
certificate of incorporation of the Surviving Corporation, until thereafter
amended as provided by Law (as defined in Article X) and such certificate of
incorporation.
(b) Unless otherwise determined by McLeod prior to the Effective Time,
at the Effective Time the bylaws of the Company shall be amended in their
entirety to conform to the bylaws of Pubco Sub in effect immediately prior to
the Effective Time, and shall become the bylaws of the Surviving Corporation
until thereafter amended as provided by Law, the certificate of incorporation of
the Surviving Corporation and such bylaws.
-2-
<PAGE>
SECTION 1.05. DIRECTORS AND OFFICERS.
The directors of Pubco Sub immediately prior to the Effective Time shall
be the initial directors of the Surviving Corporation, each to hold office in
accordance with the certificate of incorporation and bylaws of the Surviving
Corporation, and the officers of Pubco Sub immediately prior to the Effective
Time shall be the initial officers of the Surviving Corporation, in each case
until their respective successors are duly elected or appointed and qualified.
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.01. CONVERSION OF SECURITIES.
At the Effective Time, as provided in this Merger Agreement, by virtue
of the Merger and without any action on the part of Pubco Sub, the Company or
the Company Stockholders:
(a) COMPANY COMMON SHARES. Each share of common stock, no par value per
share, of the Company (as described in Section 3.04 below) ("COMPANY COMMON
STOCK") issued and outstanding immediately prior to the Effective Time (other
than any shares of Company Common Stock to be canceled pursuant to Section
2.01(c)), shall be converted, subject to Section 2.02(e), into the right to
receive that number of shares of Class A common stock, par value $.01 per share,
of McLeod ("MCLEOD COMMON STOCK") (the "MERGER CONSIDERATION") determined by
dividing 1,203,007 ($40,000,000 divided by $33.25, the average of the closing
bid and ask price for McLeod Common Stock quoted on the National Association of
Securities Dealers' Automated Quotation System on the date hereof as reported in
the WALL STREET JOURNAL) by the Total Outstanding Company Shares (as defined
below) (the "COMMON SHARE EXCHANGE RATIO").
All such shares of Company Common Stock shall no longer be outstanding
and shall automatically be canceled and retired and shall cease to exist, and
each certificate previously representing any such shares shall thereafter
represent the right to receive (i) a certificate representing whole shares of
McLeod Common Stock into which such Company Common Stock was converted pursuant
to the Merger, and (ii) an amount in cash, without interest, in lieu of
fractional shares. No fractional share of McLeod Common Stock shall be issued,
and, in lieu thereof, a cash payment shall be made pursuant to Section 2.02(e)
hereof. In any event, if between the date of this Merger Agreement and the
Effective Time the outstanding shares of McLeod Common Stock shall have been
changed into a different number of shares or a different class, by reason of any
stock dividend, subdivision, reclassification, recapitalization, split,
combination or exchange of shares, the Common Share Exchange Ratio shall be
appropriately and correspondingly adjusted to reflect such stock dividend,
subdivision, reclassification, recapitalization, split, combination or exchange
of shares. As used in this Merger Agreement, the term "TOTAL OUTSTANDING COMPANY
SHARES" shall mean the aggregate number of shares of Company Common Stock issued
and outstanding immediately prior to the Effective Time (other than shares to be
canceled pursuant to Section 2.01(c)).
-3-
<PAGE>
(b) CANCELLATION AND RETIREMENT OF COMPANY COMMON STOCK. All such shares
of Company Common Stock referred to in Section 2.01(a) (other than any shares of
Company Common Stock to be canceled pursuant to Section 2.01(c)) shall no longer
be outstanding and shall automatically be canceled and retired and shall cease
to exist, and each certificate previously representing any such shares shall
thereafter represent the right to receive the Merger Consideration as described
in Section 2.01(a). The holders of certificates which prior to the Effective
Time represented shares of Company Common Stock shall cease to have any rights
with respect thereto except as otherwise provided herein or by Law.
(c) CANCELLATION OF TREASURY STOCK. Any shares of Company Common Stock
held in the treasury of the Company and any shares of Company Common Stock owned
by McLeod or any direct or indirect wholly owned subsidiary of McLeod or of the
Company immediately prior to the Effective Time shall be canceled and
extinguished without any conversion thereof and no payment shall be made with
respect thereto.
(d) PUBCO SUB COMMON STOCK. Each share of common stock, no par value per
share, of Pubco Sub issued and outstanding immediately prior to the Effective
Time shall be converted into and exchanged for one newly and validly issued,
fully paid and non-assessable share of common stock of the Surviving
Corporation.
SECTION 2.02. EXCHANGE OF CERTIFICATES.
(a) EXCHANGE. As of the Effective Time, McLeod shall deliver, or cause
to be delivered, (i) certificates representing the whole shares of McLeod Common
Stock issuable to the Company Stockholders pursuant to Section 2.01, and (ii)
cash in an amount sufficient to permit payment of the cash payable in lieu of
fractional shares pursuant to Section 2.02(e), to the holders of Company Common
Stock pursuant to Section 2.01.
(b) EXCHANGE PROCEDURES. At the Closing, a certificate or certificates
of Company Common Stock which immediately prior to the Effective Time
represented outstanding shares of Company Common Stock (the "CERTIFICATES")
shall be surrendered in exchange for certificates representing shares of McLeod
Common Stock. Upon surrender of a Certificate for cancellation to McLeod,
together with such other Documents as may be required, the holder of such
Certificate shall be entitled to receive in exchange therefor (i) a certificate
representing that number of whole shares of McLeod Common Stock which such
holder has the right to receive in respect of such Certificate (after taking
into account all shares of Company Common Stock then held by such holder under
all such Certificates so surrendered), together with any dividends or other
distributions to which such holder is entitled pursuant to Section 2.02(c), and
(ii) cash in lieu of fractional shares of McLeod Common Stock to which such
holder is entitled pursuant to Section 2.02(e). The Certificates so surrendered
shall forthwith be canceled. In the event of a transfer of ownership of shares
of Company Common Stock that is not registered in the transfer records of the
Company, the proper number of shares of McLeod Common Stock may be issued
pursuant hereto to a transferee if the Certificates representing such shares of
Company Common Stock, properly endorsed or otherwise in proper form for
transfer, are presented to McLeod, accompanied by all Documents required to
evidence and effect such transfer and by evidence that any applicable stock
transfer taxes have been paid.
-4-
<PAGE>
Until surrendered as contemplated by this Section 2.02, each Certificate shall
be deemed at any time after the Effective Time to represent only the right to
receive upon such surrender Merger Consideration issuable in exchange therefor,
together with any dividends or other distributions to which such holder is
entitled pursuant to Section 2.02(c). No interest will be paid or will accrue on
any cash payable pursuant to Sections 2.02(c) or 2.02(e).
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES OF MCLEOD COMMON
STOCK. No dividends or other distributions declared or made after the Effective
Time with respect to McLeod Common Stock with a record date after the Effective
Time shall be paid to the holder of any unsurrendered Certificate with respect
to the whole shares of McLeod Common Stock represented thereby until the holder
of such Certificate shall surrender such Certificate. Subject to the effect of
escheat, tax or other applicable Laws, following surrender of any such
Certificate, there shall be paid to the record holder of the certificates
representing whole shares of McLeod Common Stock issued in exchange therefor,
without interest, (i) promptly, the amount of any cash payable with respect to
(A) the shares of Company Common Stock formerly represented by such Certificate,
and (B) a fractional share of McLeod Common Stock to which such holder is
entitled pursuant to Section 2.02(e), and the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid with
respect to such whole shares of McLeod Common Stock, and (ii) at the appropriate
payment date, the amount of dividends or other distributions, with a record date
after the Effective Time but prior to surrender and a payment date occurring
after surrender, payable with respect to such whole shares of McLeod Common
Stock.
(d) NO FURTHER RIGHTS IN COMPANY COMMON STOCK. All shares of McLeod
Common Stock issued upon conversion of the shares of Company Common Stock in
accordance with the terms hereof (including any cash paid pursuant to Sections
2.02(c) or (e)) shall be deemed to have been issued and paid in full
satisfaction of all rights pertaining to such shares of Company Common Stock.
(e) NO FRACTIONAL SHARES. No fractional shares of McLeod Common Stock
shall be issued upon surrender for exchange of the Certificates, and any such
fractional share interests will not entitle the owner thereof to vote or to any
rights of a stockholder of McLeod, but in lieu thereof each holder of shares of
Company Common Stock who would otherwise be entitled to receive a fraction of a
share of McLeod Common Stock, after aggregating all Certificates delivered by
such holder, and rounding down to the nearest whole share, shall receive an
amount in cash equal to the denominator used in the Common Share Exchange Ratio
described in Section 2.01(a) above, multiplied by the fraction of a share of
McLeod Common Stock to which such holder would otherwise be entitled.
(f) Intentionally omitted.
(g) NO LIABILITY. None of McLeod, Pubco Sub, the Company, the Surviving
Corporation or the Principal Company Shareholders shall be liable to any Person
(as defined in Article X) for any shares of McLeod Common Stock (or dividends or
distributions with respect thereto) or cash delivered to a public official
pursuant to any abandoned property, escheat or similar Laws.
(h) LOST, STOLEN OR DESTROYED CERTIFICATES. If any certificate
evidencing
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shares of Company Common Stock shall have been lost, stolen or destroyed, McLeod
shall cause to be issued in exchange for such lost, stolen or destroyed
certificate, upon the making of an affidavit of that fact by the holder thereof,
such shares of McLeod Common Stock and cash, if any, as may be required pursuant
to this Article II; PROVIDED, HOWEVER, that McLeod may, in its reasonable
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate to deliver a bond in such
sum as it may reasonably direct as indemnity against any claim that may be made
against McLeod or the Surviving Corporation with respect to the certificate
alleged to have been lost, stolen or destroyed.
SECTION 2.03. STOCK TRANSFER BOOKS.
At the Effective Time, the stock transfer books of the Company shall be
closed and there shall be no further registration of transfers of shares of
Company Common Stock thereafter on the records of the Company. From and after
the Effective Time, the holders of certificates representing shares of Company
Common Stock outstanding immediately prior to the Effective Time shall cease to
have any rights with respect to such shares of Company Common Stock except as
otherwise provided herein or by Law. On or after the Effective Time, any
Certificates presented to McLeod for any reason shall be converted into shares
of McLeod Common Stock issuable in exchange therefor pursuant to Section
2.01(a), any dividends or other distributions to which the holders thereof are
entitled pursuant to Section 2.02(c) and any cash in lieu of fractional shares
of McLeod Common Stock to which the holders thereof are entitled pursuant to
Section 2.02(e).
SECTION 2.04. CLOSING.
Subject to the terms and conditions of this Merger Agreement, the
closing of the Merger (the "CLOSING") will take place on or before February 10,
1999, or as soon as practicable (but, in any event, within five (5) business
days) after satisfaction of the latest to occur or, if permissible, waiver of
the conditions set forth in Article VII hereof (the "CLOSING DATE"), at the
offices of Pubco, 201 Third Avenue SE, Suite 500, Cedar Rapids, Iowa 52401,
unless another date or place is agreed to in writing by the parties hereto.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as specifically set forth in the Disclosure Schedule delivered by
the Company to McLeod prior to the execution and delivery of this Merger
Agreement (the "COMPANY DISCLOSURE SCHEDULE") (the contents of which may be
updated or otherwise modified by the Company up to five (5) days prior to the
Closing Date), the Company hereby represents and warrants (which representation
and warranty shall be deemed to include the disclosures with respect thereto so
specified in the Company Disclosure Schedule) to, and covenants and agrees with,
McLeod and Pubco Sub as follows, in each case as of the date of this Merger
Agreement, unless otherwise specifically set forth herein or in the Company
Disclosure Schedule:
SECTION 3.01. ORGANIZATION AND STANDING.
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The Company is a corporation duly organized, validly existing and in
good standing under Michigan Law, and has the full and unrestricted corporate
power and authority to own, operate and lease its Assets (as defined in Article
X), to carry on its business as currently conducted, to execute and deliver this
Merger Agreement and to carry out the transactions contemplated hereby. The
Company is duly qualified to conduct business as a foreign corporation and is in
good standing in the states, countries and territories listed in Section 3.01 of
the Company Disclosure Schedule. The Company is not qualified to conduct
business in any other jurisdiction, and neither the nature of the business
conducted by the Company nor the character of the Assets owned, leased or
otherwise held by it makes any such qualification necessary, except where the
absence of such qualification as a foreign corporation would not have a Company
Material Adverse Effect (as defined in Article X). The Company has elected and
qualified as an S-corporation under the applicable provisions of the Code, and
such election remains in full force and effect.
SECTION 3.02. SUBSIDIARIES.
Except as set forth in Section 3.02 of the Company Disclosure Schedule,
the Company has no Subsidiaries (as defined in Article X) and neither the
Company nor any Subsidiary has any equity investment or other interest in, nor
has the Company or any Subsidiary made advances or loans to (other than for
customary credit extended to customers of the Company in the Ordinary Course of
Business (as defined in Article X) and reflected in the Financial Statements (as
defined in Section 3.08)), any corporation, association, partnership, joint
venture or other entity. Section 3.02 of the Company Disclosure Schedule sets
forth (a) the authorized capital stock or other equity interests of each direct
and indirect Subsidiary of the Company and the percentage of the outstanding
capital stock or other equity interests of each Subsidiary directly or
indirectly owned by the Company, and (b) the nature and amount of any such
equity investment, other interest or advance. All of such shares of capital
stock or other equity interests of Subsidiaries directly or indirectly held by
the Company have been duly authorized and validly issued and are outstanding,
fully paid and nonassessable. The Company directly, or indirectly through wholly
owned Subsidiaries, owns all such shares of capital stock or other equity
interests of the direct or indirect Subsidiaries free and clear of all
Encumbrances (as defined in Article X). Each Subsidiary is a corporation duly
organized, validly existing and in good standing under the Laws of its state or
jurisdiction of incorporation (as listed in Section 3.02 of the Company
Disclosure Schedule), and has the full and unrestricted corporate power and
authority to own, operate and lease its Assets and to carry on its business as
currently conducted. Each Subsidiary is duly qualified to conduct business as a
foreign corporation and is in good standing in the states, countries and
territories listed in Section 3.02 of the Company Disclosure Schedule. The
Subsidiaries are not qualified to conduct business in any other jurisdictions,
and neither the nature of their businesses nor the character of the Assets
owned, leased or otherwise held by them makes any such qualification necessary,
except where the absence of such qualification as a foreign corporation would
not have a Company Material Adverse Effect.
SECTION 3.03. CERTIFICATE OF INCORPORATION AND BYLAWS.
The Company has furnished to McLeod a true and complete copy of the
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certificate or articles of incorporation of the Company and of each Subsidiary,
as currently in effect, certified as of a recent date by the Secretary of State
(or comparable Governmental Entity (as defined in Article X)) of the respective
jurisdictions of incorporation, and a true and complete copy of the bylaws of
the Company and of each Subsidiary, as currently in effect, certified by their
respective corporate secretaries. Such certified copies are attached as exhibits
to, and constitute an integral part of, the Company Disclosure Schedule.
SECTION 3.04. CAPITALIZATION.
The authorized capital stock of the Company consists of (a) 3,000 shares
of Class A Common Stock, of which 3,000 shares are issued and outstanding, all
of which are duly authorized, validly issued, fully paid and nonassessable, and
(b) 57,000 shares of Class B Common Stock, no par value per share, of which
57,000 shares are issued and outstanding, all of which are duly authorized,
validly issued, fully paid and nonassessable. Except as described in this
Section 3.04, no other shares of Company Common Stock have been reserved for any
purpose. There are no outstanding securities convertible into or exchangeable
for Company Common Stock, any other securities of the Company, or any capital
stock or other securities of any of the Subsidiaries and no outstanding options,
rights (preemptive or otherwise), or warrants to purchase or to subscribe for
any shares of such stock or other securities of the Company or any of the
Subsidiaries. Except as set forth in Section 3.04 of the Company Disclosure
Schedule, there are no outstanding Agreements (as defined in Article X)
affecting or relating to the voting, issuance, purchase, redemption,
registration, repurchase or transfer of Company Common Stock, any other
securities of the Company, or any capital stock or other securities of any
Subsidiary, except as contemplated hereunder. Since December 31, 1997, no shares
of Company Common Stock have been issued by the Company, except as set forth in
Section 3.04 of the Company Disclosure Schedule. Each of the outstanding shares
of Company Common Stock and of capital stock of, or other equity interests in,
the Subsidiaries was issued in compliance with all applicable federal and state
Laws concerning the issuance of securities, and such shares or other equity
interests owned by the Company or any Subsidiary are owned free and clear of all
Encumbrances. There are no obligations, contingent or otherwise, of the Company
or any Subsidiary to provide funds to, make any investment (in the form of a
loan, capital contribution or otherwise) in, or provide any guarantee with
respect to, any Subsidiary or any other Person. There are no Agreements pursuant
to which any Person is or may be entitled to receive any of the revenues or
earnings, or any payment based thereon or calculated in accordance therewith, of
the Company or any Subsidiary.
SECTION 3.05. AUTHORITY; BINDING OBLIGATION.
The execution and delivery by the Company of this Merger Agreement, the
execution and delivery by the Company and the Subsidiaries of all other
Documents contemplated hereby, and the consummation by the Company and the
Subsidiaries of the transactions contemplated hereby and
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thereby have been duly authorized by all necessary corporate action, and no
other corporate proceedings on the part of the Company or the Subsidiaries are
necessary to authorize this Merger Agreement and the other Documents
contemplated hereby, or to consummate the transactions contemplated hereby and
thereby, other than the approval and adoption of this Merger Agreement by the
holders of a majority of the outstanding shares of Company Common Stock in
accordance with Michigan Law and the Company's certificate of incorporation and
bylaws. This Merger Agreement has been duly executed and delivered by the
Company and constitutes a legal, valid and binding obligation of the Company,
enforceable in accordance with its terms, except as such enforceability may be
subject to the effects of any applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium or similar Laws affecting creditors'
rights generally and subject to the effects of general equitable principles
(whether considered in a proceeding in equity or at law).
SECTION 3.06. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution, delivery and performance by the Company and the
Subsidiaries of this Merger Agreement and all other Documents contemplated
hereby, the fulfillment of and compliance with the respective terms and
provisions hereof and thereof, and the consummation by the Company and the
Subsidiaries of the transactions contemplated hereby and thereby, do not and
will not: (i) conflict with, or violate any provision of, the certificate of
incorporation or bylaws of the Company or the certificate or articles of
incorporation or bylaws of any Subsidiary; (ii) subject to (A) obtaining the
requisite approval and adoption of this Merger Agreement by the holders of a
majority of the outstanding shares of Company Common Stock in accordance with
Michigan Law and the Company's certificate of incorporation and bylaws and (B)
obtaining the consents, approvals, authorizations and permits of, and making
filings with or notifications to, the applicable Governmental Entity, including
pursuant to the applicable requirements, if any, of the HSR Act, and the filing
and recordation of the Articles of Merger as required by Michigan Law, conflict
with or violate any Law applicable to the Company or any Subsidiary, or any of
their respective Assets; (iii) subject to obtaining the consents and approvals
set forth in Section 3.06(b) of the Company Disclosure Schedule, conflict with,
result in any breach of, or constitute a default (or an event that with notice
or lapse of time or both would become a default) under any Agreement to which
the Company or any Subsidiary is a party or by which the Company or any
Subsidiary, or any of their respective Assets, may be bound; or (iv) except as
disclosed in Section 3.06(b) of the Company Disclosure Schedule, result in or
require the creation or imposition of, or result in the acceleration of, any
indebtedness or any Encumbrance of any nature upon, or with respect to, the
Company or any Subsidiary or any of the Assets now owned or hereafter acquired
by the Company or any Subsidiary; except for any such conflict or violation
described in clause (ii), any such conflict, breach or default described in
clause (iii), or any such creation, imposition or acceleration described in
clause (iv) that would not have a Company Material Adverse Effect and that would
not prevent the Company from consummating the Merger on a timely basis.
(b) Except as set forth in Section 3.06(b) of the Company Disclosure
Schedule, the execution, delivery and performance by the Company and the
Subsidiaries of this Merger Agreement and all other Documents contemplated
hereby, the fulfillment of and compliance with the respective terms and
provisions hereof and thereof, and the consummation by the Company and the
Subsidiaries of the transactions contemplated hereby and thereby, do not and
will not: (i) require any consent, approval, authorization or permit of, or
filing with or notification to, any Person not party to this Merger Agreement,
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except (A) the approval and adoption of this Merger Agreement by the holders of
a majority of the outstanding shares of Company Common Stock in accordance with
Law and the Company's certificate of incorporation and bylaws, (B) the filing
and recordation of the Articles of Merger as required by Law; or (ii) result in
or give rise to any penalty, forfeiture, Agreement termination, right of
termination, amendment or cancellation, or restriction on business operations of
McLeod, the Company, the Surviving Corporation or any Subsidiary that would have
a Company Material Adverse Effect. Section 3.06(b) of the Company Disclosure
Schedule lists all Agreements that reasonably could be interpreted or expected
to require the consent or acquiescence of any Person not party to this Merger
Agreement with respect to any aspect of the execution, delivery or performance
of this Merger Agreement by the Company and the Subsidiaries, except where
failure to obtain such consent or acquiecense would not have a Company Material
Adverse Effect.
SECTION 3.07. LICENSES; COMPLIANCE.
(a) Each of the Company and each Subsidiary is in possession of all
Licenses (as defined in Article X) necessary for the Company or any Subsidiary
to own, lease and operate its Assets or to carry on its business as it is now
being conducted (the "COMPANY LICENSES"), except where the failure to possess
any such Company License would not have a Company Material Adverse Effect. All
Company Licenses are valid and in full force and effect through the respective
dates indicated in the Company Disclosure Schedule, except for any such
invalidity or failure to be in full force and effect that would not, alone or in
the aggregate, have a Company Material Adverse Effect, and no suspension,
cancellation, complaint, proceeding, order or investigation of or with respect
to any Company License (or operations thereunder) is pending or, to the
knowledge of the Company or any Subsidiary, threatened. Neither the Company nor
any Subsidiary is in violation of or default under any Company License, except
for any such violation or default that would not have a Company Material Adverse
Effect. Except as set forth in Section 3.07(a) of the Company Disclosure
Schedule, since December 31, 1996, neither the Company nor any Subsidiary has
received written or, to the knowledge of the Company or any Subsidiary, oral
notice from any Governmental Entity or any other Person of any allegation of any
such violation or default under a Company License.
(b) Neither the Company nor any Subsidiary is in violation of or default
under, nor has it breached, (i) any term or provision of its certificate or
articles of incorporation or bylaws or (ii) any Agreement or restriction to
which the Company or any Subsidiary is a party or by which the Company or any
Subsidiary, or any of their respective Assets, is bound or affected, except for
any such violation, default or breach described in clause (ii) that would not
have a Company Material Adverse Effect. The Company and the Subsidiaries have
complied and are in full compliance with all Laws, except where the failure so
to comply would not have a Company Material Adverse Effect.
(c) All returns, reports, statements and other Documents required to be
filed by the Company or any Subsidiary with any Governmental Entity have been
filed and complied with and are true, correct and complete in all material
respects (and any related fees required to be paid have been paid in full). To
the knowledge of the Company and the Subsidiaries, all records of every type and
nature relating to the Company Licenses or the business, operations or Assets of
the Company or any Subsidiary have been maintained in
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all material respects in accordance with good business practices and the rules
of any Governmental Entity and are maintained at the Company or the appropriate
Subsidiary.
(d) Except as provided in Section 3.07(a) of the Company Disclosure
Schedule, neither the Company nor any Subsidiary has any interest in any License
(including both any Company License and any License held by third parties in
which the Company or any Subsidiary has an interest) that is subject to
restrictions on assignment or transfer based on the circumstances under which
the License was granted (such as eligibility or auction rules), the status of
construction and operation (such as rules restricting resale for a certain
period after construction), or any other restrictions other than an ordinary
course requirement for prior approval of transactions such as the Merger
contemplated herein.
(e) Neither the Company nor any Subsidiary is aware of any fact or
circumstance related to them that could reasonably be expected to cause the
filing of any objection to any application for any Governmental consent required
hereunder, lead to any delay in processing such application, or require any
waiver of any Governmental rule, policy or other applicable Law.
SECTION 3.08. FINANCIAL STATEMENTS.
(a) The Company has prepared a consolidated balance sheet of the Company
and the Subsidiaries as of the end of the fiscal year ending in 1997, (the
"REVIEWED BALANCE SHEET") and the related consolidated statement of income,
shareholders' equity and cash flows of the Company and the Subsidiaries for such
fiscal year (the Balance Sheet and such consolidated statement of income,
shareholders' equity and cash flows are hereinafter referred to collectively as
the "REVIEWED STATEMENT"), in each case, reviewed by Arthur Anderson in
accordance with generally accepted auditing standards and accompanied by the
related report of Arthur Anderson. A true and complete copy of each of the
Reviewed Statement has been delivered to McLeod and is attached as an exhibit
to, and constitute an integral part of, the Company Disclosure Schedule. The
Company has also prepared unaudited consolidated balance sheets of the Company
and the Subsidiaries as of the last day of each month ending after January 1,
1998 (including the unaudited consolidated balance sheets to be furnished to
McLeod pursuant to Section 6.07, the "UNAUDITED BALANCE SHEETS") and the
unaudited consolidated statements of income and cash flows of the Company and
the Subsidiaries for the one-month periods then ended (the Unaudited Balance
Sheets and such statements of income and cash flows, including the unaudited
consolidated statements of income and cash flows to be furnished to McLeod
pursuant to Section 6.07, are hereinafter referred to collectively as the
"UNAUDITED STATEMENTS" and, together with the Reviewed Statements, as the
"FINANCIAL STATEMENTS").
(b) The Financial Statements, including, without limitation, the notes
thereto, (i) are complete and correct in all material respects, (ii) have been
prepared in accordance with the books and records of the Company and the
Subsidiaries, and (iii) present fairly the consolidated financial position of
the Company and the Subsidiaries and their consolidated results of operations
and cash flows as of and for the respective dates and time periods in accordance
with GAAP applied on a basis consistent with prior accounting periods, except as
noted thereon and subject to, in the case of the Unaudited
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Statements, normal and recurring year-end adjustments which were not or are not
expected to be material in amount. All changes in accounting methods (for
financial accounting purposes) made, agreed to, requested or required with
respect to the Company or any of the Subsidiaries since August 31, 1998 are
reflected in the Financial Statements.
SECTION 3.09. ABSENCE OF UNDISCLOSED LIABILITIES.
Except as described in Section 3.09 of the Company Disclosure Schedule,
there are no liabilities or obligations (whether absolute or contingent, matured
or unmatured, known or unknown) of the Company or any Subsidiary, including but
not limited to liabilities for Taxes (as defined in Article X), of a nature
required by GAAP to be reflected, or reserved against, in the Financial
Statements and that are not so reflected, or reserved against, in the Financial
Statements. Except as described in Section 3.09 of the Company Disclosure
Schedule, since August 31, 1998, neither the Company nor any Subsidiary has
incurred any liabilities or obligations (whether absolute or contingent, matured
or unmatured, known or unknown) other than in the Ordinary Course of Business
(as defined in Article X).
SECTION 3.10. ABSENCE OF CERTAIN CHANGES OR EVENTS.
Other than as set forth in Section 3.10 to the Company Disclosure
Schedule, since August 31, 1998, there has been no material adverse change, and
no change except in the Ordinary Course of Business, in the business,
operations, prospects, condition (financial or otherwise), Assets or liabilities
of the Company or any Subsidiary. Except as set forth in Section 3.10 to the
Company Disclosure Schedule, since August 31, 1998, the Company and the
Subsidiaries have conducted their respective businesses substantially in the
manner theretofore conducted and only in the Ordinary Course of Business, and
neither the Company nor any Subsidiary has (a) incurred any material damage,
destruction or loss not covered by insurance with respect to any Assets of the
Company or of any such Subsidiary; (b) issued any capital stock or other equity
securities or granted any options, warrants or other rights calling for the
issuance thereof; (c) issued any bonds or other long-term debt instruments,
granted any options, warrants or other rights calling for the issuance thereof,
or borrowed any funds; (d) incurred, or become subject to, any material
obligation or liability (whether absolute or contingent, matured or unmatured,
known or unknown), except current liabilities incurred in the Ordinary Course of
Business; (e) discharged or satisfied any Encumbrance or paid any material
obligation or liability (whether absolute or contingent, matured or unmatured,
known or unknown) other than current liabilities shown in the Unaudited Balance
Sheets (as defined in Section 6.08) and current liabilities incurred since
August 31, 1998, in the Ordinary Course of Business; (f) declared or made
payment of, or set aside for payment, any dividends or distributions of any
Assets, or purchased, redeemed or otherwise acquired any of its capital stock,
any securities convertible into capital stock, or any other securities; (g)
mortgaged, pledged or subjected to any Encumbrance any of its material Assets;
(h) sold, exchanged, transferred or otherwise disposed of any of its material
Assets, or canceled any debts or claims, except in each case in the Ordinary
Course of Business; (i) written down the value of any Assets or written off as
uncollectable any debt, notes or accounts receivable, except to the extent
previously reserved against in the Financial Statements and not material in
amount, and except for write-downs and write-offs in the Ordinary Course of
Business, none of
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which, individually or in the aggregate, are material; (j) entered into any
transactions other than in the Ordinary Course of Business; (k) except in the
Ordinary Course of Business, increased the rate of compensation payable, or to
become payable, by it to any of its officers, employees, agents or independent
contractors over the rate being paid to them on August 31, 1998, (l) made or
permitted any amendment or termination of any material Agreement to which it is
a party; (m) through negotiation or otherwise made any commitment or incurred
any liability to any labor organization; (n) made any accrual or arrangement for
or payment of bonuses or special compensation of any kind to any director,
officer or employee, except for any accrual or arrangement for or payment of
bonuses or special compensation in the Ordinary Course of Business to employees
who are not directors or officers; (o) directly or indirectly paid any severance
or termination pay in excess of two months' salary to any officer or employee
with an annual salary in excess of $60,000; (p) made capital expenditures, or
entered into commitments therefor, not provided for in the Company's capital
budget for 1998 (a copy of which has been furnished by the Company to McLeod)
or, if applicable, the Company's capital budget for 1999 (which capital budget
shall have been approved by McLeod as provided in Section 5.01(i)), except for
capital expenditures permitted by Section 5.01; (q) made any change in any
method of accounting or accounting practice except as required by GAAP; (r)
entered into any transaction of the type described in Section 3.19; (s) made any
charitable contributions or pledges exceeding $10,000 individually or $100,000
in the aggregate; or (t) made any Agreement to do any of the foregoing. At the
Closing, the Company shall deliver to McLeod an updated Section 3.10 to the
Company Disclosure Schedule in accordance with the provisions of Section 6.04.
SECTION 3.11. LITIGATION; DISPUTES.
(a) Except as disclosed in Section 3.11(a) of the Company Disclosure
Schedule, there are no actions, suits, claims, arbitrations, proceedings or
investigations pending or, to the knowledge of the Company or any Subsidiary,
threatened against, affecting or involving the Company or any Subsidiary or
their respective businesses or Assets, or the transactions contemplated by this
Merger Agreement, at law or in equity, or before or by any court, arbitrator or
Governmental Entity, domestic or foreign. Neither the Company nor any Subsidiary
is (i) operating under or subject to any order (except for orders that Persons
similarly situated, engaged in similar businesses and owning similar Assets are
operating under or subject to), award, writ, injunction, decree or judgment of
any court, arbitrator or Governmental Entity, or (ii) in default with respect to
any order, award, writ, injunction, decree or judgment of any court, arbitrator
or Governmental Entity.
(b) Except as set forth in Section 3.11(b) of the Company Disclosure
Schedule, neither the Company nor any Subsidiary is currently involved in, or to
the knowledge of the Company or any Subsidiary, reasonably anticipates any
dispute with, any of its current or former employees, agents, brokers,
distributors, vendors, customers, business consultants, franchisees,
franchisors, representatives or independent contractors (or any current or
former employees of any of the foregoing Persons) affecting the business or
Assets of the Company or any Subsidiary, except for any such disputes that, if
resolved adversely to the Company or any Subsidiary, would not have a Company
Material Adverse Effect.
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SECTION 3.12. DEBT INSTRUMENTS.
Section 3.12 of the Company Disclosure Schedule lists all mortgages,
indentures, notes, guarantees and other Agreements for or relating to borrowed
money (including, without limitation, conditional sales agreements and capital
leases) to which the Company or any Subsidiary is a party or which have been
assumed by the Company or any Subsidiary or to which any Assets of the Company
or any Subsidiary are subject and, with respect to each such Agreement so
listed, briefly describes the principal amount, interest rate, original and
maturity dates and any sinking fund installments, prepayment premiums,
restrictive covenants and any other material provisions. With respect to the
Documents listed on Section 3.12 of the Company Disclosure Schedule, the Company
and the Subsidiaries have performed all the obligations required to be performed
by any of them to date and are not in default in any respect under any of the
foregoing, and there has not occurred any event which (whether with or without
notice, lapse of time or the happening or occurrence of any other event) would
constitute such a default, except for any failure so to perform or any such
default that would not have a Company Material Adverse Effect.
SECTION 3.13. LEASES.
Section 3.13 of the Company Disclosure Schedule lists all leases and
other Agreements with a term in excess of one (1) year or requiring payments in
excess of $5,000 in the aggregate over its term under which the Company or any
Subsidiary is the lessee or lessor of any Asset, or holds, manages or operates
any Asset owned by any third party, or under which any Asset owned by the
Company or by any Subsidiary is held, operated or managed by a third party. The
Company and the Subsidiaries are the owners and holders of all the leasehold
estates purported to be granted to them by the Documents listed in Section 3.13
of the Company Disclosure Schedule. Each such lease and other Agreement is in
full force and effect and constitutes a legal, valid and binding obligation of,
and is legally enforceable against, the respective parties thereto and grants
the leasehold estate it purports to grant free and clear of all Encumbrances.
The Company and the Subsidiaries have in all respects performed all material
obligations thereunder required to be performed by any of them to date. To the
knowledge of the Company, no party is in default in any material respect under
any of the foregoing, and there has not occurred any event which (whether with
or without notice, lapse of time or the happening or occurrence of any other
event) would constitute such a default. All of the Assets subject to such leases
and other Agreements are in a condition adequate for the uses to which they are
currently being used.
SECTION 3.14. OTHER AGREEMENTS; NO DEFAULT.
(a) Section 3.14(a) of the Company Disclosure Schedule lists each
Agreement to which the Company or any Subsidiary is a party or by which the
Company or any Subsidiary, or any of their respective Assets, is bound, and
which is:
(i) an Agreement with a term in excess of one (1) year or
requiring payments in excess of $5,000 in any twelve (12) month period
or $10,000 in the aggregate over its term for the employment of any
director, officer, employee, consultant or independent contractor, or
providing for severance payments to any such director, officer,
employee, consultant or
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independent contractor;
(ii) a license Agreement or distributor, dealer, sales
representative, sales agency, advertising, property management or
brokerage Agreement involving an annual payment in excess of $25,000;
(iii) an Agreement for the future purchase of materials,
supplies, services, merchandise or equipment involving payments of more
than $25,000 over its remaining term (including, without limitation,
periods covered by any option to renew by any party);
(iv) an Agreement for the purchase, sale or lease of any Asset
with a purchase or sale price or aggregate rental payment in excess of
$25,000;
(v) a profit-sharing, bonus, incentive compensation, deferred
compensation, stock option, severance pay, stock purchase, employee
benefit, insurance, hospitalization, pension, retirement or other
similar plan or Agreement;
(vi) an Agreement for the sale of any of its Assets or services
or the grant of any preferential rights to purchase any of its Assets,
services or rights, other than in the Ordinary Course of Business;
(vii) an Agreement that contains any provisions requiring the
Company or any Subsidiary to indemnify any other party;
(viii) a joint venture Agreement or other Agreement involving
the sharing of revenues or profits;
(ix) an Agreement with an Affiliate (as defined in Article X) of
the Company or any Subsidiary;
(x) an Agreement (including, without limitation, an Agreement
not to compete and an exclusivity Agreement) that reasonably could be
interpreted to impose any material restriction on the business or
operations of the Company or any Subsidiary, or any of their respective
Affiliates, prior to the Effective Time, or on the business or
operations of McLeod or any of its Affiliates after the Effective Time;
(xi) an Agreement material to the Company and its Subsidiaries
not otherwise described in this Section 3.14(a) which by its terms does
not terminate or is not terminable by the Company or by a Subsidiary
within thirty (30) days or upon thirty (30) days' (or less) notice;
(xii) an Agreement with any Governmental Entity;
(xiii) an Agreement with any of the twenty (20) largest
customers of the Company and the Subsidiaries, taken as a whole (based
on amounts billed), for each of (A) the year ended December 31, 1997 and
(B) the period from January 1, 1998 through the date of this Merger
Agreement;
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(xiv) an Agreement to provide any customer with free listings or
advertisements or service at rates departing from the standard rate
schedules other than in the Ordinary Course of Business; or
(xv) any other Agreement (A) that is material to the Company and
the Subsidiaries, taken as a whole, or the conduct of their businesses
or operations, or (B) the absence of which would have a Company Material
Adverse Effect,
(the foregoing Agreements referred to herein as the "COMPANY CONTRACTS"). The
Company has furnished McLeod with true and complete copies of each written
Company Contract (including any amendments thereto) and a complete written
summary of each oral Company Contract.
(b) Each Company Contract is in full force and effect and constitutes a
legal, valid and binding obligation of, and is legally enforceable against, the
respective parties thereto. All necessary approvals of any Governmental Entity
with respect thereto have been obtained (except where the failure so to obtain
any such approval would not have a Company Material Adverse Effect), all
necessary filings or registrations therefor have been made, and there are no
outstanding disputes thereunder and, to the knowledge of the Company or any
Subsidiary, no threatened cancellation or termination thereof. The Company and
the Subsidiaries have performed all material obligations thereunder required to
be performed by any of them to date. To the knowledge of the Company and the
Subsidiaries, no party is in default in any material respect under any of the
Company Contracts, and there has not occurred any event which (whether with or
without notice, lapse of time or the happening or occurrence of any other event)
would constitute such a default. No Agreement has been canceled or otherwise
terminated within the twelve (12) months prior to the date of this Merger
Agreement which would have been a "Company Contract" had such Agreement not been
canceled or terminated and the cancellation or termination of which has had or
is reasonably likely to have a Company Material Adverse Effect. Except as
specifically described in Section 3.14(a) of the Company Disclosure Schedule,
there has been no written or oral modification or amendment to any Company
Contract and there are no reasonably expected changes to any Company Contract.
At the Closing, the Company shall deliver to McLeod an updated Section 3.14(a)
to the Company Disclosure Schedule in accordance with the provisions of Section
6.04.
SECTION 3.15. LABOR RELATIONS.
Section 3.15(a) of the Company Disclosure Schedule lists all collective
bargaining or other labor union Agreements to which the Company or any
Subsidiary is a party. There are no strikes or work stoppages, or, to the
knowledge of the Company, union organization efforts or other controversies
(other than grievance proceedings) pending, threatened or reasonably anticipated
between the Company or any Subsidiary and (a) any current or former employees of
the Company or of any Subsidiary or (b) any union or other collective bargaining
unit representing such employees. The Company and the Subsidiaries have complied
and are in compliance with all Laws relating to employment or the workplace,
including, without limitation, Laws relating to wages, hours, collective
bargaining, safety and health, work authorization, equal employment opportunity,
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immigration, withholding, unemployment compensation, worker's compensation,
employee privacy and right to know, except where the failure so to comply would
not have a Company Material Adverse Effect. Except as set forth in Section
3.15(b) of the Company Disclosure Schedule, neither the Company nor any
Subsidiary has been notified by any Governmental Agency or counsel to any
claimant of any unresolved violation or alleged violation of any Law relating to
equal employment opportunity, civil or human rights, or employment
discrimination generally. Except as set forth in Section 3.15(c) to the Company
Disclosure Schedule, there are no collective bargaining Agreements, employment
Agreements between the Company or any Subsidiary and any of their respective
employees, or professional service Agreements not terminable at will relating to
the businesses and Assets of the Company or of any Subsidiary. Except as set
forth in Section 3.15(d) to the Company Disclosure Schedule, the consummation of
the transactions contemplated hereby will not cause McLeod, the Surviving
Corporation, the Company or any Subsidiary to incur or suffer any liability
relating to, or obligation to pay, severance, termination or other payments to
any Person.
SECTION 3.16. PENSION AND BENEFIT PLANS.
(a) Except as set forth in Section 3.16(a) to the Company Disclosure
Schedule, neither the Company nor any Subsidiary (i) maintains or during the
past six (6) years has maintained any Plan (as defined in Article X) or Other
Arrangement (as defined in Article X), (ii) is or during the past six (6) years
has been a party to any Plan or Other Arrangement, or (iii) has obligations
under any Plan or Other Arrangement.
(b) The Company has furnished to McLeod true and complete copies of each
of the following Documents: (i) the Documents setting forth the terms of each
Plan; (ii) all related trust Agreements or annuity Agreements (and any other
funding Document) for each Plan; (iii) for the three (3) most recent plan years,
all annual reports (Form 5500 series) on each Plan that have been filed with any
Governmental Entity; (iv) the current summary plan description and subsequent
summaries of material modifications for each Title I Plan (as defined in Article
X); (v) all DOL (as defined in Article X) opinions on any Plan; (vi) all
correspondence with the PBGC (as defined in Article X) on any Plan exchanged
during the past three (3) years; (vii) all IRS (as defined in Article X)
rulings, opinions or technical advice relating to any Plan and the current IRS
determination letter issued with respect to each Qualified Plan (as defined in
Article X); and (viii) all current Agreements with service providers or
fiduciaries for providing services on behalf of any Plan. For each Other
Arrangement, the Company has furnished to McLeod true and complete copies of
each policy, Agreement or other Document setting forth or explaining the current
terms of the Other Arrangement, all related trust Agreements or other funding
Documents (including, without limitation, insurance contracts, certificates of
deposit, money market accounts, etc.), all significant employee communications,
all correspondence with or other submissions to any Governmental Entity, and all
current Agreements with service providers or fiduciaries for providing services
on behalf of any Other Arrangement.
(c) No Plan is a Multiemployer Plan (as defined in Article X).
(d) Section 3.16(d) of the Company Disclosure Schedule sets forth each
Individual Account Plan (as defined in Article X)
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that is an ESOP (as defined in Article X) (indicating whether such ESOP is
leveraged) or otherwise invests in employer securities (as such term is defined
in Section 409(l) of the Code). The Company has furnished to McLeod true and
complete copies of all loan Agreements and other related Documents for each
leveraged ESOP.
(e) The funding method used under each Minimum-Funding Plan (as defined
in Article X) does not violate the funding requirements in Title I, Subtitle B,
Part 3, of ERISA (as defined in Article X). For each Defined Benefit Plan (as
defined in Article X), the Company has furnished to McLeod a true and complete
copy of the actuarial valuation reports issued by the actuaries of that Defined
Benefit Plan for the three (3) most recent plan years, setting forth: (i) the
actuarial present value (based upon the same actuarial assumptions as were used
for that period for funding purposes) of all vested and nonvested accrued
benefits under that Defined Benefit Plan; (ii) the actuarial present value
(based upon the same actuarial assumptions, other than turnover assumptions, as
were used for that period for funding purposes) of vested benefits under that
Defined Benefit Plan; (iii) the net fair market value of that Defined Benefit
Plan's Assets; and (iv) a detailed description of the funding method used under
that Defined Benefit Plan.
(f) No "accumulated funding deficiency" as defined in Section 302(a)(2)
of ERISA or Section 412 of the Code, whether or not waived, and no "unfunded
current liability" as determined under Section 412(l) of the Code exists with
respect to any Minimum-Funding Plan. No security is required under Section
401(a)(29) of the Code as to any Minimum-Funding Plan. Section 3.16(f) of the
Company Disclosure Schedule sets forth all unpaid obligations and liabilities of
the Company and the Subsidiaries to provide contributions currently due with
respect to any Minimum-Funding Plan.
(g) Section 3.16(g) of the Company Disclosure Schedule sets forth the
contributions that (i) the Company or any Subsidiary has promised or is
otherwise obligated to make under each Individual Account Plan that is a
Statutory-Waiver Plan (as defined in Article X) and (ii) are unpaid as of the
date of this Merger Agreement.
(h) The Company and the Subsidiaries have made all contributions and
other payments required by and due under the terms of each Plan and Other
Arrangement and have taken no action during the past three (3) years (other than
actions required by Law) relating to any Plan or Other Arrangement that will
increase McLeod's, the Surviving Corporation's, the Company's or any
Subsidiary's obligation under any Plan or Other Arrangement.
(i) Section 3.16(i) of the Company Disclosure Schedule sets forth a list
of all Qualified Plans (as defined in Article X). All Qualified Plans and any
related trust Agreements or annuity Agreements (or any other funding Document)
comply and have complied with ERISA, the Code (including, without limitation,
the requirements for Tax qualification described in Section 401 thereof), and
all other Laws, except where the failure so to comply would not have a Company
Material Adverse Effect. The trusts established under such Plans are exempt from
federal income taxes under Section 501(a) of the Code. The Company and the
Subsidiaries have received determination letters issued by the IRS with respect
to each Qualified Plan, and the Company has furnished to McLeod true and
complete copies of all such determination letters and all correspondence
relating to the applications therefor. All statements made by or on behalf of
the Company or any
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Subsidiary to the IRS in connection with applications for determinations with
respect to each Qualified Plan were true and complete when made and continue to
be true and complete. To the knowledge of the Company and the Subsidiaries,
nothing has occurred since the date of the most recent applicable determination
letter that would adversely affect the tax-qualified status of any Qualified
Plan.
(j) To their knowledge, the Company and the Subsidiaries have complied
in all material respects with all applicable provisions of the Code, ERISA, the
National Labor Relations Act, Title VII of the Civil Rights Act of 1964, the Age
Discrimination in Employment Act, the Fair Labor Standards Act, the Securities
Act, the Exchange Act, and all other Laws pertaining to the Plans, Other
Arrangements and other employee or employment related benefits, and all premiums
and assessments relating to all Plans or Other Arrangements. Neither the Company
nor any Subsidiary has any liability for any delinquent contributions within the
meaning of Section 515 of ERISA (including, without limitation, related
attorneys' fees, costs, liquidated damages and interest) or for any arrearages
of wages. Neither the Company nor any Subsidiary has any pending unfair labor
practice charges, contract grievances under any collective bargaining agreement,
other administrative charges, claims, grievances or lawsuits before any court,
arbiter or Governmental Entity arising under any Law governing any Plan, and to
the knowledge of the Company and the Subsidiaries there exist no facts that
could give rise to such a claim.
(k) Section 3.16(k) of the Company Disclosure Schedule describes all
transactions in which the Company or any Subsidiary or any of the Plans has
engaged in violation of Section 406(a) or 406(b) of ERISA for which no exemption
exists under Section 408 of ERISA and all "prohibited transactions" (as such
term is defined in Section 4975(c)(1) of the Code), for which no exemption
exists under Section 4975(c)(2) or 4975(d) of the Code. The Company has
furnished to McLeod true and complete copies of each request for a prohibited
transaction exemption and each exemption obtained in response to such request.
All such requests were true and complete when made and continue to be true and
complete.
(l) The Company and the Subsidiaries have paid all premiums (and
interest charges and penalties for late payment, if applicable) due to the PBGC
for each Defined Benefit Plan. The Company has reflected (or shall reflect) in
the Financial Statements the current value of such premium obligation that is
accrued and unsatisfied as of the date of each such Financial Statement. Section
3.16(l) of the Company Disclosure Schedule sets forth the amount of all such
unpaid premium obligations (including, without limitation, proportionate partial
accruals for the current year). Other than being required to make and making
premium payments when due, no liability to the PBGC has been incurred by the
Company or by any Common Control Entity (as defined in Article X) on account of
Title IV of ERISA. During the past three (3) years, no filing has been made by,
or required of, the Company or any Common Control Entity with the PBGC, the PBGC
has not started any proceeding to terminate any Defined Benefit Plan that was or
is maintained or wholly or partially funded by the Company or any Common Control
Entity, and to the knowledge of the Company and the Subsidiaries, no facts exist
that would permit the PBGC to begin such a proceeding. Neither the Company nor
any Common Control Entity has, or will have as a result of the transactions
contemplated hereby, (i) withdrawn as a substantial employer so as to become
subject to Section 4063 of ERISA; or (ii) ceased making
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contributions to any Pension Plan that is subject to Section 4064(a) of ERISA to
which the Company or any Common Control Entity made contributions during the
past five (5) years.
(m) Section 3.16(m) of the Company Disclosure Schedule identifies any
terminated Plan that covered any current or former employees of the Company or
any Subsidiary, and any other Plan that has been terminated, during the past
five (5) years. The Company has furnished to McLeod true and complete copies of
all filings with any Governmental Entity, employee communications, board minutes
and all other Documents relating to each such Plan termination.
(n) Except as set forth in Section 3.16(n) of the Company Disclosure
Schedule, no Plan or Other Arrangement, individually or collectively, provides
for any payment by the Company or any Subsidiary to any employee or independent
contractor that is not deductible under Section 162(a)(1) or 404 of the Code or
that is an "excess parachute payment" pursuant to Section 280G of the Code.
(o) No Plan has within the past three (3) years experienced a
"reportable event" (as such term is defined in Section 4043(b) of ERISA) that is
not subject to an administrative or statutory waiver from the reporting
requirement.
(p) No Plan is a "qualified foreign plan" (as such term is defined in
Section 404A(e) of the Code), and no Plan is subject to the Laws of any
jurisdiction other than the United States of America or one of its political
subdivisions.
(q) The Company and the Subsidiaries have timely filed and the Company
has furnished to McLeod true and complete copies of each Form 5330 (Return of
Excise Taxes Related to Employee Benefit Plans) that the Company or any
Subsidiary filed on any Plan during the past three (3) years. The Company and
the Subsidiaries have no liability for Taxes required to be reported on Form
5330.
(r) Section 3.16(r) of the Company Disclosure Schedule lists all funded
Welfare Plans (as defined in Article X) that provide benefits to current or
former employees of the Company or any Subsidiary, or to their beneficiaries.
The funding under each Welfare Plan does not exceed and has not exceeded the
limitations under Sections 419A(b) and 419A(c) of the Code. To their knowledge,
the Company and the Subsidiaries are not subject to taxation on the income of
any Welfare Plan's welfare benefit fund (as such term is defined in Section
419(e) of the Code) under Section 419A(g) of the Code.
(s) Section 3.16(s) of the Company Disclosure Schedule (i) identifies
all post-retirement medical, life insurance or other benefits promised, provided
or otherwise due now or in the future to current, former or retired employees of
the Company or any Subsidiary, (ii) identifies the method of funding (including,
without limitation, any individual accounting) for all such benefits, (iii)
discloses the funded status of the Plans providing or promising such benefits,
and (iv) sets forth the method of accounting for such benefits to any key
employees (as defined in Section 416(i) of the Code) of the Company or any
Subsidiary.
(t) All Welfare Plans and the related trusts that are subject to Section
4980B(f) of the Code and Sections 601 through 607 of ERISA comply in all
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material respects with and have been administered in compliance with the health
care continuation-coverage requirements for tax-favored status under Section
4980B(f) of the Code (formerly Section 162(k) of the Code), Sections 601 through
607 of ERISA, and all proposed or final regulations under Section 162 of the
Code explaining those requirements.
(u) The Company and the Subsidiaries have (i) filed or caused to be
filed all returns and reports on the Plans that they are required to file, and
(ii) paid or made adequate provision for all fees, interest, penalties,
assessments or deficiencies that have become due pursuant to those returns or
reports or pursuant to any assessment or adjustment that has been made relating
to those returns or reports. All other fees, interest, penalties and assessments
that are due and payable by or for the Company or any Subsidiary with respect to
any Plan have been timely reported, fully paid and discharged. There are no
unpaid fees, penalties, interest or assessments due from the Company or any
Subsidiary or from any other Person that are or could become an Encumbrance on
any Asset of the Company or any Subsidiary or could otherwise have a Company
Material Adverse Effect. The Company and the Subsidiaries have collected or
withheld all amounts that are required to be collected or withheld by them to
discharge their obligations with respect to each Plan, and all of those amounts
have been paid to the appropriate Governmental Entity or set aside in
appropriate accounts for future payment when due.
SECTION 3.17. TAXES AND TAX MATTERS.
(a) The Company and the Subsidiaries have (or, in the case of Company
Tax Returns (as defined in Article X) becoming due after the date hereof and
before the Effective Time, will have prior to the Effective Time) duly filed all
Company Tax Returns required to be filed by the Company and the Subsidiaries at
or before the Effective Time with respect to all applicable material Taxes. No
material penalties or other charges are or will become due with respect to any
such Company Tax Returns as the result of the late filing thereof. All such
Company Tax Returns are (or, in the case of returns becoming due after the date
hereof and before the Effective Time, will be) true and complete in all material
respects. The Company and the Subsidiaries: (i) have paid all Taxes due or
claimed to be due by any Taxing authority in connection with any such Company
Tax Returns (without regard to whether or not such Taxes are shown as due on any
Company Tax Returns); or (ii) have established (or, in the case of amounts
becoming due after the date hereof, prior to the Effective Time will have paid
or established) in the Financial Statements adequate reserves (in conformity
with GAAP consistently applied) for the payment of such Taxes. The amounts set
up as reserves for Taxes in the Financial Statements are sufficient for the
payment of all unpaid Taxes, whether or not such Taxes are disputed or are yet
due and payable, for or with respect to the applicable period, and for which the
Company or any Subsidiary may be liable in its own right (including, without
limitation, by reason of being a member of the same affiliated group) or as a
transferee of the Assets of, or successor to, any Person.
(b) Neither the Company nor any Subsidiary, either in its own right
(including, without limitation, by reason of being a member of the same
affiliated group) or as a transferee, has or at the Effective Time will have any
liability for Taxes payable for or with respect to any periods prior to and
including the Effective Time in excess of the amounts actually paid prior to the
Effective Time or reserved for in the Financial
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Statements, except for any Taxes due in connection with the Merger or incurred
in the Ordinary Course of Business subsequent to the date of the latest
Financial Statement.
(c) Except as set forth in Section 3.17(c) of the Company Disclosure
Schedule, all Company Tax Returns have been examined by the relevant Taxing
authorities, or closed without audit by applicable Law, and all deficiencies
proposed as a result of such examinations have been paid, settled or reserved
for in the Financial Statements, for all taxable years prior to and including
the taxable year ended December 31, 1997. Except as set forth in Section 3.17(c)
of the Company Disclosure Schedule, there is no action, suit, proceeding, audit,
investigation or claim pending or, to the knowledge of the Company or any
Subsidiary, threatened in respect of any Taxes for which the Company or any
Subsidiary is or may become liable, nor has any deficiency or claim for any such
Taxes been proposed, asserted or, to the knowledge of the Company or any
Subsidiary, threatened. Except as set forth in Section 3.17(c) of the Company
Disclosure Schedule, neither the Company nor any Subsidiary has consented to any
waivers or extensions of any statute of limitations with respect to any taxable
year of the Company or any Subsidiary. Except as set forth in Section 3.17(c) of
the Company Disclosure Schedule, there is no Agreement, waiver or consent
providing for an extension of time with respect to the assessment or collection
of any Taxes against the Company or any Subsidiary, and no power of attorney
granted by the Company or any Subsidiary with respect to any Tax matters is
currently in force.
(d) The Company has furnished to McLeod true and complete copies of all
Company Tax Returns and all written communications with any Governmental Entity
relating to any such Company Tax Returns or to any deficiency or claim proposed
or asserted, irrespective of the outcome of such matter, but only to the extent
such items relate to Tax years (i) which are subject to an audit, investigation,
examination or other proceeding, or (ii) with respect to which the statute of
limitations has not expired.
(e) Section 3.17(e) of the Company Disclosure Schedule sets forth (i)
all federal Tax elections that currently are in effect with respect to the
Company or any Subsidiary, and (ii) all elections for purposes of foreign, state
or local Taxes and all consents or Agreements for purposes of federal, foreign,
state or local Taxes in each case that reasonably could be expected to affect or
be binding upon the Surviving Corporation or any Subsidiary or their respective
Assets or operations after the Effective Time. Section 3.17(e) of the Company
Disclosure Schedule sets forth all changes in accounting methods for Tax
purposes at any time made, agreed to, requested or required with respect to the
Company or any of the Subsidiaries.
(f) Except as set forth in Section 3.17(f) of the Company Disclosure
Schedule, neither the Company nor any Subsidiary (i) is or has ever been a
partner in a partnership or an owner of an interest in an entity treated as a
partnership for federal income Tax purposes; (ii) has executed or filed with the
IRS any consent to have the provisions of Section 341(f) of the Code apply to
it; (iii) is subject to Section 999 of the Code; (iv) is a passive foreign
investment company as defined in Section 1296(a) of the Code; or (v) is a party
to an Agreement relating to the sharing, allocation or payment of, or indemnity
for, Taxes (other than an Agreement the only parties to which are the Company
and the Subsidiaries).
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(g) The Company has complied in all material respects with all rules and
regulations relating to the withholding of Taxes.
SECTION 3.18. CUSTOMERS.
To the knowledge of the Company and the Subsidiaries, the relationships
of the Company and the Subsidiaries with their customers are good commercial
working relationships. Except as set forth in Section 3.18 of the Company
Disclosure Schedule, during the twelve (12) months prior to the date of this
Merger Agreement, no customer of the Company or any Subsidiary that accounted
for in excess of $25,000 of the revenues of the Company and the Subsidiaries
during such twelve (12) months has canceled or otherwise terminated its
relationship with the Company or any Subsidiary.
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SECTION 3.19. CERTAIN BUSINESS PRACTICES.
Neither the Company, the Subsidiaries nor any of their officers,
directors or, to the knowledge of the Company or any Subsidiary, any of their
employees or agents (or stockholders, distributors, representatives or other
persons acting on the express, implied or apparent authority of the Company or
of any Subsidiary) have paid, given or received or have offered or promised to
pay, give or receive, any bribe or other unlawful payment of money or other
thing of value, any unlawful discount, or any other unlawful inducement, to or
from any Person or Governmental Entity in the United States or elsewhere in
connection with or in furtherance of the business of the Company or any
Subsidiary (including, without limitation, any offer, payment or promise to pay
money or other thing of value (a) to any foreign official or political party (or
official thereof) for the purposes of influencing any act, decision or omission
in order to assist the Company or any Subsidiary in obtaining business for or
with, or directing business to, any Person, or (b) to any Person, while knowing
that all or a portion of such money or other thing of value will be offered,
given or promised to any such official or party for such purposes). The business
of the Company and the Subsidiaries is not in any manner dependent upon the
making or receipt of such payments, discounts or other inducements.
SECTION 3.20. INSURANCE.
Section 3.20 of the Company Disclosure Schedule lists and briefly
describes all policies of title, Asset, fire, hazard, casualty, liability, life,
worker's compensation and other forms of insurance of any kind owned or held by
the Company or any Subsidiary. All such policies: (a) are with insurance
companies reasonably believed by the Company to be financially sound and
reputable; (b) are in full force and effect; (c) are, to the knowledge of the
Company, sufficient for compliance by the Company and by each Subsidiary with
all requirements of Law and of all Agreements to which the Company or any
Subsidiary is a party; (d) are valid and outstanding policies enforceable
against the insurer; (e) to the knowledge of the Company, insure against risks
of the kind customarily insured against and in amounts customarily carried by
companies similarly situated and by companies engaged in similar businesses and
owning similar Assets, and provide adequate insurance coverage for the
businesses and Assets of the Company and the Subsidiaries; and (f) provide that
they will remain in full force and effect through the respective dates set forth
in Section 3.20 of the Company Disclosure Schedule.
SECTION 3.21. POTENTIAL CONFLICTS OF INTEREST.
Except as set forth in Section 3.21 of the Company Disclosure Schedule,
neither any present or, to the knowledge of the Company or any Subsidiary,
former director, officer, employee with a salary in excess of $60,000, or
stockholder of the Company or any Subsidiary who beneficially owns more than 5%
of the capital stock of the Company or any Subsidiary, nor any Affiliate of such
director, officer, employee or stockholder:
(a) owns, directly or indirectly, any interest in (except for holdings
in securities that are listed on a national securities exchange, quoted on a
national automated quotation system or regularly traded in the over-the-counter
market, where such holdings
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are not in excess of two percent (2%) of the outstanding class of such
securities and are held solely for investment purposes), or is a stockholder,
partner, other holder of equity interests, director, officer, employee,
consultant or agent of, any Person that is a competitor, lessor, lessee or
customer of, or supplier of goods or services to, the Company or any Subsidiary,
except where the value to such individual of any such arrangement with the
Company or any Subsidiary has been less than $60,000 in the last twelve (12)
months;
(b) owns, directly or indirectly, in whole or in part, any Assets with a
fair market value of $60,000 or more which the Company or any Subsidiary
currently uses in its business;
(c) has any cause of action or other suit, action or claim whatsoever
against, or owes any amount to, the Company or any Subsidiary, except for claims
arising in the Ordinary Course of Business from any such Person's service to the
Company or any Subsidiary as a director, officer or employee;
(d) has sold or leased to, or purchased or leased from, the Company or
any Subsidiary any Assets for consideration in excess of $60,000 in the
aggregate since January 1, 1995;
(e) is a party to any Agreement pursuant to which the Company or any
Subsidiary provides office space to any such Person, or provides services of any
nature to any such Person, other than in the Ordinary Course of Business in
connection with the employment of such Person by the Company or any Subsidiary;
or
(f) has, since January 1, 1995, engaged in any other material
transaction with the Company or any Subsidiary involving in excess of $60,000,
other than (i) in the Ordinary Course of Business in connection with the
employment of such Person by the Company or any Subsidiary, and (ii) dividends,
distributions and stock issuances to all common and preferred stockholders (as
applicable) on a pro rata basis.
SECTION 3.22. RECEIVABLES.
To the knowledge of the Company, the accounts receivable of the Company
and the Subsidiaries shown on the Reviewed Balance Sheets and the Unaudited
Balance Sheets, or thereafter acquired by any of them, have been collected or
are collectible in amounts not less than the amounts thereof carried on the
books of the Company and the Subsidiaries, without right of recourse, defense,
deduction, counterclaim, offset or setoff on the part of the obligor, and can
reasonably be expected to be collected within ninety (90) days of the date
incurred or due, except to the extent of the allowance for doubtful accounts
shown on such Reviewed Balance Sheets and Unaudited Balance Sheets.
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SECTION 3.23. BOOKS AND RECORDS.
The books of account, stock records, minute books and other corporate
and financial records of the Company are complete and correct in all material
respects and have been maintained in accordance with good business practices,
and the matters contained therein are appropriately and accurately reflected in
all material respects in the Financial Statements in accordance with GAAP.
SECTION 3.24. ASSETS.
Except as set forth in Section 3.24 of the Company Disclosure Schedule,
the Company and the Subsidiaries have good, valid, marketable and insurable (at
standard rates) title to, or a valid leasehold interest in, all material Assets
respectively owned or leased by them, including, without limitation, all
material Assets reflected in the Reviewed Balance Sheets and in the Unaudited
Balance Sheets and all material Assets purchased or leased by the Company or by
any Subsidiary since August 31, 1998 (except for Assets reflected in such
Reviewed Balance Sheets and Unaudited Balance Sheets or acquired since August
31, 1998 which have been sold or otherwise disposed of in the Ordinary Course of
Business), free and clear of all Encumbrances. All personal property of the
Company and the Subsidiaries is in good operating condition and repair (ordinary
wear and tear excepted) and is suitable and adequate for the uses for which it
is intended or is being used. All inventory (as defined in Article X) of the
Company and the Subsidiaries (i) consists of items which are good and
merchantable and of a quality and quantity presently usable and salable in the
Ordinary Course of Business and (ii) have been reflected in the Financial
Statements at the lower of cost or market, in accordance with GAAP, and include
no absolute or discontinued items, except to the extent reserved against in the
Financial Statements.
SECTION 3.25. NO INFRINGEMENT OR CONTEST.
(a) Section 3.25(a) of the Company Disclosure Schedule identifies and
describes each item of Intellectual Property (as defined in Article X) (i) owned
by the Company or a Subsidiary, (ii) owned by any third party and used by the
Company or any Subsidiary pursuant to license, sublicense or other Agreement, or
(iii) otherwise used by the Company or any Subsidiary (including, in each case,
specification of whether each such item is owned, licensed or used by the
Company or any Subsidiary).
(b) With respect to each item of Intellectual Property listed in Section
3.25(a) of the Company Disclosure Schedule that is owned by the Company or any
Subsidiary, such Intellectual Property can be used by the Company and the
Subsidiaries in their respective businesses as presently conducted by them, free
and clear of restrictions, Encumbrances and royalties on such use, and the
Company and the Subsidiaries have the right to bring action for infringement of
such Intellectual Property. With respect to the Intellectual Property listed in
Section 3.25(a) of the Company Disclosure Schedule that is used by the Company
or a Subsidiary pursuant to license, sublicense or other Agreement, such
Intellectual Property has been licensed on an arm's-length basis and can be used
by the Company and the Subsidiaries in their respective businesses as currently
conducted by them in accordance with the terms and conditions of such licenses,
sublicenses or other
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Agreements. With respect to each item of Intellectual Property listed in Section
3.25(a) of the Company Disclosure Schedule that is otherwise used by the Company
or any Subsidiary, such Intellectual Property can be used by the Company and the
Subsidiaries in their respective businesses as presently conducted by them, free
and clear of restrictions, Encumbrances and royalties on such use Each item of
Intellectual Property owned or used by the Company or any Subsidiary immediately
prior to the Closing will be owned or available for use by the Company or such
Subsidiary on identical terms and conditions immediately after the Closing.
(c) As used in the businesses of the Company and the Subsidiaries as
conducted in the past and as currently conducted, none of the Intellectual
Property listed in Section 3.25(a) of the Company Disclosure Schedule has at any
time infringed or misappropriated or otherwise violated, or is likely to
infringe, misappropriate or violate, any Intellectual Property of any other
Person, nor is the Company or any Subsidiary otherwise in the conduct of their
respective businesses infringing upon, or alleged to be infringing upon, any
Intellectual Property of any other Person. There are no pending or, to the
knowledge of the Company or any Subsidiary, threatened claims against the
Company or any Subsidiary alleging that the conduct of the Company's or any
Subsidiary's business infringes or conflicts with any Intellectual Property
rights of others. To the knowledge of the Company or any Subsidiary, there is no
Intellectual Property of another Person that infringes, misappropriates or
violates any of the Intellectual Property listed in Section 3.25(a) of the
Company Disclosure Schedule.
(d) The Company and the Subsidiaries own or have the right to use
pursuant to a valid license, sublicense or other Agreement all Intellectual
Property used in the operation of the businesses of the Company and the
Subsidiaries as currently conducted and as currently proposed to be conducted.
(e) The Company and the Subsidiaries have not caused obscene, libelous
or indecent material to be transmitted or received through the Company's or the
Subsidiaries' services or directories and have instituted procedures to ensure
that no such material is transmitted.
SECTION 3.26. BOARD RECOMMENDATION.
At a meeting duly called and held, or by unanimous written consent, in
compliance with Michigan Law, the Board of Directors of the Company has adopted
by unanimous vote a resolution approving and adopting this Merger Agreement and
the transactions contemplated hereby and recommending approval and adoption of
this Merger Agreement and the transactions contemplated hereby by the Company
Stockholders.
SECTION 3.27. VOTE REQUIRED.
The affirmative vote of the holders of a majority of the outstanding
shares of Company Common Stock is the only vote of the holders of any class or
series of capital stock of the Company necessary to approve the transactions
contemplated by this Merger Agreement.
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SECTION 3.28. BANKS; ATTORNEYS-IN-FACT.
Section 3.28 of the Company Disclosure Schedule sets forth a complete
list showing the name of each bank or other financial institution in which the
Company or any Subsidiary has accounts (including a description of the names of
all Persons authorized to draw thereon or to have access thereto). Such list
also shows the name of each Person holding a power of attorney from the Company
or any Subsidiary and a brief description thereof.
SECTION 3.29. BROKERS.
No broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated by this Merger Agreement based upon arrangements made by or on
behalf of the Company or any Subsidiary or any of their respective Affiliates.
SECTION 3.30. ENVIRONMENTAL MATTERS.
(a) To the knowledge of the Company, the Company and each of the
Subsidiaries have complied and are in compliance with, and the Real Property (as
defined in Article X) and all improvements thereon are in compliance with, all
Environmental Laws (as defined in Article X), except where the failure so to
comply would not have a Company Material Adverse Effect.
(b) To the knowledge of the Company and the Subsidiaries, neither the
Company nor any Subsidiary has any liability under any Environmental Law, nor is
the Company or any Subsidiary responsible for any liability of any other Person
under any Environmental Law. Except as set forth in Section 3.30(b) of the
Company Disclosure Schedule, there are no pending or, to the knowledge of the
Company or any Subsidiary, threatened actions, suits, claims, legal proceedings
or other proceedings based on, and neither the Company nor any Subsidiary, has
received any formal or informal notice of any complaint, order, directive,
citation, notice of responsibility, notice of potential responsibility, or
information request from any Governmental Entity or any other Person since
January 1, 1993 (or prior thereto with respect to any such complaint, order,
directive, citation, notice of responsibility, notice of potential
responsibility, or information request which has not been finally resolved) or
knows any fact(s) which might reasonably be expected to form the basis for any
such actions or notices arising out of or attributable to: (i) the current or
past presence at any part of the Real Property of Hazardous Materials (as
defined in Article X) or any substances that pose a hazard to human health or an
impediment to working conditions; (ii) the current or past release or threatened
release into the environment from the Real Property (including, without
limitation, into any storm drain, sewer, septic system or publicly owned
treatment works) of any Hazardous Materials or any substances that pose a hazard
to human health or an impediment to working conditions; (iii) the off-site
disposal of Hazardous Materials originating on or from the Real Property or the
businesses or Assets of the Company or any Subsidiary; (iv) any facility
operations, procedures or designs of the Company or any Subsidiary which do not
conform to requirements of the Environmental Laws; or (v) any violation of
Environmental Laws at any part of the Real Property or otherwise arising from
the Company's or any Subsidiary's activities (or the
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activities of the Company's or any Subsidiary's predecessors in title) involving
Hazardous Materials.
(c) The Company and the Subsidiaries have been duly issued, and
currently have and will maintain through the Effective Time, all Licenses
required under any Environmental Law. A true and complete list of such Licenses,
all of which are valid and in full force and effect, is set out in Section
3.30(c) of the Company Disclosure Schedule. Except in accordance with such
Licenses, as described in Section 3.30(c) of the Company Disclosure Schedule or
as otherwise permitted by Law, there has been no Hazardous Discharge (as defined
in Article X) or discharge of any other material regulated by such Licenses.
Except as disclosed in Section 3.30(c) of the Company Disclosure Schedule, to
the knowledge of the Company and the Subsidiaries no such Licenses are
non-transferable or which require consent, notification or other action to
remain in full force and effect following consummation of the Merger and the
other transactions contemplated hereby.
(d) Except as set forth in Section 3.30(d) of the Company Disclosure
Schedule, the Real Property contains no underground improvements, including but
not limited to treatment or storage tanks, or underground piping associated with
such tanks, used currently or in the past for the storage, throughput or other
management of Hazardous Materials, and no portion of the Real Property is or has
been used as a dump or landfill or consists of or contains filled in land or
wetlands.
SECTION 3.31. DISCLOSURE.
To the knowledge of the Company, all facts regarding the business,
operations, prospects, condition (financial or otherwise), Assets or liabilities
of the Company and the Subsidiaries which have been disclosed in writing
(including, without limitation, in this Merger Agreement and the Company
Disclosure Schedule) or otherwise provided to McLeod by the Company have been
fully and truthfully disclosed to McLeod. No representation or warranty by the
Company, and no Document furnished or to be furnished to McLeod by the Company
pursuant to this Merger Agreement or otherwise in connection herewith or with
the transactions contemplated hereby, contains or will contain any untrue
statement of a material fact or omits or will omit to state any material fact
necessary in order to make the statements contained therein, in light of the
circumstances under which they were made, not misleading.
SECTION 3.32. DIRECTORS, OFFICERS AND AFFILIATES
Section 3.32 of the Company Disclosure Schedule lists all current
directors and officers of the Company and the Subsidiaries, showing each such
person's name, positions, and annual remuneration, bonuses and fringe benefits
paid by the Company or any Subsidiary for the current fiscal year and the most
recently completed fiscal year.
SECTION 3.33. COPIES OF DOCUMENTS.
True and complete copies of all Documents listed in the Company
Disclosure Schedule have been, or will be, furnished to McLeod.
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SECTION 3.34. PUBLICATION OF DIRECTORIES.
Section 3.34 of the Company Disclosure Schedule lists the white and
yellow page directories published by the Company, the month of publication, the
number of each directory published, and the Net Cash Revenue (as defined in
Article X) from each directory. Except as set forth in Section 3.34 of the
Company Disclosure Schedule, all sales, production and distribution of the last
edition of the directories has been completed by the Company in the same manner
as the previously published editions of such directories, including but not
limited to, the number of directories printed and distributed, the distribution
area and system, the pricing, the credit terms, the quality and size of print
and paper, and the general production standards. The Company has paid all sales
and production expenses for all editions of the directories published by the
Company.
SECTION 3.35. REORGANIZATION.
To the knowledge of the Company, neither it nor any of the Subsidiaries
has taken any action or failed to take any action which action or failure would
jeopardize the qualification of the Merger as a reorganization within the
meaning of Section 368(a) of the Code.
SECTION 3.36. STATE TAKEOVER STATUTES; CERTAIN CHARTER PROVISIONS.
No state of Michigan takeover statutes or charter or bylaw provisions
will prevent the Merger or this Merger Agreement and the transactions
contemplated hereby or thereby.
SECTION 3.37. DISSENTERS RIGHTS.
All Company Stockholders have waived any appraisal or dissenters' rights
under Michigan Law or any other Law arising from, or in connection with, the
consummation of the Merger and the other transactions contemplated hereby.
SECTION 3.38. YEAR 2000 REVIEW.
(a) To the knowledge of the Company, the Company and the Subsidiaries
will not be materially adversely affected by (i) any failure of the Company's
and the Subsidiaries computer hardware, software, firmware or embedded chip
technology to be Year 2000 Compliant (as defined in Article X); or (ii) the cost
and/or disruption to normal activities caused by work to be carried out to
ensure such computer hardware, software or embedded chip technology is year 2000
Compliant; provided, however, Section 3.38(a) of the Company Disclosure Schedule
lists any computer hardware, software or embedded chip technology that is not
year 2000 Compliant.
(b) The Company and the Subsidiaries are currently reviewing their
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 "Company Year 2000 Review"). The
Company Year 2000 review covers all of the Company's and the Subsidiaries'
operations and is centrally managed.
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SECTION 3.39. INVESTMENT AGREEMENTS.
In accordance with Section 6.01, Investment Agreements substantially in
the form attached hereto as Exhibit A (the "Investment Agreements") will be
executed and delivered to McLeod by the Company Stockholders and each such
Investment Agreement constitutes a legal, valid and binding obligation of the
respective Company Stockholder who is a party thereto, enforceable against such
Company Stockholder in accordance with its terms.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF MCLEOD AND PUBCO SUB
Except as specifically set forth in the Disclosure Schedule delivered by
McLeod and Pubco Sub to the Company prior to the execution and delivery of this
Merger Agreement (the "MCLEOD DISCLOSURE SCHEDULE"), McLeod and Pubco Sub hereby
jointly and severally represent and warrant (which representation and warranty
shall be deemed to include the disclosures with respect thereto so specified in
the McLeod Disclosure Schedule) to the Company as follows, in each case as of
the date of this Merger Agreement, unless otherwise specifically set forth
herein or in the McLeod Disclosure Schedule:
SECTION 4.01. ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
Each of McLeod, Pubco Sub and McLeod's Significant Subsidiaries (as
defined in Article X) is a corporation duly organized, validly existing and in
good standing under the Laws of the jurisdiction of its incorporation or
organization, and has the full and unrestricted corporate power and authority to
own, operate and lease its Assets, and to carry on its business as currently
conducted. Each of McLeod, Pubco Sub and McLeod's Significant Subsidiaries is
duly qualified to conduct business as a foreign corporation and is in good
standing in the states, countries and territories in which the nature of the
business conducted by it or the character of the Assets owned, leased or
otherwise held by it makes such qualification necessary, except where the
absence of such qualification as a foreign corporation would not have a McLeod
Material Adverse Effect (as defined in Article X).
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SECTION 4.02. CERTIFICATE OF INCORPORATION AND BYLAWS.
McLeod has furnished to the Company a true and complete copy of the
Certificate of Incorporation of McLeod and the certificate of incorporation of
Pubco Sub, as currently in effect, certified as of a recent date by the
Secretary of State (or comparable Governmental Entity) of their respective
jurisdictions of incorporation, and a true and complete copy of the Bylaws of
McLeod and the Bylaws of Pubco Sub, as currently in effect, certified by their
respective corporate secretaries. Such certified copies are attached as exhibits
to, and constitute an integral part of, the McLeod Disclosure Schedule.
SECTION 4.03. AUTHORITY; BINDING OBLIGATION.
Each of McLeod and Pubco Sub has the full and unrestricted corporate
power and authority to execute and deliver this Merger Agreement and to carry
out the transactions contemplated hereby. The execution and delivery by McLeod
and Pubco Sub of this Merger Agreement and all other Documents contemplated
hereby, and the consummation by McLeod and Pubco Sub of the transactions
contemplated hereby and thereby, have been duly authorized by all necessary
corporate action and no other corporate proceedings on the part of McLeod or
Pubco Sub are necessary to authorize this Merger Agreement and the other
Documents contemplated hereby, or to consummate the transactions contemplated
hereby and thereby. This Merger Agreement has been duly executed and delivered
by McLeod and Pubco Sub and constitutes a legal, valid and binding obligation of
McLeod and Pubco Sub in accordance with its terms, except as such enforceability
may be subject to the effect of any applicable bankruptcy, insolvency fraudulent
conveyance, reorganization, moratorium or similar Laws affecting creditors'
rights generally and subject to the effect of general equitable principles
(whether considered in a proceeding in equity or at law).
SECTION 4.04. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution, delivery and performance by McLeod and Pubco Sub of
this Merger Agreement and all other Documents contemplated hereby, the
fulfillment of and compliance with the respective terms and provisions hereof
and thereof, and the consummation by McLeod and Pubco Sub of the transactions
contemplated hereby and thereby, do not and will not: (i) conflict with, or
violate any provision of, the Certificate of Incorporation or the Bylaws of
McLeod, or the Certificate or Articles of Incorporation or Bylaws of Pubco Sub
or any of McLeod's Significant Subsidiaries; or (ii) subject to obtaining the
consents, approvals, authorizations and permits of, and making filings with or
notifications to, the applicable Governmental Entity pursuant to the applicable
requirements, if any, of the Securities Act, the Exchange Act, Blue Sky Laws,
the HSR Act, the Communications Act, the Federal Aviation Act, applicable state
utility Laws and applicable municipal franchise Laws, and the filing and
recordation of the Articles of Merger as required by Michigan Law and Iowa Law,
conflict with or violate any Law applicable to McLeod, Pubco Sub or any of
McLeod's Significant Subsidiaries, or any of their respective Assets; (iii)
conflict with, result in any breach of, constitute a default (or an event that
with notice or lapse of time or both would become a default) under any Agreement
to which McLeod, Pubco Sub or any of McLeod's Significant Subsidiaries is a
party or by which McLeod, Pubco, Pubco Sub or any of McLeod's Significant
Subsidiaries, or any of their
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respective Assets, may be bound; or (iv) result in or require the creation or
imposition of, or result in the acceleration of, any indebtedness or any
Encumbrance of any nature upon, or with respect to, McLeod, Pubco Sub or any of
McLeod's Significant Subsidiaries or any of the Assets of McLeod, Pubco, Pubco
Sub or any of McLeod's Significant Subsidiaries; except for any such conflict or
violation described in clause (ii), any such conflict, breach or default
described in clause (iii), or any such creation, imposition or acceleration
described in clause (iv) that would not have a McLeod Material Adverse Effect
and that would not prevent McLeod or Pubco Sub from consummating the Merger on a
timely basis.
(b) Except as set forth in Section 4.04(b) of the McLeod Disclosure
Schedule, the execution, delivery and performance by McLeod and Pubco Sub of
this Merger Agreement and all other Documents contemplated hereby, the
fulfillment of and compliance with the respective terms and provisions hereof
and thereof, and the consummation by McLeod and Pubco Sub of the transactions
contemplated hereby and thereby, do not and will not: (i) require any consent,
approval, authorization or permit of, or filing with or notification to, any
Person not party to this Merger Agreement, except (A) pursuant to the applicable
requirements, if any, of the Securities Act, the Exchange Act, Blue Sky Laws,
the HSR Act, the Communications Act, the Federal Aviation Act, and applicable
state utility Laws and applicable municipal franchise Laws and (B) the filing
and recordation of the Articles of Merger as required by Michigan and Iowa Law;
or (ii) result in or give rise to any penalty, forfeiture, Agreement
termination, right of termination, amendment or cancellation, or restriction on
business operations of McLeod, the Surviving Corporation or Pubco Sub.
SECTION 4.05. NO PRIOR ACTIVITIES OF PUBCO SUB.
Pubco Sub was formed solely for the purpose of engaging in the
transactions contemplated by this Merger Agreement and has engaged in no other
business activities and has conducted its operations only as contemplated
hereby.
SECTION 4.06. BROKERS.
No broker or finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated by this Merger Agreement based upon arrangements made by or on
behalf of McLeod, Pubco Sub or any of their Affiliates.
SECTION 4.07. SEC DOCUMENTS.
McLeod has filed all required reports, schedules, forms, statements and
other Documents with the SEC (as defined in Article X) since January 1, 1997
(including the McLeod Post-Signing SEC Documents (as defined in Section 6.10),
the "MCLEOD SEC DOCUMENTS"). As of their respective dates, the McLeod SEC
Documents complied or, in the case of the McLeod Post-Signing SEC Documents,
will comply as to form in all material respects with the applicable requirements
of the Securities Act or the Exchange Act, as the case may be, and none of the
McLeod SEC Documents contained or, in the case of the McLeod Post-Signing SEC
Documents, will contain, any untrue statement of a material fact or omitted or,
in the case of the McLeod Post-Signing SEC Documents, will omit to state a
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material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The consolidated financial statements of McLeod included in the
McLeod SEC Documents comply or, in the case of the McLeod Post-Signing SEC
Documents, will comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, have been or, in the case of the McLeod Post-Signing SEC
Documents, will have been prepared in accordance with GAAP (except, in the case
of unaudited statements, for the absence of footnotes and as permitted by Form
10-Q of the SEC) applied on a consistent basis during the periods subject
thereto (except as may be indicated in the notes thereto) and fairly present the
consolidated financial position of McLeod and its consolidated subsidiaries as
of the dates thereof and the consolidated results of operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to
normal year-end adjustments and the absence of footnotes). Except as disclosed
in the McLeod SEC Documents, as required by GAAP or as required by any
Governmental Entity, McLeod has not, since December 31, 1997, made any change in
accounting practices or policies applied in the preparation of financial
statements.
SECTION 4.08. MCLEOD COMMON STOCK.
The McLeod Common Stock to be issued and delivered to the Company
Stockholders pursuant to the Merger has been duly authorized and, when issued in
the Merger in accordance with this Merger Agreement, will be validly issued,
fully paid and nonassessable and will have been approved for listing by The
Nasdaq Stock Market's National Market System.
SECTION 4.09. CAPITALIZATION.
The authorized capital stock of McLeod consists of (a) 250,000,000
shares of McLeod Common Stock, of which, as of January 5, 1999: (i)
63,545,925shares were issued and outstanding, all of which were duly authorized,
validly issued, fully paid and nonassessable; (ii) no shares were held in the
treasury of McLeod;(iii) 12,278,323 shares were reserved for issuance pursuant
to outstanding options to purchase McLeod Common Stock granted to employees and
certain other Persons; (iv) 245,536 shares were reserved for issuance pursuant
to a Stock Option Agreement dated August 21, 1998 between McLeod and QST
Enterprises, Inc.; (vi) 10,414 shares were reserved for issuance pursuant to a
Stock Option Agreement dated November 25, 1998 between McLeod, Inlet, Inc. and
certain shareholders of Inlet, Inc.; (vi) 917,398 shares were reserved for
issuance pursuant to the McLeodUSA Incorporated Employee Stock Purchase Plan;
and (vii) 961,920 shares were reserved pursuant to the McLeodUSA 401(k) Profit
Sharing Plan; (b) 22,000,000 shares of Class B common stock, par value $.01 per
share ("MCLEOD CLASS B COMMON STOCK"), of which, as of January 5, 1999: (i) no
shares were issued and outstanding; (ii) no shares were held in the treasury of
McLeod; and (iii) 1,300,688 shares were reserved for issuance pursuant to
outstanding options to purchase McLeod Class B Common Stock granted to a
significant stockholder of McLeod; and (c) 2,000,000 shares of serial preferred
stock, par value $.01 per share, of which: (i) no shares are issued and
outstanding; and (ii) no shares are held in the treasury of McLeod. Except for
the options set forth in clauses (a)(iii) through (a)(vi) and (b)(iii) above and
as set forth in Section
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4.09(a) of the McLeod Disclosure Schedule, as of January 5, 1999, there were no
outstanding securities convertible into or exchangeable for capital stock or any
other securities of McLeod, or any capital stock or other securities of any of
McLeod's Significant Subsidiaries and no outstanding options, rights (preemptive
or otherwise), or warrants to purchase or to subscribe for any shares of such
capital stock or other securities of McLeod or any of McLeod's Significant
Subsidiaries. Except as set forth in Section 4.09(b) of the McLeod Disclosure
Schedule and except for Agreements relating to the options specified in clauses
(a)(iii) through (a)(vi) and (b)(iii) above, there are no outstanding Agreements
to which McLeod or any of its Significant Subsidiaries is a party affecting or
relating to the voting, issuance, purchase, redemption, registration, repurchase
or transfer of capital stock or any other securities of McLeod, or any capital
stock or other securities of any of McLeod's Significant Subsidiaries, except as
contemplated hereunder. Each of the outstanding shares of McLeod Common Stock,
and of capital stock of, or other equity interests in, McLeod's Significant
Subsidiaries was issued in compliance with all applicable federal and state Laws
concerning the issuance of securities, and, except as set forth in Section
4.09(d) of the McLeod Disclosure Schedule, such shares or other equity interests
owned by McLeod or any of its Significant Subsidiaries are owned free and clear
of all Encumbrances. There are no obligations, contingent or otherwise, of
McLeod or any of its Significant Subsidiaries to provide funds to, make any
investment (in the form of a loan, capital contribution or otherwise) in, or
provide any guarantee with respect to, any of McLeod's Significant Subsidiaries
or any other Person. Except as set forth in Section 4.09(e) of the McLeod
Disclosure Schedule, there are no Agreements pursuant to which any Person is or
may be entitled to receive any of the revenues or earnings, or any payment based
thereon or calculated in accordance therewith, of McLeod or any of its
Significant Subsidiaries. No vote of the stockholders of McLeod is required in
connection with the consummation of the Merger and the other transactions
contemplated hereby.
SECTION 4.10. REORGANIZATION.
To the knowledge of McLeod, neither McLeod, Pubco Sub nor any of
McLeod's Significant Subsidiaries has taken any action or failed to take any
action which action or failure would jeopardize the qualification of the Merger
as a reorganization within the meaning of Section 368(a) of the Code.
SECTION 4.11. COMPLIANCE.
Neither McLeod or Pubco Sub is aware of any fact or circumstance related
to them that could reasonably be expected to cause the filing of any objection
to any application for any Governmental consent required hereunder, lead to any
delay in processing such application, or require any waiver of any Governmental
rule, policy or other applicable Law.
SECTION 4.12. DISCLOSURE.
All material facts regarding the business, operations, prospects,
condition (financial or otherwise), Assets or liabilities of McLeod, Pubco Sub
and McLeod's Significant Subsidiaries that have been disclosed orally or in
writing (including, without
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limitation, in this Merger Agreement and the McLeod Disclosure Schedule) or
otherwise provided to the Company by McLeod have been fully and truthfully
disclosed to the Company. No representation or warranty by McLeod or Pubco Sub,
and no Document furnished or to be furnished to the Company by McLeod or Pubco
Sub pursuant to this Merger Agreement or otherwise in connection herewith or
with the transactions contemplated hereby, contains or will contain any untrue
statement of a material fact or omits or will omit to state any material fact
necessary in order to make the statements contained therein, in light of the
circumstances under which they were made, not misleading.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 5.01. CONDUCT OF BUSINESS OF THE COMPANY.
The Company hereby covenants and agrees that, from the date of this
Merger Agreement until the Effective Time, the Company, unless otherwise
expressly contemplated by this Merger Agreement or consented to in writing by
McLeod, will, and will cause the Subsidiaries to, carry on their respective
businesses only in the Ordinary Course of Business, use their respective
reasonable best efforts to preserve intact their business organizations and
Assets, maintain their rights and franchises, retain the services of their
officers and key employees and maintain their relationships with customers,
suppliers, licensors, licensees and others having business dealings with them,
and use their respective reasonable best efforts to keep in full force and
effect liability insurance and bonds comparable in amount and scope of coverage
to that currently maintained. Without limiting the generality of the foregoing,
except as otherwise expressly contemplated by this Merger Agreement, from the
date of this Merger Agreement until the Effective Time the Company shall not,
and shall not permit any of the Subsidiaries to:
(a) (i) increase in any manner the compensation or fringe benefits of,
or pay any bonus to, any director, officer or employee, except for increases or
bonuses in the Ordinary Course of Business to employees who are not directors or
officers; (ii) grant any severance or termination pay (other than pursuant to
the normal severance practices or existing Agreements of the Company or any
Subsidiary in effect on the date of this Merger Agreement as described in
Schedule 5.01(a)(ii)) to, or enter into any severance Agreement with, any
director, officer or employee, or enter into any employment Agreement with any
director, officer or employee; (iii) establish, adopt, enter into or amend any
Plan or Other Arrangement, except as may be required to comply with applicable
Law; (iv) pay any benefit not provided for under any Plan or Other Arrangement;
(v) grant any awards under any bonus, incentive, performance or other
compensation plan or arrangement or Plan or Other Arrangement (including the
grant of stock options, stock appreciation rights, stock-based or stock-related
awards, performance units or restricted stock, or the removal of existing
restrictions in any Plan or Other Arrangement or Agreement or awards made
thereunder), except for grants in the Ordinary Course of Business or as required
under the Agreements set forth in Schedule 5.01(a)(v), or (vi) take any action
to fund or in any other way secure the payment of compensation or benefits under
any Agreement, except as
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required under the Agreements set forth in Schedule 5.01(a)(vi);
(b) declare, set aside or pay any dividend on, or make any other
distribution in respect of, outstanding shares of capital stock;
(c) (i) redeem, purchase or otherwise acquire any shares of capital
stock of the Company or any Subsidiary or any securities or obligations
convertible into or exchangeable for any shares of capital stock of the Company
or any Subsidiary, or any options, warrants or conversion or other rights to
acquire any shares of capital stock of the Company or any Subsidiary or any such
securities or obligations, or any other securities thereof; (ii) effect any
reorganization or recapitalization; or (iii) split, combine or reclassify any of
its capital stock or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for, shares of its
capital stock;
(d) issue, deliver, award, grant or sell, or authorize the issuance,
delivery, award, grant or sale (including the grant of any limitations in voting
rights or other Encumbrances) of, any shares of any class of its capital stock
(including shares held in treasury), any securities convertible into or
exercisable or exchangeable for any such shares, or any rights, warrants or
options to acquire, any such shares, or amend or otherwise modify the terms of
any such rights, warrants or options the effect of which shall be to make such
terms more favorable to the holders thereof;
(e) except as contemplated by Agreements that have been identified in
Section 3.14(a) of the Company Disclosure Schedule, acquire or agree to acquire,
by merging or consolidating with, by purchasing an equity interest in or a
portion of the Assets of, or by any other manner, any business or any
corporation, partnership, association or other business organization or division
thereof, or otherwise acquire or agree to acquire any Assets of any other Person
(other than the purchase of assets from suppliers or vendors in the Ordinary
Course of Business);
(f) sell, lease, exchange, mortgage, pledge, transfer or otherwise
subject to any Encumbrance or dispose of, or agree to sell, lease, exchange,
mortgage, pledge, transfer or otherwise subject to any Encumbrance or dispose
of, any of its Assets;
(g) adopt any amendments to its articles or certificate of
incorporation, bylaws or other comparable charter or organizational documents;
(h) make or rescind any express or deemed election relating to Taxes,
settle or compromise any claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy relating to Taxes, or change
any of its methods of reporting income or deductions for federal income tax
purposes from those employed in the preparation of the federal income tax
returns for the taxable year ended December 31, 1997, except in either case as
may be required by Law, the IRS or GAAP;
(i) make or agree to make any new capital expenditure or expenditures
which are not included in the Company's 1999 capital budget, a copy of which was
furnished to McLeod, and which are, individually, in excess of $25,000 or, in
the aggregate, in excess of $50,000;
(j) (i) incur any indebtedness for borrowed money or guarantee any such
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indebtedness of another Person, issue or sell any debt securities or warrants or
other rights to acquire any debt securities of the Company or any Subsidiary,
guarantee any debt securities of another Person, enter into any "keep well" or
other Agreement to maintain any financial statement condition of another Person
or enter into any Agreement having the economic effect of any of the foregoing,
except for short-term borrowings incurred in the Ordinary Course of Business, or
(ii) make any loans, advances or capital contributions to, or investments in,
any other Person other than intra-group loans, advances, capital contributions
or investments between or among the Company and any of its wholly owned
Subsidiaries;
(k) pay, discharge, settle or satisfy any claims, liabilities or
obligations (whether absolute or contingent, matured or unmatured, known or
unknown), other than the payment, discharge or satisfaction, in the Ordinary
Course of Business or in accordance with their terms, of liabilities reflected
or reserved against in, or contemplated by, the most recent Financial Statement
or incurred in the Ordinary Course of Business, or waive any material benefits
of, or agree to modify in any material respect, any confidentiality, standstill
or similar Agreements to which the Company or any Subsidiary is a party;
(l) except in the Ordinary Course of Business, waive, release or assign
any rights or claims, or modify, amend or terminate any Agreement to which the
Company or any Subsidiary is a party;
(m) make any change in any method of accounting or accounting practice
or policy other than those required by GAAP or a Governmental Entity;
(n) take any action or fail to take any action which could reasonably be
expected to have a Company Material Adverse Effect prior to or after the
Effective Time or a McLeod Material Adverse Effect after the Effective Time, or
that could reasonably be expected to adversely affect the ability of the Company
or any Subsidiary prior to the Effective Time, or McLeod or any of its
subsidiaries after the Effective Time, to obtain consents of third parties or
approvals of Governmental Entities required to consummate the transactions
contemplated in this Merger Agreement; or
(o) authorize, or commit or agree to do any of the foregoing.
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SECTION 5.02. OTHER ACTIONS.
The Company and McLeod shall not, and shall not permit any of their
respective Affiliates to, take any action that would, or that could reasonably
be expected to, result in (a) any of the representations and warranties of such
party set forth in this Merger Agreement becoming untrue, or (b) any of the
conditions to the Merger set forth in Article VII not being satisfied.
SECTION 5.03. CERTAIN TAX MATTERS.
From the date hereof until the Effective Time, the Company and the
Subsidiaries (a) will prepare and timely file with the relevant Taxing authority
all Company Tax Returns ("POST-SIGNING RETURNS") required to be filed, which
Post-Signing Returns shall be accurate in all material respects, (b) will timely
pay all Taxes due and payable with respect to such Post-Signing Returns, (c)
will pay or otherwise make adequate provision for all Taxes payable by the
Company and the Subsidiaries for which no Post-Signing Return is due prior to
the Effective Time, and (d) will promptly notify McLeod of any action, suit,
proceeding, claim or audit pending against or with respect to the Company or any
Subsidiary in respect of any Taxes.
SECTION 5.04. ACCESS AND INFORMATION.
For so long as this Merger Agreement is in effect, the Company shall,
and shall cause each Subsidiary to, (a) afford to McLeod and its officers,
employees, accountants, consultants, legal counsel and other representatives
reasonable access during normal business hours, subject to reasonable advance
notice, to all of their respective properties, Agreements, books, records and
personnel and (b) furnish promptly to McLeod (i) a copy of each Document filed
with, or received from any Governmental Entity and (ii) all other information
concerning their respective businesses, operations, prospects, conditions
(financial or otherwise), Assets, liabilities and personnel as McLeod may
reasonably request.
SECTION 5.05. NO SOLICITATION.
(a) The Company shall, and shall cause its directors, officers,
employees, representatives, agents and Subsidiaries and their respective
directors, officers, employees, representatives and agents to, immediately cease
any discussions or negotiations with any Person that may be ongoing with respect
to a Competing Transaction (as defined in this Section 5.05(a)). The Company
shall not, and shall cause the Subsidiaries not to, initiate, solicit or
encourage (including by way of furnishing information or assistance), or take
any other action to facilitate, any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any Competing
Transaction, or enter into discussions or furnish any information or negotiate
with any Person or otherwise cooperate in any way in furtherance of such
inquiries or to obtain a Competing Transaction, or agree to or endorse any
Competing Transaction, or authorize any of the directors, officers, employees,
agents or representatives of the Company or any Subsidiary to take any such
action, and the Company shall, and shall cause the Subsidiaries to, direct and
instruct and use its or their reasonable best efforts to cause the directors,
officers, employees, agents
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and representatives of the Company and the Subsidiaries (including, without
limitation, any investment banker, financial advisor, attorney or accountant
retained by the Company or any Subsidiary) not to take any such action, and the
Company shall promptly notify McLeod if any such inquiries or proposals are
received by the Company or any Subsidiary, or any of its or their respective
directors, officers, employees, agents, investment bankers, financial advisors,
attorneys, accountants or other representatives, and the Company shall promptly
inform McLeod as to the material terms of such inquiry or proposal and, if in
writing, promptly deliver or cause to be delivered to McLeod a copy of such
inquiry or proposal, and the Company shall keep McLeod informed, on a current
basis, of the nature of any such inquiries and the status and terms of any such
proposals. For purposes of this Merger Agreement, "COMPETING TRANSACTION" shall
mean any of the following involving the Company or the Subsidiaries (other than
the transactions contemplated by this Merger Agreement): (i) any merger,
consolidation, share exchange, business combination, or other similar
transaction; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of ten percent (10%) or more of the Assets of the Company and the
Subsidiaries, taken as a whole, or issuance of ten percent (10%) or more of the
outstanding voting securities of the Company or any Subsidiary in a single
transaction or series of transactions; (iii) any tender offer or exchange offer
for ten percent (10%) or more of the outstanding shares of capital stock of the
Company or any Subsidiary or the filing of a registration statement under the
Securities Act in connection therewith; (iv) any solicitation of proxies in
opposition to approval by the Company Stockholders of the Merger; (v) any Person
shall have acquired beneficial ownership or the right to acquire beneficial
ownership of, or any "GROUP" (as such term is defined under Section 13(d) of the
Exchange Act) shall have been formed after the date of this Merger Agreement
which beneficially owns or has the right to acquire beneficial ownership of, ten
percent (10%) or more of the then outstanding shares of capital stock of the
Company or any Subsidiary; or (vi) any Agreement to, or public announcement by
the Company or any other Person of a proposal, plan or intention to, do any of
the foregoing.
(b) Neither the Board of Directors of the Company nor any committee
thereof shall (i) withdraw or modify, or propose to withdraw or modify, in a
manner adverse to McLeod or Pubco Sub, the approval or recommendation by such
Board of Directors or any such committee of this Merger Agreement or the Merger,
(ii) approve or recommend, or propose to approve or recommend, any Competing
Transaction or (iii) enter into any Agreement with respect to any Competing
Transaction.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. INVESTMENT AGREEMENTS.
(a) As promptly as practicable after the date of this Merger Agreement,
the Company shall use its best efforts to obtain Investment Agreements from each
Company Stockholder who is to receive shares of McLeod Common Stock in the
Merger.
(b) The parties hereto acknowledge, agree, and confirm that the McLeod
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Common Stock to be issued pursuant to Section 2.01,(i) will not be registered
under the Securities Act of 1933, as amended (as defined in Article X), or
registered or qualified under any state securities laws, (ii) must be held
indefinitely unless a subsequent disposition thereof is made pursuant to an
effective registration thereof under the Securities Act or is exempt from such
registration and cannot be offered for sale, sold or otherwise transferred
unless the McLeod Common Stock is subsequently so registered or qualified for
exemption from registration under the Securities Act, (iii) will bear a legend
to that effect (and McLeod will make a notation on its transfer of books to that
effect), and (iv) will be considered "registered securities" within the meaning
of Rule 144 of the Securities Act; Rule 144 may not be available to exempt from
the registration requirements of the Securities Act the sale of such "restricted
securities;" if Rule 144 is available, sale may be made in reliance upon Rule
144 only in accordance with the terms and conditions of Rule 144; and if an
exemption for such sale is not available, registration of the McLeod Common
Stock may be required, but McLeod is under no obligation to register the McLeod
Common Stock or to facilitate compliance or to comply with any exemption, except
as expressly set out in Section 6.19 below.
SECTION 6.02. MEETING OF STOCKHOLDERS.
The Company shall promptly after the date of this Merger Agreement take
all action necessary in accordance with Michigan and Iowa Law and its
certificate of incorporation and bylaws to duly call, give notice of, convene
and hold the Stockholders' Meeting, and the Company shall consult with McLeod in
connection therewith. The Company shall use its reasonable best efforts to
solicit from the Company Stockholders proxies or consents to approve this Merger
Agreement and the transactions contemplated hereby and shall take all other
actions reasonably necessary or advisable to secure the vote or consent of the
Company Stockholders required by Michigan and Iowa Law to approve this Merger
Agreement and the transactions contemplated hereby.
SECTION 6.03. APPROPRIATE ACTION; CONSENTS; FILINGS.
(a) Upon the terms and subject to the conditions set forth in this
Merger Agreement, the Company and McLeod shall use all reasonable efforts to
take, or cause to be taken, all appropriate action, and do, or cause to be done,
and to assist and cooperate with the other parties in doing all things
necessary, proper or advisable under applicable Law or otherwise to consummate
and make effective the transactions contemplated by this Merger Agreement as
promptly as practicable, including (i) executing and delivering any additional
instruments necessary, proper or advisable to consummate the transactions
contemplated by, and to carry out fully the purposes of, this Merger Agreement,
(ii) obtaining from any Governmental Entities any Licenses required to be
obtained or made by McLeod or the Company or any of their subsidiaries in
connection with the authorization, execution and delivery of this Merger
Agreement and the consummation of the transactions contemplated herein,
including, without limitation, the Merger, and (iii) making all necessary
filings, and thereafter making any other required submissions, with respect to
this Merger Agreement and the Merger required under (A) the Securities Act and
any other applicable federal or state securities Laws, (B) the HSR Act and (C)
any other applicable Law; PROVIDED that McLeod and the Company shall cooperate
with each other in connection with the making of all such filings, including
providing copies of all such
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Documents to the non-filing party and its advisors prior to filing and
discussing all reasonable additions, deletions or changes suggested in
connection therewith. The Company and McLeod shall furnish to each other all
information required for any application or other filing to be made pursuant to
the rules and regulations of any applicable Law in connection with the
transactions contemplated by this Merger Agreement.
(b) (i) The Company and McLeod shall give (or shall cause their
respective subsidiaries to give) any notices to third parties, and use, and
cause their respective subsidiaries to use, all reasonable efforts to obtain any
third party consents, approvals or waivers (A) necessary, proper or advisable to
consummate the transactions contemplated in this Merger Agreement, (B) disclosed
or required to be disclosed in the Company Disclosure Schedule or the McLeod
Disclosure Schedule, as the case may be, or (C) required to prevent a Company
Material Adverse Effect from occurring prior to or after the Effective Time or a
McLeod Material Adverse Effect from occurring prior to or after the Effective
Time.
(ii) If any party shall fail to obtain any third party consent,
approval or waiver described in subsection (b)(i) above, such party shall use
all reasonable efforts, and shall take any such actions reasonably requested by
the other parties hereto, to minimize any adverse effect upon the Company and
McLeod, their respective subsidiaries, and their respective businesses
resulting, or which could reasonably be expected to result after the Effective
Time, from the failure to obtain such consent, approval or waiver.
(c) From the date of this Merger Agreement until the Effective Time, the
Company and McLeod shall promptly notify each other in writing of any pending
or, to the knowledge of the Company or McLeod (or their respective
subsidiaries), threatened action, proceeding or investigation by any
Governmental Entity or any other Person (i) challenging or seeking damages in
connection with the Merger or the conversion of the Company Common Stock into
McLeod Common Stock pursuant to the Merger or (ii) seeking to restrain or
prohibit the consummation of the Merger or otherwise limit the right of McLeod
or its subsidiaries to own or operate all or any portion of the businesses or
Assets of the Company or any Subsidiary. The Company and McLeod shall cooperate
with each other in defending any such action, proceeding or investigation,
including seeking to have any stay or temporary restraining order entered by any
court or other Governmental Entity vacated or reversed.
SECTION 6.04. UPDATE DISCLOSURE; BREACHES.
From and after the date of this Merger Agreement until the Effective
Time, each party hereto shall promptly notify the other parties hereto by
written update to its Disclosure Schedule of (i) any representation or warranty
made by it in connection with this Merger Agreement becoming untrue or
inaccurate, (ii) the occurrence, or non-occurrence, of any event the occurrence,
or non-occurrence, of which would be likely to cause any condition to the
obligations of any party to effect the Merger and the other transactions
contemplated by this Merger Agreement not to be satisfied, or (iii) the failure
of the Company, McLeod or Pubco Sub, as the case may be, to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it pursuant to this
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Merger Agreement which would be likely to result in any condition to the
obligations of any party to effect the Merger and the other transactions
contemplated by this Merger Agreement not to be satisfied. The Company shall
deliver to McLeod updated versions of Sections 3.10 and 3.14(a) of the Company
Disclosure Schedule as of the Closing Date, solely to reflect events occurring
between the date of this Merger Agreement and the Closing Date, or shall have
notified McLeod that no changes to such Sections of the Company Disclosure
Schedule are required.
SECTION 6.05. PUBLIC ANNOUNCEMENTS.
McLeod, Pubco Sub and the Company shall consult with each other before
issuing or making, and shall give each other the opportunity to review and
comment upon, any press release or other public statement with respect to the
Merger and the other transactions contemplated in this Merger Agreement, and
shall not issue any such press release or make any such public statement prior
to such consultation, except as may be required by Law or any listing agreement
with the NASD (as defined in Article X).
SECTION 6.06. EMPLOYEE MATTERS.
The Company and McLeod shall use their respective reasonable best
efforts to cause the officers and employees of the Company and the Subsidiaries
listed in SCHEDULE 6.06 (the "COMPANY KEY EMPLOYEES") to enter into employment,
confidentiality and non-competition agreements, substantially in the form of
McLeod's standard Employment, Confidentiality and Non-Competition Agreement, a
copy of which is attached hereto as EXHIBIT B (the "EMPLOYMENT AGREEMENTS"), at
or prior to the Effective Time.
SECTION 6.07. UNAUDITED FINANCIAL INFORMATION.
The Company will cause to be prepared and will furnish to McLeod as
promptly as possible an unaudited consolidated balance sheet of the Company and
the Subsidiaries as of the last day of each month ending after August 31, 1998
and the related unaudited consolidated statements of income and cash flows of
the Company and the Subsidiaries for the one-month periods then ended. The
Company will ensure that such Unaudited Statements are complete and correct in
all material respects, have been prepared in accordance with the books and
records of the Company and the Subsidiaries, and present fairly the consolidated
financial position of the Company and the Subsidiaries and their consolidated
results of operations and cash flows as of and for the respective dates and time
periods applied on a basis consistent with prior accounting periods, except as
noted thereon and subject to normal and recurring year-end adjustments.
SECTION 6.08. ENVIRONMENTAL MATTERS.
The Company will promptly furnish to McLeod written notice of any
Hazardous Discharge or of any actions or notices described in Section 3.30(b).
SECTION 6.09. POST-SIGNING SEC DOCUMENTS.
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McLeod will file with the SEC all reports, schedules, forms, statements
and other Documents required to be filed by it after the date of this Merger
Agreement but before the Effective Time (the "MCLEOD POST-SIGNING SEC
DOCUMENTS").
SECTION 6.10. INDEMNIFICATION BY PRINCIPAL COMPANY STOCKHOLDERS.
(a) After the Effective Time, the Principal Company Stockholders,
individually, shall, severally and not jointly, indemnify and hold harmless
McLeod, the Surviving Corporation and their respective officers and directors,
and each person, if any, who controls or may control McLeod or the Surviving
Corporation within the meaning of the Securities Act (all such persons
hereinafter are referred to individually as an "INDEMNIFIED PERSON" and
collectively as "INDEMNIFIED PERSONS," but in no event shall any stockholder of
the Company be such an Indemnified Person), from and against any and all losses,
costs, damages, liabilities and expenses, including reasonable attorneys' fees
and expenses, ("DAMAGES") actually suffered and (i) arising out of the breach of
the representations, warranties, covenants and agreements given or made by the
Company or the Principal Company Stockholders in this Merger Agreement, in the
Articles of Merger or in the Exhibits or Schedules hereto or in any certificate
or document delivered by or on behalf of the Company or the Principal Company
Stockholders pursuant hereto, or (ii) which were not reflected on or adequately
reserved against in the Financial Statements. The Principal Company Stockholders
shall have no liability under this Section 6.10 to the extent claims for Damages
hereunder do not exceed an aggregate of $250,000 (the "Bucket") (other than for
Damages incurred in connection with any income tax liabilities of the Company or
the Principal Company Stockholders, in which case the Basket shall not apply);
PROVIDED, FURTHER, that if such Damages exceed an aggregate of $250,000 then the
indemnification provided for hereunder shall apply only to Damages exceeding the
$250,000 threshold provided for above. It shall be a condition of the right of
each Indemnified Person to indemnification pursuant to this Section 6.10 that
such Indemnified Person shall assert a claim for such indemnification on or
prior to the date that the particular representation, warranty, covenant or
agreement for the breach of which the indemnification is being sought, expires
under the terms of this Merger Agreement.
(b) Any payment to be made to an Indemnified Person by a Principal
Company Stockholder under this Section 6.10 shall be made in cash.
(c) The amount of any Damages under this Section 6.10 shall be computed
net of (i) any tax benefit realized therefrom to an Indemnified Person, and (ii)
any insurance proceeds received with respect thereto that reduces the Damages
that would otherwise be sustained. Additionally, the Principal Company
Stockholders shall be entitled to a credit against any Damages for which they
are liable for indemnification under this Section 6.10 in an amount equal to the
sum of the amount, if any, by which the actual amount of any liability shown on
the balance sheet of the Company as of the Closing Date is less than the amount
of such liability or reserve therefor as recorded on such balance sheet.
SECTION 6.11. PROCEDURES; CONDITIONS OF INDEMNIFICATION.
With respect to any indemnification provided pursuant to this Merger
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Agreement, the Indemnified Person agrees to give prompt written notice to the
Principal Company Stockholders of any claim or other assertion of liability by
third parties (hereinafter called collectively "CLAIMS"), it being understood
that the failure to give such notice shall not affect the Indemnified Person's
right to indemnification and the indemnifying party's obligation to indemnify as
set forth in this Agreement, unless the Principal Company Stockholders' rights
with respect to such Claim are thereby demonstrably and materially prejudiced.
The obligations and liabilities of the parties hereto with respect to
their respective indemnities pursuant to this Merger Agreement resulting from
any Claim shall be subject to the following terms and conditions:
(a) The Principal Company Stockholders shall have the right to
undertake, by counsel or other representatives of their own choosing, the
defense of such Claim.
(b) If the Principal Company Stockholders elect not to undertake such
defense, or within a reasonable time after notice of any such Claim from the
Indemnified Person shall fail to defend, the Indemnified Person (upon further
written notice to the Principal Company Stockholders) shall have the right to
undertake the defense, compromise or settlement of such Claim, by counsel or
other representatives of its own choosing, on behalf of and for the account and
risk of the Principal Company Stockholders (subject to the right of the
Principal Company Stockholders to assume defense of such Claim at any time prior
to settlement, compromise or final determination thereof).
(c) Anything in this Section 6.11 to the contrary notwithstanding, (i)
if the Indemnified Person notifies the Principal Company Stockholder that the
Indemnified Person has concluded that a Claim may materially and adversely
affect the Indemnified Person other than as a result of money damages or other
money payments, the Indemnified Person shall have the right, at its own cost and
expense, to participate in the defense, compromise or settlement of the Claim,
(ii) the Principal Company Stockholders shall not, without the Indemnified
Person's written consent, settle or compromise any Claim or consent to entry of
any judgment that does not include as an unconditional term thereof the giving
by the claimant or the plaintiff to the Indemnified Person of a release from all
liability in respect of such Claim, and (iii) in the event that the Principal
Company Stockholders undertake defense of any Claim, the Indemnified Person, by
counsel or other representative of its own choosing and at its sole cost and
expense, shall have the right to consult with the Principal Company Stockholders
and their counsel or other representatives concerning such Claim and the
Principal Company Stockholders and the Indemnified Person and their respective
counsel or other representatives shall cooperate with respect to such Claim.
(d) Notwithstanding any other provision of this Section 6.11, the
Indemnified Person may at any time assume full control over the responsibility
for any Claim, by written notice to the Principal Company Stockholders releasing
the Principal Company Stockholders from any further indemnity obligation
pursuant to this Merger Agreement with respect to said Claim.
(e) Any decision with respect to any matter under this Section 6.11
(including, without limitation, the defense, prosecution, settlement or
resolution of Claims)
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shall be binding on all Principal Company Stockholders if
consented to by those Principal Company Stockholders who, immediately prior to
the Effective Time, hold a majority of the Company Common Stock held by all
Principal Company Stockholders.
SECTION 6.12. TAX TREATMENT.
Each party hereto shall use its reasonable best efforts to cause the
Merger to qualify, and shall not take any actions which could prevent the Merger
from qualifying, as a reorganization qualifying under the provisions of Section
368(a) of the Code.
SECTION 6.13. TAX RETURNS.
To the extent permitted under applicable Tax Laws, the Merger shall be
reported as a "reorganization" within the meaning of Section 368(a) of the Code
in all federal, state and local Tax Returns filed after the Effective Time.
Notwithstanding any other provision of this Merger Agreement, the obligations
set forth in this Section 6.13 shall survive the Effective Time without
limitation as to time or in any other respect.
SECTION 6.14. REORGANIZATION.
During the period from the date of this Merger Agreement through the
Effective Time, unless McLeod and the Company shall otherwise agree in writing,
McLeod and the Company shall not, and shall cause their respective subsidiaries
not to knowingly take or fail to take any action which action or failure would
jeopardize the qualification of the Merger as a reorganization within the
meaning of Section 368(a) of the Code.
SECTION 6.15. DIRECTORS' AND OFFICERS' INSURANCE; INDEMNIFICATION.
McLeod agrees that for the entire period from the Effective Time until
at least six (6) years after the Effective Time, (a) McLeod will cause the
Surviving Corporation to maintain the Company's current directors' and officers'
insurance and indemnification policy and related arrangements, if any, or an
equivalent policy and related arrangements, subject in either case to terms and
conditions no less advantageous to the present and former directors and officers
of the Company than those contained in the policy and arrangements in effect on
the date hereof, for all present and former directors and officers of the
Company, covering claims made and insurable events occurring prior to or within
six (6) years after the Effective Time (provided that the Surviving Corporation
will not be required to maintain such policy except to the extent that the
aggregate annual cost of maintaining such policy is not in excess of two hundred
percent (200%) of the current annual cost, in which case the Surviving
Corporation shall maintain such policies up to an annual cost of two hundred
percent (200%) of the current annual cost); and (b) McLeod will cause the
Surviving Corporation to maintain indemnification provisions, including, without
limitation, provisions for expense advances, for present and former officers and
directors in the Surviving Corporation's certificate of incorporation and bylaws
to the fullest extent permitted by Iowa Law. In the event of any threatened or
actual claim, action, suit, proceeding or investigation, whether civil, criminal
or administrative, including, without limitation, any such claim, action, suit
proceeding or investigation in which any of the present
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or former officers or directors (the "MANAGERS") of the Company is, or is
threatened to be, made a party by reason of the fact that such Manager is or was
a director, officer, employee or agent of the Company, or is or was serving at
the request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other entity, whether before
or after the Effective Time, the parties hereto agree to cooperate and use their
reasonable best efforts to defend against and respond thereto. It is understood
and agreed that the Company shall indemnify and hold harmless, and after the
Effective Time each of the Surviving Corporation and McLeod shall indemnify and
hold harmless, as and to the full extent that the Surviving Corporation would be
permitted by applicable Law (and as to matters arising from or relating to this
Merger Agreement and the possible change in control of the Company, to the full
extent that McLeod would be permitted under applicable Law), each such Manager
against any losses, claims, damages, liabilities, costs, expenses (including
reasonable attorneys' fees), judgments, fines and amounts paid in settlement in
connection with any such claim, action, suit, proceeding or investigation; and
in the event of any such claim, action, suit, proceeding or investigation
(whether arising before or after the Effective Time), (i) the Managers may
retain counsel satisfactory to them, and the Company, or the Surviving
Corporation and McLeod after the Effective Time, shall pay all reasonable fees
and expenses of such counsel for the Managers promptly as statements therefor
are received whether before or after final determination of the matter, and (ii)
the Company, or the Surviving Corporation and McLeod after the Effective Time,
will use their respective reasonable best efforts to assist in the vigorous
defense of any such matter; PROVIDED that neither the Company nor the Surviving
Corporation or McLeod shall be liable for any settlement effected without its
prior written consent (which consent shall not be unreasonably withheld); and
PROVIDED FURTHER that the Company's, the Surviving Corporation's and McLeod's
obligations hereunder shall only be reduced or relieved when and if a court of
competent jurisdiction shall ultimately determine, and such determination shall
have become final and non-appealable, that indemnification of such Manager in
the manner contemplated is prohibited by applicable Law.
SECTION 6.16. OBLIGATIONS OF PUBCO SUB.
McLeod shall take all action necessary to cause Pubco Sub to perform its
obligations under this Merger Agreement and to consummate the Merger on the
terms and conditions set forth in this Merger Agreement.
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SECTION 6.17. PAYMENT OF CERTAIN DEBT.
The Company shall pay in full all mortgages, indentures, notes and other
agreements for or relating to borrowed money to which the Company or any
Subsidiary is a party as listed in Section 3.12 of the Company Disclosure
Schedule, other than the debt obligation to Old Kent Bank, or make such other
arrangements or adjustments reasonably acceptable to McLeod.
SECTION 6.18. LEASE MODIFICATION.
The Company shall cause the real estate lease for the Company's
headquarters in Wyoming, Michigan, described in Section 3.13 of the Company
Disclosure Schedule, to be modified, as of the Effective Date, to provide for a
two (2) year term, but allowing the Surviving Corporation to terminate the Lease
at any time upon six months notice to the Landlord.
SECTION 6.19. AGREEMENT TO REGISTER STOCK.
(a) Subject to Section 6.19(b) below, within ninety (90) days following
the Closing, McLeod shall prepare and file a registration statement on Form S-3
(the "Resale Registration Statement") under the Securities Act of 1933 (the
"Securities Act") covering the resale of a maximum of 25% of the McLeod Common
Stock to be issued in the Merger (and any shares of the capital stock of McLeod
that may be issued with respect to the McLeod Common Stock issued in the Merger
as a result of a reclassification, recapitalization, dividend, stock split or
comparable event). McLeod shall thereafter use its reasonable best efforts to
have such Resale Registration Statement declared effective by the Securities and
Exchange Commission ("SEC") as soon after the filing as practicable and to keep
that Resale Registration Statement effective and current, including through the
filing of any amendments and supplements that may be required under provisions
of applicable law, for one year after its original effectiveness. McLeod may
include other shares of McLeod Common Stock on the Resale Registration
Statement. At McLeod's option, McLeod may satisfy its obligations under this
Section 6.19(a) on another form of registration statement under the Securities
Act. McLeod agrees to notify each holder of McLeod Common Stock registered on
the Resale Registration Statement (i)when the Resale Registration Statement (or
any post-effective amendment thereto) has become effective, (ii) if the SEC has
issued any stop order with respect to the Resale Registration Statement or
initiated any proceedings for that purpose, and (iii) if McLeod has received any
written notification with respect to the suspension of qualification of any
McLeod Common Stock for sale in any jurisdiction or on any securities exchange
or market or with respect to the initiation or threat of any proceeding for such
purpose. McLeod further agrees to furnish holders of McLeod Common Stock
registered on the Resale Registration Statement such numbers of copies of a
prospectus, in conformity with the requirements of applicable law, and such
other documents as each such holder may reasonably request in order to
facilitate the disposition of the McLeod Common Stock owned by such holder.
(b) Intentionally omitted.
(c) McLeod will give notice to holders of McLeod Common Stock registered
on the Resale Registration Statement, at any time when a prospectus relating
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thereto is required to be delivered under applicable law, of the happening of
any event as a result of which the prospectus included in such Resale
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing. Any such holder shall cease using such prospectus
immediately upon receipt of notice from McLeod to that effect. If so requested
by McLeod, each holder shall return promptly to McLeod any copies of any
prospectus in its possession that contains an untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing. At the request of such holder, McLeod shall prepare
and furnish to each holder a reasonable number of copies of a supplement to or
an amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such securities, such prospectus shall not
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing.
(d) (i) McLeod shall bear all costs incurred in preparing and
filling the Resale Registration Statement including, without limitation, all
applicable legal, accounting, printing, blue sky and SEC filing fees, provided,
however, that McLeod shall not be responsible for any underwriting commissions
or discounts, brokerage fees or legal fees or disbursements incurred by any
person or entity (other than McLeod) that sells any shares of McLeod Common
Stock under the Resale Registration Statement. McLeod shall also bear all costs
of keeping the Resale Registration Statement current during the applicable
period described in Section 6.19(a).
(ii) McLeod will indemnify and hold harmless each holder of
McLeod Common Stock registered on the Resale Registration Statement against any
losses, claims, damages or liabilities to which such holder may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Resale Registration
Statement, any final prospectus contained therein, or any amendment or
supplement thereof, 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; provided, however, that
McLeod will not be liable in any such case if and to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission so made in
conformity with information furnished by such holder in writing specifically for
use in the Resale Registration Statement or prospectus.
(iii) Each holder of McLeod Common Stock registered on the Resale
Registration Statement shall furnish to McLeod in writing such information with
respect to such holder as McLeod may reasonably request or as may be required by
law for use in connection with the Resale Registration Statement and the final
prospectus contained therein, and each such holder will indemnify and hold
harmless McLeod against any losses, claims, damages or liabilities to which
McLeod may become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact
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contained in the Resale Registration Statement, any final prospectus contained
therein, or any amendment or supplement thereof, 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
to the same extent as the foregoing indemnity from McLeod to the holders of
McLeod Common Stock registered on the Resale Registration Statement, but only
with respect to (i) any such information with respect to such holder furnished
in writing to McLeod expressly for use therein or (ii) a breach of any
obligations of such holder under this Section 6.19; provided, however, that the
total amount to be indemnified by such holder under this Section 6.19(d)(iii)
shall be limited to the net proceeds received by such holder in the offering to
which the Resale Registration Statement or prospectus relates.
(e) The rights described in this Section 6.19 shall not be transferable
and shall not be afforded to any person or entity to whom holders of McLeod
Common Stock received in the Merger transfer such stock.
ARTICLE VII
CONDITIONS PRECEDENT
SECTION 7.01. CONDITIONS TO OBLIGATIONS OF EACH PARTY UNDER THIS MERGER
AGREEMENT.
The respective obligations of each party to effect the Merger and the
other transactions contemplated herein shall be subject to the satisfaction at
or prior to the Effective Time of the following conditions, any or all of which
may be waived by agreement of McLeod and the Company, in whole or in part, to
the extent permitted by applicable Law:
(a) STOCKHOLDER APPROVAL. This Merger Agreement and the Merger shall
have been approved and adopted by the requisite vote of the Company
Stockholders.
(b) NO ORDER. No Governmental Entity or federal or state court of
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, executive order, decree, judgment,
injunction or other order (whether temporary, preliminary or permanent), in any
case which is in effect and which prevents or prohibits consummation of the
Merger; PROVIDED, HOWEVER, that each of the parties shall use its reasonable
best efforts to cause any such decree, judgment, injunction or other order to be
vacated or lifted.
(c) HSR ACT. The applicable waiting period, together with any extensions
thereof, under the HSR Act shall have expired or been terminated.
(d) OTHER APPROVALS. All consents, waivers, approvals and authorizations
required to be obtained, and all filings or notices required to be made, by
McLeod or the Company prior to consummation of the transactions contemplated in
this Merger Agreement (other than the filing of the Articles of Merger in
accordance with Michigan and Iowa Law) shall have been obtained from and made
with all required Governmental Entities, except for such consents, waivers,
approvals or authorizations which the failure to obtain, or such filings or
notices which the failure to make, would not have a Company Material
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Adverse Effect or a McLeod Material Adverse Effect or be reasonably likely to
subject the Company, any Subsidiary, McLeod, Pubco Sub or any of their
respective directors or officers to criminal liability or substantial penalties.
(e) CDPS AGREEMENT. The current agreement between CDPS and the Company
shall be terminated at or prior to the Closing, and CDPS and the Surviving
Corporation shall execute a new agreement in the form of EXHIBIT C attached
hereto.
SECTION 7.02. ADDITIONAL CONDITIONS TO OBLIGATIONS OF MCLEOD AND PUBCO SUB.
The obligations of McLeod and Pubco Sub to effect the Merger and the
other transactions contemplated herein are also subject to the satisfaction at
or prior to the Effective Time of the following conditions, any or all of which
may be waived by McLeod, in whole or in part, to the extent permitted by
applicable Law:
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of the Company contained in this Merger Agreement shall be true and
correct as of the date of this Merger Agreement and shall be true and correct in
all material respects (except that where any statement in a representation or
warranty expressly includes a standard of materiality, such statement shall be
true and correct in all respects giving effect to such standard) as of the
Effective Time as though made as of the Effective Time, except that those
representations and warranties which address matters only as of a particular
date shall remain true and correct in all material respects (except that where
any statement in a representation or warranty expressly includes a standard of
materiality, such statement shall be true and correct in all respects giving
effect to such standard) as of such date, and except (A) for changes permitted
or contemplated by this Merger Agreement, or (B) in a representation and
warranty that does not expressly include a standard of materiality, any untrue
or incorrect statements therein that, considered in the aggregate, do not
indicate a Company Material Adverse Effect. McLeod shall have received a
certificate of the chief executive officer or chief financial officer of the
Company to that effect.
(b) UPDATED COMPANY DISCLOSURE SCHEDULE. The revised versions of
Sections 3.10 and 3.14(a) of the Company Disclosure Schedule delivered to McLeod
pursuant to Section 6.04 shall not disclose any Company Material Adverse Effect
as compared to such Sections of the Company Disclosure Schedule as of the date
of this Merger Agreement.
(c) AGREEMENTS AND COVENANTS. The Company shall have performed or
complied in all material respects with all agreements and covenants required by
this Merger Agreement to be performed or complied with by it on or prior to the
Effective Time. McLeod shall have received a certificate of the chief executive
officer or chief financial officer of the Company to that effect.
(d) CONSENTS UNDER AGREEMENTS. The Company or the appropriate Subsidiary
shall have obtained the consent or approval of each Person whose consent or
approval shall be required in connection with the Merger under all Agreements to
which the Company or any Subsidiary is a party, except where the failure to
obtain any such consents or approvals, considered in the aggregate, would not
have a Company Material
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Adverse Effect or a McLeod Material Adverse Effect.
(e) OPINION OF COUNSEL. McLeod shall have received from Miller, Johnson,
Snell & Cumminskey, P.L.C., counsel to the Company, an opinion dated the Closing
Date, in form usual and customary for similar transactions and reasonably
acceptable to McLeod and the Company.
(f) NO CHALLENGE. There shall not be pending any action, proceeding or
investigation by any Governmental Entity (i) challenging or seeking material
damages in connection with the Merger or the conversion of Company Common Stock
into McLeod Common Stock pursuant to the Merger, or seeking to place limitations
on the ownership of shares of Company Common Stock (or shares of common stock of
the Surviving Corporation) by McLeod or Pubco Sub, (ii) seeking to restrain or
prohibit the consummation of the Merger or otherwise limit the right of the
Company, any Subsidiary, McLeod or any of its subsidiaries to own or operate all
or any portion of the business or Assets of the Company and the Subsidiaries, or
(iii) which otherwise is likely to have a Company Material Adverse Effect or a
McLeod Material Adverse Effect.
(g) ACCOUNTANT LETTERS. McLeod shall have received from Arthur Anderson,
its accountants, an opinion, satisfactory in form and substance to McLeod, to
the effect that the Merger may be treated as a "purchase" for accounting
purposes.
(h) EMPLOYMENT AGREEMENTS. McLeod shall have received executed copies of
Employment Agreements from the Company Key Employees.
(i) COMPANY MATERIAL ADVERSE EFFECT. Since August 31, 1998, there shall
not have occurred a Company Material Adverse Effect (or any development that,
insofar as reasonably can be foreseen, is reasonably likely to result in any
Company Material Adverse Effect) not disclosed in the Company Disclosure
Schedule.
(j) DUE DILIGENCE INVESTIGATION. McLeod shall have completed its due
diligence investigation of the Company and the Subsidiaries and shall have
determined (in McLeod's reasonable discretion) that no development has occurred
or information been discovered that has, or is reasonably likely to have, or
indicates a Company Material Adverse Effect.
(k) TAX OPINION. McLeod shall have received the opinion of Hogan &
Hartson L.L.P., counsel to McLeod, dated the Closing Date, to the effect that
the Merger and any other transactions contemplated herein, will not result in
taxation to McLeod or Pubco Sub under the Code. In rendering such opinion, Hogan
& Hartson L.L.P. shall require delivery of and rely upon the representation
letters delivered by McLeod, Pubco Sub and the Company substantially in the
forms of EXHIBIT D and EXHIBIT E hereto.
(l) ENVIRONMENTAL MATTERS. Any Environmental Reports shall indicate that
the Real Property does not contain any Hazardous Materials and is not subject to
any risk of contamination from any off-site Hazardous Materials, except to the
extent that the presence of any such Hazardous Materials or the risk of such
contamination would not have a Company Material Adverse Effect or a McLeod
Material Adverse Effect.
(m) BOARD APPROVAL. The principal terms of this Agreement shall have
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been approved and adopted by McLeod's Board of Directors in accordance with
applicable law and its Articles of Incorporation and Bylaws.
(n) INVESTMENT AGREEMENTS. McLeod shall have received from each Company
Stockholder that is to receive shares of McLeod Common Stock in the Merger a
duly executed and delivered Investment Agreement. The number of Company
Stockholders that are to receive shares of McLeod Common Stock in the Merger and
that are not "accredited investors" within the meaning of 501(a) under the
Securities Act shall not exceed thirty-five (35), and each Company Stockholder
that is not an accredited investor shall have such knowledge and experience in
financial and business matters, either alone or with an appropriate purchaser
representative that has been appointed by such Company Stockholder, that it is
capable of evaluating the merits and risks of the Merger and its investment in
the McLeod Common Stock.
SECTION 7.03. ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY.
The obligations of the Company to effect the Merger and the other
transactions contemplated herein are also subject to the satisfaction at or
prior to the Effective Time of the following conditions, any or all of which may
be waived by the Company, in whole or in part, to the extent permitted by
applicable Law:
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of McLeod and Pubco Sub contained in this Merger Agreement shall be
true and correct as of the date of this Merger Agreement and shall be true and
correct in all material respects (except that where any statement in a
representation or warranty expressly includes a standard of materiality, such
statement shall be true and correct in all respects giving effect to such
standard) as of the Effective Time as though made as of the Effective Time,
except that those representations and warranties which address matters only as
of a particular date shall remain true and correct in all material respects
(except that where any statement in a representation or warranty expressly
includes a standard of materiality, such statement shall be true and correct in
all respects giving effect to such standard) as of such date, and except (A) for
changes permitted or contemplated by this Merger Agreement or (B) in a
representation and warranty that does not expressly include a standard of
materiality, any untrue or incorrect statements therein that, considered in the
aggregate, do not indicate a McLeod Material Adverse Effect. The Company shall
have received a certificate of the chief executive officer or chief financial
officer of McLeod to that effect.
(b) AGREEMENTS AND COVENANTS. McLeod and Pubco Sub shall have performed
or complied in all material respects with all agreements and covenants required
by this Merger Agreement to be performed or complied with by them on or prior to
the Effective Time. The Company shall have received a certificate of the chief
executive officer or chief financial officer of McLeod and Pubco Sub to that
effect.
(c) OPINION OF COUNSEL. The Company shall have received from Bradley &
Riley, P.C. an opinion dated the Closing Date, in form usual and customary for
similar transactions and reasonably acceptable to the Company and McLeod.
(d) NO CHALLENGE. There shall not be pending any action, proceeding or
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investigation by any Governmental Entity (i) challenging or seeking material
damages in connection with the Merger or the conversion of Company Common Stock
into McLeod Common Stock pursuant to the Merger, or (ii) seeking to restrain or
prohibit the consummation of the Merger.
(e) TAX OPINION. The Company shall have received the opinion of Arthur
Anderson, its accountants, dated the Closing Date, to the effect that the
Merger, and any other transactions contemplated herein, will not result in
taxation to the Company or the Company Stockholders under the Code. In rendering
such opinion, Arthur Anderson shall require delivery of and rely upon the
representation letters delivered by McLeod, Pubco Sub and the Company
substantially in the forms of EXHIBIT D and EXHIBIT E hereto.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. TERMINATION.
This Merger Agreement may be terminated at any time (except where
otherwise indicated) prior to the Effective Time, whether before or after
approval of this Merger Agreement and the Merger by the Company Stockholders:
(a) by mutual written consent of McLeod and the Company;
(b) (i) by McLeod, if there has been a breach by the Company of any
of its representations, warranties, covenants or agreements contained in this
Merger Agreement, or any such representation and warranty shall have become
untrue, in any such case such that Section 7.02(a), Section 7.02(b) or Section
7.02(c) will not be satisfied and such breach or condition has not been cured
within ten (10) business days following receipt by the Company of written notice
of such breach;
(ii) by the Company, if there has been a breach by McLeod or
Pubco Sub of any of its representations, warranties, covenants or agreements
contained in this Merger Agreement, or any such representation and warranty
shall have become untrue, in any such case such that Section 7.03(a) or Section
7.03(b) will not be satisfied and such breach or condition has not been cured
within ten (10) business days following receipt by McLeod of written notice of
such breach;
(c) by McLeod, upon McLeod's determination, based on its due diligence
investigation and review of the Company and the Subsidiaries, that (i) there is,
or is reasonably likely to be, any material diminution in the benefits expected
to be derived by McLeod as a result of the transactions contemplated by this
Merger Agreement or (ii) any development has occurred or information been
discovered that has, or is reasonably likely to have, or that indicates a
Company Material Adverse Effect;
(d) by either McLeod or the Company if any decree, permanent injunction,
judgment, order or other action by any court of competent jurisdiction or any
Governmental Entity preventing or prohibiting consummation of the Merger shall
have become final and
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non-appealable;
(e) by either McLeod or the Company if the Agreement shall fail to
receive the requisite vote for approval and adoption by the Company Stockholders
at the Stockholders' Meeting;
(f) by either McLeod or the Company if the Merger shall not have been
consummated by February 15, 1999;; PROVIDED HOWEVER, that the right to terminate
this Merger Agreement under this Section 8.01(f) shall not be available to (i)
McLeod, where McLeod's willful failure to fulfill any obligation under this
Merger Agreement has been the cause of, or resulted in, the failure of the
Effective Time to occur on or before such date, or (ii) the Company, where the
Company's willful failure to fulfill any obligation under this Merger Agreement
has been the cause of, or resulted in, the failure of the Effective Time to
occur on or before such date; and
(g) by the Company if the average of the closing bid and ask price for
McLeod Common Stock quoted on the National Association of Securities Dealers'
Automated Quotation System on the Closing Date, as reported in the WALL STREET
JOURNAL, is $20.00 or less per share.
SECTION 8.02. EFFECT OF TERMINATION.
In the event of termination of this Merger Agreement by either McLeod or
the Company as provided in Section 8.01, this Merger Agreement shall forthwith
become void and there shall be no liability or obligation on the part of McLeod,
Pubco Sub or the Company or any of their respective directors or officers except
(i) as set forth in Sections 8.03 and 9.01 hereof, (ii) nothing herein shall
relieve any party from liability for any breach hereof, (iii) each party shall
be entitled to any remedies at law or in equity for such breach and (iv)
Sections 8.02 and 8.03 and Article IX shall remain in full force and effect and
survive any termination of this Merger Agreement.
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SECTION 8.03. EXPENSES.
All costs and expenses incurred in connection with this Merger Agreement
and the transactions contemplated hereby shall be paid by the party incurring
such expense. McLeod shall pay the applicable HSR filing fee.
SECTION 8.04. AMENDMENT.
This Merger Agreement may be amended by the parties hereto at any time
prior to the Effective Time; PROVIDED, HOWEVER, that, after approval of the
Merger by the Company Stockholders, no amendment may be made which would reduce
the amount or change the type of consideration into which each share of Company
Common Stock shall be converted pursuant to this Merger Agreement upon
consummation of the Merger. This Merger Agreement may not be amended except by
an instrument in writing signed by the parties hereto.
SECTION 8.05. EXTENSION; WAIVER.
At any time prior to the Effective Time, the parties hereto may (a)
extend the time for the performance of any of the obligations or other acts of
the other parties hereto, (b) waive any inaccuracies in the representations and
warranties contained herein or in any Document delivered pursuant hereto and (c)
subject to the proviso of Section 8.04, waive compliance with any of the
agreements or conditions contained herein. Any such extension or waiver shall be
valid if set forth in an instrument in writing signed by the party or parties to
be bound thereby. The failure of any party to assert any of its rights under
this Merger Agreement or otherwise shall not constitute a waiver of such rights.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company contained in this
Merger Agreement shall survive the Effective Time for a period of eighteen (18)
months, except for the representations and warranties contained in Sections
3.05, 3.16, 3.17 and 3.30, which shall survive until the expiration of the
statute of limitations. The representations and warranties of McLeod contained
in the Merger Agreement shall survive the Effective Time for a period of
eighteen (18) months. Notwithstanding anything herein to the contrary, any
representation, warranty, covenant or agreement that is the subject of a Claim
asserted in writing prior to the expiration of the applicable period set out
above, shall survive with respect to such Claim until the final resolution
thereof.
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SECTION 9.02. NOTICES.
All notices and other communications given or made pursuant hereto shall
be in writing and shall be deemed to have been duly given or made as of the date
delivered, mailed or transmitted if delivered personally, mailed by registered
or certified mail (postage prepaid, return receipt requested) or sent by
overnight courier (providing proof of delivery) to the parties at the following
addresses or sent by electronic transmission to the following telecopier numbers
(or at such other address or telecopy number for a party as shall be specified
by like notice):
(a) If to McLeod or Pubco Sub:
McLeodUSA Incorporated
McLeodUSA Technology Park
6400 C Street SW
PO Box 3177
Cedar Rapids, Iowa 52406-3177
Telecopier No.: (319) 298-7901
Attention: Randall Rings
Vice President, General Counsel and Secretary
With a copy (which shall not constitute notice) to:
Hogan & Hartson L.L.P.
Columbia Square
555 Thirteenth Street, N.W.
Washington, DC 20004
Telecopier No.: (202) 637-5910
Attention: Joseph G. Connolly, Jr.
(b) If to the Company:
Info America Phone Books, Inc.
5311 Clyde Park Avenue
Wyoming, MI 49509-9529
Telecopier No.:
Attention: John P. Morgan, President
With a copy (which shall not constitute notice) to:
Miller, Johnson, Snell & Cummiskey
250 Monroe Avenue NW, Suite 800
PO Box 306
Grand Rapids, MI 49501-0306
Telecopier No.: (616) 831-1701
Attention: Jeffrey B. Lawson
SECTION 9.03. HEADINGS.
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The headings contained in this Merger Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Merger Agreement.
SECTION 9.04. SEVERABILITY.
If any term or other provision of this Merger Agreement is invalid,
illegal or incapable of being enforced by any rule of Law or public policy, all
other conditions and provisions of this Merger Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Merger Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that transactions contemplated hereby are fulfilled to the extent
possible.
SECTION 9.05. ENTIRE AGREEMENT.
This Merger Agreement (together with the Exhibits, Schedules, the
Company Disclosure Schedule and the McLeod Disclosure Schedule and the other
Documents delivered pursuant hereto) and the Confidentiality Agreement (as
defined in Article X) constitute the entire agreement of the parties and
supersede all prior agreements and undertakings, both written and oral, among
the parties, or any of them, with respect to the subject matter hereof and,
except as otherwise expressly provided herein, are not intended to confer upon
any other Person any rights or remedies hereunder.
SECTION 9.06. ASSIGNMENT.
This Merger Agreement shall not be assigned by operation of Law or
otherwise.
SECTION 9.07. PARTIES IN INTEREST.
This Merger Agreement shall be binding upon and inure solely to the
benefit of each party hereto, and nothing in this Merger Agreement, express or
implied, other than the right to receive the consideration payable in the Merger
pursuant to Article II, is intended to or shall confer upon any other Person any
right, benefit or remedy of any nature whatsoever under or by reason of this
Merger Agreement.
SECTION 9.08. MUTUAL DRAFTING.
Each party hereto has participated in the drafting of this Merger
Agreement, which each party acknowledges is the result of extensive negotiations
between the parties.
SECTION 9.09. SPECIFIC PERFORMANCE.
In addition to any other remedies McLeod may have at law or in equity,
the Company hereby acknowledges that the Company Common Stock and the Company
and
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the Subsidiaries are unique, and that the harm to McLeod resulting from breaches
by the Company of its obligations cannot be adequately compensated by damages.
Accordingly, the Company agrees that McLeod shall have the right to have all
obligations, undertakings, agreements, covenants and other provisions of this
Merger Agreement specifically performed by the Company and that McLeod shall
have the right to obtain an order or decree of such specific performance in any
of the courts of the United States of America or of any state or other political
subdivision thereof.
SECTION 9.10. GOVERNING LAW.
This Merger Agreement shall be governed by, and construed in accordance
with, the Laws of the State of Iowa, regardless of the Laws that might otherwise
govern under applicable principles of conflicts of law.
SECTION 9.11. COUNTERPARTS.
This Merger Agreement may be executed and delivered in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed and delivered shall be deemed to be an original but all
of which taken together shall constitute one and the same agreement.
SECTION 9.12. CONFIDENTIALITY.
Except to the extent disclosure, filing, reporting or announcement of
this Merger Agreement is required by law, including by any rules or regulations
of any applicable governmental, regulatory or stock exchange agency or
authority, the existence and substance of this Merger Agreement shall remain
confidential until publically announced by McLeod. If the transactions
contemplated by this Merger Agreement are not consummated, McLeod agrees that it
will return to the Company, and the Company agrees that it will return to
McLeod, all records and other documents of the other then in that party's
possession and will not itself use, or disclose, directly or indirectly, to any
Business Information with respect to the other party or the business learned by
the party during the period between the date hereof and the termination of this
Merger Agreement. The term "Business Information" as used herein means all
information of a business or technical nature relevant to each party's business
that is not generally known to or by those persons generally knowledgeable about
such types of business. The foregoing shall survive the closing or any
termination of this Merger Agreement without limitation.
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ARTICLE X
DEFINITIONS
For purposes of this Merger Agreement, the following terms, and the
singular and plural thereof, shall have the meanings set forth below:
"AFFILIATE" means: (a) with respect to an individual, any member of such
individual's family; (b) with respect to an entity, any officer, director,
stockholder, partner or investor of or in such entity or of or in any Affiliate
of such entity; and (c) with respect to a Person, any Person which directly or
indirectly, through one or more intermediaries, Controls, is Controlled by, or
is under common Control with such person or entity.
"AFFILIATE" means, with respect to any Person, a Person that directly or
indirectly, through one or more intermediaries, Controls, is Controlled by, or
is under common Control with, such Person.
"AGREEMENT" means any legally binding concurrence of understanding and intention
between two or more Persons with respect to their relative rights and/or
obligations or with respect to a thing done or to be done (whether or not
conditional, executory, express, implied, in writing or meeting the requirements
of contract), including, without limitation, contracts, leases, promissory
notes, covenants, easements, rights of way, covenants, commitments, arrangements
and understandings.
"ARTICLES OF MERGER" is defined in Section 1.02.
"ASSETS" means assets of every kind and everything that is or may be available
for the payment of liabilities (whether inchoate, tangible or intangible),
including, without limitation, real and personal property.
"BENEFICIAL OWNER" means, with respect to any shares of Company Common Stock, a
Person who shall be deemed to be the beneficial owner of such shares (i) which
such Person or any of its affiliates or associates beneficially owns, directly
or indirectly, (ii) which such Person or any of its affiliates or associates (as
such term is defined in Rule 12b-2 under the Exchange Act) has, directly or
indirectly, (A) the right to acquire (whether such right is exercisable
immediately or subject only to the passage of time), pursuant to any Agreement
or upon the exercise of conversion rights, exchange rights, warrants or options,
or otherwise, or (B) the right to vote pursuant to any Agreement, (iii) which
are beneficially owned, directly or indirectly, by any other Persons with whom
such Person or any of its affiliates or associates has any Agreement for the
purpose of acquiring, holding, voting or disposing of any such shares, or (iv)
pursuant to Section 13(d) of the Exchange Act and any rules or regulations
promulgated thereunder.
"BUSINESS DAY" means a day other than a Saturday, a Sunday or any other day on
which commercial banks in the State of Michigan and in the State of Iowa are
authorized or obligated to be closed.
"BLUE SKY LAWS" means state securities or blue sky laws and the rules and
regulations thereunder.
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"CERTIFICATES" is defined in Section 2.02(b).
"CLOSING" is defined in Section 2.04.
"CLOSING DATE" is defined in Section 2.04.
"CODE" is defined in the Preamble to this Merger Agreement.
"COMMON CONTROL ENTITY" means any trade or business under common control (as
such term is defined in Section 414(b) or 414(c) of the Code) with the Company
or any Subsidiary.
"COMMON SHARE EXCHANGE RATIO" is defined in Section 2.01(a).
"COMPANY" is defined in the Preamble to this Merger Agreement.
"COMPANY COMMON STOCK" is defined in Section 2.01(a).
"COMPANY CONTRACTS" is defined in Section 3.14(a).
"COMPANY DISCLOSURE SCHEDULE" is defined in Article III.
"COMPANY KEY EMPLOYEES" is defined in Section 6.06.
"COMPANY LICENSES" is defined in Section 3.07(a).
"COMPANY MATERIAL ADVERSE EFFECT" means any event, change or effect that,
individually or when taken together with all other such events, changes or
effects, is or is reasonably likely to be materially adverse to the business,
operations, condition (financial or otherwise), Assets or liabilities of the
Company and the Subsidiaries, taken as a whole.
"COMPANY PREFERRED STOCK" is defined in Section 3.04.
"COMPANY STOCKHOLDERS" is defined in the Preamble to this Merger Agreement.
"COMPANY TAX RETURNS" means all Tax Returns required to be filed by the Company
or any of the Subsidiaries (without regard to extensions of time permitted by
law or otherwise).
"COMPETING TRANSACTION" is defined in Section 5.05(a).
"CONTROL" (including the terms "CONTROLLED BY" and "UNDER COMMON CONTROL WITH")
means, as used with respect to any Person, possession, directly or indirectly or
as a trustee or executor, of power to direct or cause the direction of
management or policies of such Person (whether through ownership of voting
securities, as trustee or executor, by Agreement or otherwise).
"DAMAGES" is defined in Section 6.10.
"DEFINED BENEFIT PLAN" means a Plan that is or was a "defined benefit plan" as
such term is defined in Section 3(35) of ERISA.
"DOCUMENTS" means any paper or other material (including, without limitation,
computer
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storage media) on which is recorded (by letters, numbers or other marks)
information that may be evidentially used, including, without limitation, legal
opinions, mortgages, indentures, notes, instruments, leases, Agreements,
insurance policies, reports, studies, financial statements (including, without
limitation, the notes thereto), other written financial information, schedules,
certificates, charts, maps, plans, photographs, letters, memoranda and all
similar materials.
"DOL" means the United States Department of Labor and its successors.
"EFFECTIVE TIME" is defined in Section 1.02.
"EMPLOYMENT AGREEMENTS" is defined in Section 6.06.
"ENCUMBRANCE" means any mortgage, lien, pledge, security interest, deed of
trust, option, encroachment, reservation, order, decree, judgment, condition,
restriction, charge, or Agreement of any kind.
"ENVIRONMENTAL LAWS" means any Laws (including, without limitation, the
Comprehensive Environmental Response, Compensation, and Liability Act),
including any plans, other criteria, or guidelines promulgated pursuant to such
Laws, now or hereafter in effect relating to Hazardous Materials generation,
production, use, storage, treatment, transportation or disposal, or noise
control, or the protection of human health or the environment.
"ENVIRONMENTAL REPORTS" is defined in Section 6.08.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended,
and all Laws promulgated pursuant thereto or in connection therewith.
"ESOP" means an "employee stock ownership plan" as such term is defined in
Section 407(d)(6) of ERISA or Section 4975(e)(7) of the Code.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and all
Laws promulgated pursuant thereto or in connection therewith.
"FCC" means the United States Federal Communications Commission and its
successors.
"FINANCIAL STATEMENTS" is defined in Section 3.08.
"GAAP" means United States generally accepted accounting principles.
"GOVERNMENTAL ENTITIES" (including the term "GOVERNMENTAL") means any
governmental, quasi-governmental or regulatory authority, whether domestic or
foreign.
"GROUP" is defined in Section 5.05(a).
"HAZARDOUS DISCHARGE" means any emission, spill, release or discharge (whether
on Real Property, on property adjacent to the Real Property, or at any other
location or disposal site) into or upon the air, soil or improvements, surface
water or groundwater, or the sewer, septic system, or waste treatment, storage
or disposal systems servicing the Real Property, in each case of Hazardous
Materials used, stored, generated, treated or disposed
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of at the Real Property.
"HAZARDOUS MATERIALS" means any wastes, substances, radiation or materials
(whether solids, liquids or gases) that are regulated by a Governmental Entity
or defined or listed by a Governmental Entity as hazardous, toxic, pollutants or
contaminants, including, without limitation, substances defined as "hazardous
wastes," "hazardous substances," "toxic substances," "radioactive materials," or
other similar designations in, or otherwise subject to regulation under, any
Environmental Laws. "HAZARDOUS MATERIALS" includes polychlorinated biphenyls
(PCBs), asbestos, lead-based paints, and petroleum and petroleum products
(including, without limitation, crude oil or any fraction thereof).
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and all Laws promulgated pursuant thereto or in connection therewith.
"INDIVIDUAL ACCOUNT PLAN" means a Plan that is or was an "individual account
plan" as such term is defined in Section 3(34) of ERISA.
"INTELLECTUAL PROPERTY" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, all rights to database
information, and all applications, registrations, and renewals in connection
therewith, (d) all moral rights, including all rights of paternity and
integrity, all rights to claim authorship of copyrightable works, to object to a
modification of copyrightable works, and all similar rights existing under the
judicial or statutory Law of any country in the world or under any treaty,
regardless of whether or not such right is denominated or generally referred to
as a "moral right," (e) all mask works and all applications, registrations, and
renewals in connection therewith, (f) all trade secrets and confidential
business information (including ideas, research and development, know-how,
formulas, compositions, manufacturing and production processes and techniques,
technical data, designs, drawings, specifications, customer and supplier lists,
pricing and cost information, and business and marketing plans and proposals),
(g) all computer software (including data and related documentation), (h) all
rights, including rights of privacy and publicity, to use the names, likenesses
and other personal characteristics of any individual, (i) all other proprietary
rights, and (j) all copies and tangible embodiments thereof (in whatever form or
medium) existing in any part of the world.
"INVENTORY" means all new materials, work in process and finished goods and
inventorable supplies.
"IRS" means the United States Internal Revenue Service and its successors.
"KNOWLEDGE" will be deemed to be present with respect to the Company and the
Subsidiaries or McLeod, when the matter in question was brought to the attention
of or, if due diligence had been exercised, would have been brought to the
attention of, any officer
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or responsible employee of the Company or any Subsidiary, on the one hand, or
McLeod, on the other hand.
"LAWS" means all foreign, federal, state and local statutes, laws, ordinances,
regulations, rules, resolutions, orders, tariffs, determinations, writs,
injunctions, awards (including, without limitation, awards of any arbitrator),
judgments and decrees applicable to the specified Person and to the businesses
and Assets thereof (including, without limitation, Laws relating to securities
registration and regulation; the sale, leasing, ownership or management of real
property; employment practices, terms and conditions, and wages and hours;
building standards, land use and zoning; safety, health and fire prevention; and
environmental protection, including Environmental Laws).
"LICENSE" means any franchise, grant, authorization, license, tariff, permit,
easement, variance, exemption, consent, certificate, approval or order of any
Governmental Entity.
"MCLEOD COMMON STOCK" is defined in Section 2.01.
"MCLEOD DISCLOSURE SCHEDULE" is defined in Article IV.
"MCLEOD MATERIAL ADVERSE EFFECT" means any event, change or effect that,
individually or when taken together with all other such events, changes or
effects, is or is reasonably likely to be materially adverse to the business,
operations, condition (financial or otherwise), Assets or liabilities of McLeod
and its subsidiaries, taken as a whole.
"MCLEOD POST-SIGNING SEC DOCUMENTS" is defined in Section 6.09.
"MCLEOD SEC DOCUMENTS" is defined in Section 4.07.
"MERGER" is defined in the Preamble to this Merger Agreement.
"MERGER AGREEMENT" is defined in the Preamble to this Merger Agreement.
"MERGER CONSIDERATION" is defined in Section 2.01(a).
"MINIMUM-FUNDING PLAN" means a Pension Plan that is subject to Title I, Subtitle
B, Part 3, of ERISA (concerning "funding").
"MULTIEMPLOYER PLAN" means a "multiemployer plan" as such term is defined in
Section 3(37) of ERISA.
"NASD" means the National Association of Securities Dealers, Inc.
"NET CASH REVENUE" means all contracted for revenue in the form of cash paid or
accounts receivable, including national revenue, but excluding cancellations,
promotional discounts, payment plan discounts, and any revenue traded for value
other than cash or accounts receivable.
"OTHER ARRANGEMENT" means a benefit program or practice providing for bonuses,
incentive compensation, vacation pay, severance pay, insurance, restricted
stock, stock options, employee discounts, company cars, tuition reimbursement or
any other perquisite or benefit (including, without limitation, any fringe
benefit under Section 132 of the Code) to
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employees, officers or independent contractors that is not a Plan.
"ORDINARY COURSE OF BUSINESS" means ordinary course of business consistent with
past practices and prudent business operations.
"PBGC" means the Pension Benefit Guaranty Corporation or its successors.
"PENSION PLAN" means an "employee pension benefit plan" as such term is defined
in Section 3(2) of ERISA.
"PERSON" means an individual, corporation, partnership, joint venture, trust,
unincorporated organization or other entity, or a Governmental Entity.
"PLAN" means any plan, program or arrangement, whether or not written, that is
or was an "employee benefit plan" as such term is defined in Section 3(3) of
ERISA and (a) which was or is established or maintained by the Company or any
Subsidiary; (b) to which the Company or any Subsidiary contributed or was
obligated to contribute or to fund or provide benefits; or (c) which provides or
promises benefits to any person who performs or who has performed services for
the Company or any Subsidiary and because of those services is or has been (i) a
participant therein or (ii) entitled to benefits thereunder.
"POST-SIGNING RETURNS" is defined in Section 5.03.
"PUBCO SUB" is defined in the Preamble to this Merger Agreement.
"QUALIFIED PLAN" means a Pension Plan that satisfies, or is intended by the
Company to satisfy, the requirements for Tax qualification described in Section
401 of the Code.
"REAL PROPERTY" means the real property owned, operated, or used by the Company
or any of the Subsidiaries as of December 31, 1996, and any additional real
property owned, operated, or used since that date, and, for purposes of Section
3.30, any real property formerly owned or operated by the Company or any of the
Subsidiaries.
"REVIEWED BALANCE SHEETS" is defined in Section 3.08(a).
"REVIEWED STATEMENTS" is defined in Section 3.08(a)
"SEC" means the United States Securities and Exchange Commission and its
successors.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and all Laws
promulgated pursuant thereto or in connection therewith.
"SIGNIFICANT SUBSIDIARY" means any subsidiary of McLeod disclosed in its most
recent Annual Report on Form 10-K, and any other subsidiary that would
constitute a "Significant Subsidiary" of McLeod within the meaning of Rule 1-02
of Regulation S-X of the SEC.
"STATUTORY-WAIVER PLAN" means a Pension Plan that is not subject to Title I,
Subtitle B, Part 3, of ERISA (concerning "funding").
"STOCKHOLDERS' MEETING" is defined in Section 6.02.
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"SUBSIDIARY" means a corporation, partnership, joint venture or other entity of
which the Company owns, directly or indirectly, at least 50% of the outstanding
securities or other interests the holders of which are generally entitled to
vote for the election of the board of directors or other governing body or
otherwise exercise Control of such entity.
"TAXES" (including the terms "TAX" and "TAXING") means all federal, state, local
and foreign taxes (including, without limitation, income, profit, franchise,
sales, use, real property, personal property, ad valorem, excise, employment,
social security and wage withholding taxes) and installments of estimated taxes,
assessments, deficiencies, levies, imports, duties, license fees, registration
fees, withholdings, or other similar charges of every kind, character or
description imposed by any Governmental Entity, and any interest, penalties or
additions to tax imposed thereon or in connection therewith.
"TAX RETURNS" means all federal, state, local, foreign and other applicable
returns, declarations, reports and information statements with respect to Taxes
required to be filed with the IRS or any other Governmental Entity or Tax
authority or agency, including, without limitation, consolidated, combined and
unitary tax returns.
"TITLE I PLAN" means a Plan that is subject to Title I of ERISA.
"TOTAL OUTSTANDING COMPANY SHARES" is defined in Section 2.01(a).
"UNAUDITED BALANCE SHEETS" is defined in Section 6.07.
"UNAUDITED FINANCIAL STATEMENTS" is defined in Section 6.07.
"WELFARE PLAN" means an "employee welfare benefit plan" as such term is defined
in Section 3(1) of ERISA.
"YEAR 2000 COMPLAINT" means that neither performance nor functionality is
affected by dates prior to, during or after the year 2000; in particular (i) no
value for current date will cause any interruption in operation; (ii) date-based
functionality must behave consistently for dates before, during and after the
year 2000; (iii) in all interfaces and data storage, the century in any date is
specified either explicitly or by unambiguous algorithms or inferencing rules;
and (iv) the year 2000 must be recognized as a leap year.
IN WITNESS WHEREOF, McLeod, Pubco Sub, the Company and the Principal
Company Stockholders have caused this Merger Agreement to be executed and
delivered as of the date first written above.
McLEODUSA INCORPORATED
By: /s/ Arthur L. Christoffersen
-------------------------------------
Arthur L. Christoffersen, Group Vice
President, Publishing Services
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PUBLICATION MERGE CO.
By: /s/ Arthur L. Christoffersen
-------------------------------------
Arthur L. Christoffersen, President
INFO AMERICA PHONE BOOKS, INC.
By: /s/ John P. Morgan
-------------------------------------
John P. Morgan, President
PRINCIPAL COMPANY STOCKHOLDERS
/s/ John P. Morgan
- -----------------------------------
JOHN P. MORGAN
/s/ Hendrik G. Meijer
- -----------------------------------
HENDRIK G. MEIJER
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Exhibit 4.9
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
MCLEODUSA INCORPORATED,
PUBCO MERGING CO.
and
TALKING DIRECTORIES, INC.
Dated as of January 7, 1999
<PAGE>
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER, dated this 10th
day of February, 1999, but to be effective as of January 7, 1999 (this "MERGER
AGREEMENT"), among McLeodUSA Incorporated, a Delaware corporation ("McLeod"),
Pubco Merging Co., an Iowa corporation ("PUBCO SUB") (a wholly-owned subsidiary
of McLeod), Talking Directories, Inc., a Michigan corporation (the "COMPANY"),
and each of the stockholders the Company listed as signatories to this Merger
Agreement (the "Principal Company Stockholders"), amends and restates the
Agreement and Plan of Merger between the parties hereto dated January 7, 1999;
WHEREAS, Pubco Sub, upon the terms and subject to the conditions of this
Merger Agreement and in accordance with the General Corporation Law of the State
of Iowa ("IOWA LAW"), will merge with and into the Company (the "MERGER"); and
WHEREAS, immediately after the Merger, the Company will be a
wholly-owned subsidiary of McLeod, and McLeod will transfer all of the stock of
the Company to Media Group, Inc., a wholly-owned subsidiary of McLeod, and Media
Group, Inc. will then transfer all of the stock of the Company to McLeodUSA
Publishing Company, an Iowa corporation, and an indirect wholly-owned subsidiary
of McLeod; and
WHEREAS, the Board of Directors of the Company has (i) determined that
the Merger is fair to the holders of Company Common Stock (as defined in Section
2.01(a)) and is in the best interests of such stockholders and (ii) approved and
adopted this Merger Agreement and the transactions contemplated hereby and
recommended approval and adoption of this Merger Agreement by the stockholders
of the Company (the "COMPANY STOCKHOLDERS"); and
WHEREAS, the Board of Directors of McLeod has determined that the Merger
is in the best interests of McLeod and the Board of Directors of Pubco Sub have
approved and adopted this Merger Agreement and the transactions contemplated
hereby; and
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a tax-free reorganization under the provisions of Section
368(a) of the United States Internal Revenue Code of 1986, as amended (the
"CODE");
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this Merger
Agreement, and intending to be legally bound hereby, the parties hereto agree as
follows.
ARTICLE I
THE MERGER
SECTION 1.01. THE MERGER.
Upon the terms and subject to the conditions set forth in this Merger
Agreement, and in accordance with Iowa Law, at the Effective Time (as defined in
Section 1.02 below) Pubco Sub shall be merged with and into the Company. As a
result of
<PAGE>
the Merger, the separate corporate existence of Pubco Sub shall cease and the
Company shall continue as the surviving corporation of the Merger (the
"SURVIVING CORPORATION").
Subsequent to the Merger, McLeod intends to cause all of the stock of
the Company to be transferred directly or indirectly to McLeodUSA Publishing
Company ("Pubco"), a wholly-owned subsidiary of Media Group, Inc., a
wholly-owned subsidiary of McLeod.
The parties hereto acknowledge that the Merger will be treated as a
purchase for accounting purposes.
SECTION 1.02. EFFECTIVE TIME.
Subject to the provisions of Section 2.04, as promptly as practicable
after the satisfaction or, if permissible, waiver of the conditions set forth in
Article VII below, the parties hereto shall cause the Merger to be consummated
by filing this Merger Agreement, articles of merger or other appropriate
Documents (as defined in Article X) (in any such case, the "ARTICLES OF MERGER")
with the Secretary of State of the States of Michigan and Iowa, in such form as
required by, and executed in accordance with the relevant provisions of,
Michigan Law and Iowa Law (the date and time of such filing being the "EFFECTIVE
TIME").
SECTION 1.03. EFFECT OF THE MERGER.
At the Effective Time, the effect of the Merger shall be as provided in
the applicable provisions of Michigan and Iowa Law. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time, all the
property, rights, privileges, powers and franchises of Pubco Sub and the Company
shall vest in the Surviving Corporation, and all debts, liabilities and duties
of Pubco Sub and the Company shall become the debts, liabilities and duties of
the Surviving Corporation.
SECTION 1.04. CERTIFICATE OF INCORPORATION; BYLAWS.
(a) Unless otherwise determined by McLeod prior to the Effective Time,
at the Effective Time the certificate of incorporation of the Company shall be
amended in its entirety to conform to the certificate of incorporation of Pubco
Sub in effect immediately prior to the Effective Time, and shall become the
certificate of incorporation of the Surviving Corporation, until thereafter
amended as provided by Law (as defined in Article X) and such certificate of
incorporation.
(b) Unless otherwise determined by McLeod prior to the Effective Time,
at the Effective Time the bylaws of the Company shall be amended in their
entirety to conform to the bylaws of Pubco Sub in effect immediately prior to
the Effective Time, and shall become the bylaws of the Surviving Corporation
until thereafter amended as provided by Law, the certificate of incorporation of
the Surviving Corporation and such bylaws.
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SECTION 1.05. DIRECTORS AND OFFICERS.
The directors of Pubco Sub immediately prior to the Effective Time shall
be the initial directors of the Surviving Corporation, each to hold office in
accordance with the certificate of incorporation and bylaws of the Surviving
Corporation, and the officers of Pubco Sub immediately prior to the Effective
Time shall be the initial officers of the Surviving Corporation, in each case
until their respective successors are duly elected or appointed and qualified.
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.01. CONVERSION OF SECURITIES.
At the Effective Time, as provided in this Merger Agreement, by virtue
of the Merger and without any action on the part of Pubco Sub, the Company or
the Company Stockholders:
(a) COMPANY COMMON SHARES. Each share of common stock, $1.00 par value
per share, of the Company ("COMPANY COMMON STOCK") issued and outstanding
immediately prior to the Effective Time (other than any shares of Company Common
Stock to be canceled pursuant to Section 2.01(c)), shall be converted, subject
to Section 2.02(e), into the right to receive that number of shares of Class A
common stock, par value $.01 per share, of McLeod ("MCLEOD COMMON STOCK") (the
"MERGER CONSIDERATION") determined by dividing 2,556,391 ($85,000,000 divided by
$33.25, the average of the closing bid and ask price for McLeod Common Stock
quoted on the National Association of Securities Dealers' Automated Quotation
System on the date hereof as reported in the WALL STREET JOURNAL) by the Total
Outstanding Company Shares (as defined below) (the "COMMON SHARE EXCHANGE
RATIO").
All such shares of Company Common Stock shall no longer be outstanding
and shall automatically be canceled and retired and shall cease to exist, and
each certificate previously representing any such shares shall thereafter
represent the right to receive (i) a certificate representing whole shares of
McLeod Common Stock into which such Company Common Stock was converted pursuant
to the Merger, and (ii) an amount in cash, without interest, in lieu of
fractional shares. No fractional share of McLeod Common Stock shall be issued,
and, in lieu thereof, a cash payment shall be made pursuant to Section 2.02(e)
hereof. In any event, if between the date of this Merger Agreement and the
Effective Time the outstanding shares of McLeod Common Stock shall have been
changed into a different number of shares or a different class, by reason of any
stock dividend, subdivision, reclassification, recapitalization, split,
combination or exchange of shares, the Common Share Exchange Ratio shall be
appropriately and correspondingly adjusted to reflect such stock dividend,
subdivision, reclassification, recapitalization, split, combination or exchange
of shares. As used in this Merger Agreement, the term "TOTAL OUTSTANDING COMPANY
SHARES" shall mean the aggregate number of shares of Company Common Stock issued
and outstanding immediately prior to the Effective Time (other than shares to be
canceled pursuant to Section 2.01(c)).
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(b) CANCELLATION AND RETIREMENT OF COMPANY COMMON STOCK. All such shares
of Company Common Stock referred to in Section 2.01(a) (other than any shares of
Company Common Stock to be canceled pursuant to Section 2.01(c)) shall no longer
be outstanding and shall automatically be canceled and retired and shall cease
to exist, and each certificate previously representing any such shares shall
thereafter represent the right to receive the Merger Consideration as described
in Section 2.01(a). The holders of certificates which prior to the Effective
Time represented shares of Company Common Stock shall cease to have any rights
with respect thereto except as otherwise provided herein or by Law.
(c) CANCELLATION OF TREASURY STOCK. Any shares of Company Common Stock
held in the treasury of the Company and any shares of Company Common Stock owned
by McLeod or any direct or indirect wholly owned subsidiary of McLeod or of the
Company immediately prior to the Effective Time shall be canceled and
extinguished without any conversion thereof and no payment shall be made with
respect thereto.
(d) PUBCO SUB COMMON STOCK. Each share of common stock, no par value per
share, of Pubco Sub issued and outstanding immediately prior to the Effective
Time shall be converted into and exchanged for one newly and validly issued,
fully paid and non-assessable share of common stock of the Surviving
Corporation.
SECTION 2.02. EXCHANGE OF CERTIFICATES.
(a) EXCHANGE. As of the Effective Time, McLeod shall deliver, or cause
to be delivered, (i) certificates representing the whole shares of McLeod Common
Stock issuable to the Company Stockholders pursuant to Section 2.01, and (ii)
cash in an amount sufficient to permit payment of the cash payable in lieu of
fractional shares pursuant to Section 2.02(e), to the holders of Company Common
Stock pursuant to Section 2.01.
(b) EXCHANGE PROCEDURES. At the Closing, a certificate or certificates
of Company Common Stock which immediately prior to the Effective Time
represented outstanding shares of Company Common Stock (the "CERTIFICATES")
shall be surrendered in exchange for certificates representing shares of McLeod
Common Stock. Upon surrender of a Certificate for cancellation to McLeod,
together with such other Documents as may be required, the holder of such
Certificate shall be entitled to receive in exchange therefor (i) a certificate
representing that number of whole shares of McLeod Common Stock which such
holder has the right to receive in respect of such Certificate (after taking
into account all shares of Company Common Stock then held by such holder under
all such Certificates so surrendered), together with any dividends or other
distributions to which such holder is entitled pursuant to Section 2.02(c), and
(ii) cash in lieu of fractional shares of McLeod Common Stock to which such
holder is entitled pursuant to Section 2.02(e). The Certificates so surrendered
shall forthwith be canceled. In the event of a transfer of ownership of shares
of Company Common Stock that is not registered in the transfer records of the
Company, the proper number of shares of McLeod Common Stock may be issued
pursuant hereto to a transferee if the Certificates representing such shares of
Company Common Stock, properly endorsed or otherwise in proper form for
transfer, are presented to McLeod, accompanied by all Documents required to
evidence and effect such transfer and by evidence that any applicable stock
transfer taxes have been paid. Until
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surrendered as contemplated by this Section 2.02, each Certificate shall be
deemed at any time after the Effective Time to represent only the right to
receive upon such surrender Merger Consideration issuable in exchange therefor,
together with any dividends or other distributions to which such holder is
entitled pursuant to Section 2.02(c). No interest will be paid or will accrue on
any cash payable pursuant to Sections 2.02(c) or 2.02(e).
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES OF MCLEOD COMMON
STOCK. No dividends or other distributions declared or made after the Effective
Time with respect to McLeod Common Stock with a record date after the Effective
Time shall be paid to the holder of any unsurrendered Certificate with respect
to the whole shares of McLeod Common Stock represented thereby until the holder
of such Certificate shall surrender such Certificate. Subject to the effect of
escheat, tax or other applicable Laws, following surrender of any such
Certificate, there shall be paid to the record holder of the certificates
representing whole shares of McLeod Common Stock issued in exchange therefor,
without interest, (i) promptly, the amount of any cash payable with respect to
(A) the shares of Company Common Stock formerly represented by such Certificate,
and (B) a fractional share of McLeod Common Stock to which such holder is
entitled pursuant to Section 2.02(e), and the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid with
respect to such whole shares of McLeod Common Stock, and (ii) at the appropriate
payment date, the amount of dividends or other distributions, with a record date
after the Effective Time but prior to surrender and a payment date occurring
after surrender, payable with respect to such whole shares of McLeod Common
Stock.
(d) NO FURTHER RIGHTS IN COMPANY COMMON STOCK. All shares of McLeod
Common Stock issued upon conversion of the shares of Company Common Stock in
accordance with the terms hereof (including any cash paid pursuant to Sections
2.02(c) or (e)) shall be deemed to have been issued and paid in full
satisfaction of all rights pertaining to such shares of Company Common Stock.
(e) NO FRACTIONAL SHARES. No fractional shares of McLeod Common Stock
shall be issued upon surrender for exchange of the Certificates, and any such
fractional share interests will not entitle the owner thereof to vote or to any
rights of a stockholder of McLeod, but in lieu thereof each holder of shares of
Company Common Stock who would otherwise be entitled to receive a fraction of a
share of McLeod Common Stock, after aggregating all Certificates delivered by
such holder, and rounding down to the nearest whole share, shall receive an
amount in cash equal to the denominator used in the Common Share Exchange Ratio
described in Section 2.01(a) above, multiplied by the fraction of a share of
McLeod Common Stock to which such holder would otherwise be entitled.
(f) Intentionally omitted.
(g) NO LIABILITY. None of McLeod, Pubco Sub, the Company, the Surviving
Corporation or the Principal Company Shareholders shall be liable to any Person
(as defined in Article X) for any shares of McLeod Common Stock (or dividends or
distributions with respect thereto) or cash delivered to a public official
pursuant to any abandoned property, escheat or similar Laws.
(h) LOST, STOLEN OR DESTROYED CERTIFICATES. If any certificate
evidencing
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shares of Company Common Stock shall have been lost, stolen or destroyed, McLeod
shall cause to be issued in exchange for such lost, stolen or destroyed
certificate, upon the making of an affidavit of that fact by the holder thereof,
such shares of McLeod Common Stock and cash, if any, as may be required pursuant
to this Article II; PROVIDED, HOWEVER, that McLeod may, in its reasonable
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate to deliver a bond in such
sum as it may reasonably direct as indemnity against any claim that may be made
against McLeod or the Surviving Corporation with respect to the certificate
alleged to have been lost, stolen or destroyed.
SECTION 2.03. STOCK TRANSFER BOOKS.
At the Effective Time, the stock transfer books of the Company shall be
closed and there shall be no further registration of transfers of shares of
Company Common Stock thereafter on the records of the Company. From and after
the Effective Time, the holders of certificates representing shares of Company
Common Stock outstanding immediately prior to the Effective Time shall cease to
have any rights with respect to such shares of Company Common Stock except as
otherwise provided herein or by Law. On or after the Effective Time, any
Certificates presented to McLeod for any reason shall be converted into shares
of McLeod Common Stock issuable in exchange therefor pursuant to Section
2.01(a), any dividends or other distributions to which the holders thereof are
entitled pursuant to Section 2.02(c) and any cash in lieu of fractional shares
of McLeod Common Stock to which the holders thereof are entitled pursuant to
Section 2.02(e).
SECTION 2.04. CLOSING.
Subject to the terms and conditions of this Merger Agreement, the
closing of the Merger (the "CLOSING") will take place on or before February 10,
1999, or as soon as practicable (but, in any event, within five (5) business
days) after satisfaction of the latest to occur or, if permissible, waiver of
the conditions set forth in Article VII hereof (the "CLOSING DATE"), at the
offices of Pubco, 201 Third Avenue SE, Suite 500, Cedar Rapids, Iowa 52401,
unless another date or place is agreed to in writing by the parties hereto.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as specifically set forth in the Disclosure Schedule delivered by
the Company to McLeod prior to the execution and delivery of this Merger
Agreement (the "COMPANY DISCLOSURE SCHEDULE") (the contents of which may be
updated or otherwise modified by the Company up to five (5) days prior to the
Closing Date), the Company hereby represents and warrants (which representation
and warranty shall be deemed to include the disclosures with respect thereto so
specified in the Company Disclosure Schedule) to, and covenants and agrees with,
McLeod and Pubco Sub as follows, in each case as of the date of this Merger
Agreement, unless otherwise specifically set forth herein or in the Company
Disclosure Schedule:
SECTION 3.01. ORGANIZATION AND STANDING.
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The Company is a corporation duly organized, validly existing and in
good standing under Michigan Law, and has the full and unrestricted corporate
power and authority to own, operate and lease its Assets (as defined in Article
X), to carry on its business as currently conducted, to execute and deliver this
Merger Agreement and to carry out the transactions contemplated hereby. The
Company is duly qualified to conduct business as a foreign corporation and is in
good standing in the states, countries and territories listed in Section 3.01 of
the Company Disclosure Schedule. The Company is not qualified to conduct
business in any other jurisdiction, and neither the nature of the business
conducted by the Company nor the character of the Assets owned, leased or
otherwise held by it makes any such qualification necessary, except where the
absence of such qualification as a foreign corporation would not have a Company
Material Adverse Effect (as defined in Article X). The Company has elected and
qualified as an S-corporation under the applicable provisions of the Code, and
such election remains in full force and effect.
SECTION 3.02. SUBSIDIARIES.
Except as set forth in Section 3.02 of the Company Disclosure Schedule,
the Company has no Subsidiaries (as defined in Article X) and neither the
Company nor any Subsidiary has any equity investment or other interest in, nor
has the Company or any Subsidiary made advances or loans to (other than for
customary credit extended to customers of the Company in the Ordinary Course of
Business (as defined in Article X) and reflected in the Financial Statements (as
defined in Section 3.08)), any corporation, association, partnership, joint
venture or other entity. Section 3.02 of the Company Disclosure Schedule sets
forth (a) the authorized capital stock or other equity interests of each direct
and indirect Subsidiary of the Company and the percentage of the outstanding
capital stock or other equity interests of each Subsidiary directly or
indirectly owned by the Company, and (b) the nature and amount of any such
equity investment, other interest or advance. All of such shares of capital
stock or other equity interests of Subsidiaries directly or indirectly held by
the Company have been duly authorized and validly issued and are outstanding,
fully paid and nonassessable. The Company directly, or indirectly through wholly
owned Subsidiaries, owns all such shares of capital stock or other equity
interests of the direct or indirect Subsidiaries free and clear of all
Encumbrances (as defined in Article X). Each Subsidiary is a corporation duly
organized, validly existing and in good standing under the Laws of its state or
jurisdiction of incorporation (as listed in Section 3.02 of the Company
Disclosure Schedule), and has the full and unrestricted corporate power and
authority to own, operate and lease its Assets and to carry on its business as
currently conducted. Each Subsidiary is duly qualified to conduct business as a
foreign corporation and is in good standing in the states, countries and
territories listed in Section 3.02 of the Company Disclosure Schedule. The
Subsidiaries are not qualified to conduct business in any other jurisdictions,
and neither the nature of their businesses nor the character of the Assets
owned, leased or otherwise held by them makes any such qualification necessary,
except where the absence of such qualification as a foreign corporation would
not have a Company Material Adverse Effect.
SECTION 3.03. CERTIFICATE OF INCORPORATION AND BYLAWS.
The Company has furnished to McLeod a true and complete copy of the
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certificate or articles of incorporation of the Company and of each Subsidiary,
as currently in effect, certified as of a recent date by the Secretary of State
(or comparable Governmental Entity (as defined in Article X)) of the respective
jurisdictions of incorporation, and a true and complete copy of the bylaws of
the Company and of each Subsidiary, as currently in effect, certified by their
respective corporate secretaries. Such certified copies are attached as exhibits
to, and constitute an integral part of, the Company Disclosure Schedule.
SECTION 3.04. CAPITALIZATION.
The authorized capital stock of the Company consists of 60,000 shares of
Company Common Stock, of which 40,000 shares are issued and outstanding, all of
which are duly authorized, validly issued, fully paid and nonassessable. Except
as described in this Section 3.04, no other shares of Company Common Stock have
been reserved for any purpose. There are no outstanding securities convertible
into or exchangeable for Company Common Stock, any other securities of the
Company, or any capital stock or other securities of any of the Subsidiaries and
no outstanding options, rights (preemptive or otherwise), or warrants to
purchase or to subscribe for any shares of such stock or other securities of the
Company or any of the Subsidiaries. Except as set forth in Section 3.04 of the
Company Disclosure Schedule, there are no outstanding Agreements (as defined in
Article X) affecting or relating to the voting, issuance, purchase, redemption,
registration, repurchase or transfer of Company Common Stock, any other
securities of the Company, or any capital stock or other securities of any
Subsidiary, except as contemplated hereunder. Since December 31, 1997, no shares
of Company Common Stock have been issued by the Company, except as set forth in
Section 3.04 of the Company Disclosure Schedule. Each of the outstanding shares
of Company Common Stock and of capital stock of, or other equity interests in,
the Subsidiaries was issued in compliance with all applicable federal and state
Laws concerning the issuance of securities, and such shares or other equity
interests owned by the Company or any Subsidiary are owned free and clear of all
Encumbrances. There are no obligations, contingent or otherwise, of the Company
or any Subsidiary to provide funds to, make any investment (in the form of a
loan, capital contribution or otherwise) in, or provide any guarantee with
respect to, any Subsidiary or any other Person. There are no Agreements pursuant
to which any Person is or may be entitled to receive any of the revenues or
earnings, or any payment based thereon or calculated in accordance therewith, of
the Company or any Subsidiary.
SECTION 3.05. AUTHORITY; BINDING OBLIGATION.
The execution and delivery by the Company of this Merger Agreement, the
execution and delivery by the Company and the Subsidiaries of all other
Documents contemplated hereby, and the consummation by the Company and the
Subsidiaries of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action, and no other corporate proceedings
on the part of the Company or the Subsidiaries are necessary to authorize this
Merger Agreement and the other Documents contemplated hereby, or to consummate
the transactions contemplated hereby and thereby, other than the approval and
adoption of this Merger Agreement by the holders of a majority of the
outstanding shares of Company Common Stock in accordance with Michigan Law and
the Company's certificate of incorporation and bylaws. This Merger
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Agreement has been duly executed and delivered by the Company and constitutes a
legal, valid and binding obligation of the Company, enforceable in accordance
with its terms, except as such enforceability may be subject to the effects of
any applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or similar Laws affecting creditors' rights generally and subject to
the effects of general equitable principles (whether considered in a proceeding
in equity or at law).
SECTION 3.06. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution, delivery and performance by the Company and the
Subsidiaries of this Merger Agreement and all other Documents contemplated
hereby, the fulfillment of and compliance with the respective terms and
provisions hereof and thereof, and the consummation by the Company and the
Subsidiaries of the transactions contemplated hereby and thereby, do not and
will not: (i) conflict with, or violate any provision of, the certificate of
incorporation or bylaws of the Company or the certificate or articles of
incorporation or bylaws of any Subsidiary; (ii) subject to (A) obtaining the
requisite approval and adoption of this Merger Agreement by the holders of a
majority of the outstanding shares of Company Common Stock in accordance with
Michigan Law and the Company's certificate of incorporation and bylaws and (B)
obtaining the consents, approvals, authorizations and permits of, and making
filings with or notifications to, the applicable Governmental Entity, including
pursuant to the applicable requirements, if any, of the HSR Act, and the filing
and recordation of the Articles of Merger as required by Michigan Law, conflict
with or violate any Law applicable to the Company or any Subsidiary, or any of
their respective Assets; (iii) subject to obtaining the consents and approvals
set forth in Section 3.06(b) of the Company Disclosure Schedule, conflict with,
result in any breach of, or constitute a default (or an event that with notice
or lapse of time or both would become a default) under any Agreement to which
the Company or any Subsidiary is a party or by which the Company or any
Subsidiary, or any of their respective Assets, may be bound; or (iv) except as
disclosed in Section 3.06(b) of the Company Disclosure Schedule, result in or
require the creation or imposition of, or result in the acceleration of, any
indebtedness or any Encumbrance of any nature upon, or with respect to, the
Company or any Subsidiary or any of the Assets now owned or hereafter acquired
by the Company or any Subsidiary; except for any such conflict or violation
described in clause (ii), any such conflict, breach or default described in
clause (iii), or any such creation, imposition or acceleration described in
clause (iv) that would not have a Company Material Adverse Effect and that would
not prevent the Company from consummating the Merger on a timely basis.
(b) Except as set forth in Section 3.06(b) of the Company Disclosure
Schedule, the execution, delivery and performance by the Company and the
Subsidiaries of this Merger Agreement and all other Documents contemplated
hereby, the fulfillment of and compliance with the respective terms and
provisions hereof and thereof, and the consummation by the Company and the
Subsidiaries of the transactions contemplated hereby and thereby, do not and
will not: (i) require any consent, approval, authorization or permit of, or
filing with or notification to, any Person not party to this Merger Agreement,
except (A) the approval and adoption of this Merger Agreement by the holders of
a majority of the outstanding shares of Company Common Stock in accordance with
Law and the Company's certificate of incorporation and bylaws, (B) the filing
and recordation of the
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Articles of Merger as required by Law; or (ii) result in or give rise to any
penalty, forfeiture, Agreement termination, right of termination, amendment or
cancellation, or restriction on business operations of McLeod, the Company, the
Surviving Corporation or any Subsidiary that would have a Company Material
Adverse Effect. Section 3.06(b) of the Company Disclosure Schedule lists all
Agreements that reasonably could be interpreted or expected to require the
consent or acquiescence of any Person not party to this Merger Agreement with
respect to any aspect of the execution, delivery or performance of this Merger
Agreement by the Company and the Subsidiaries, except where failure to obtain
such consent or acquiecense would not have a Company Material Adverse Effect.
SECTION 3.07. LICENSES; COMPLIANCE.
(a) Each of the Company and each Subsidiary is in possession of all
Licenses (as defined in Article X) necessary for the Company or any Subsidiary
to own, lease and operate its Assets or to carry on its business as it is now
being conducted (the "COMPANY LICENSES"), except where the failure to possess
any such Company License would not have a Company Material Adverse Effect. All
Company Licenses are valid and in full force and effect through the respective
dates indicated in the Company Disclosure Schedule, except for any such
invalidity or failure to be in full force and effect that would not, alone or in
the aggregate, have a Company Material Adverse Effect, and no suspension,
cancellation, complaint, proceeding, order or investigation of or with respect
to any Company License (or operations thereunder) is pending or, to the
knowledge of the Company or any Subsidiary, threatened. Neither the Company nor
any Subsidiary is in violation of or default under any Company License, except
for any such violation or default that would not have a Company Material Adverse
Effect. Except as set forth in Section 3.07(a) of the Company Disclosure
Schedule, since December 31, 1996, neither the Company nor any Subsidiary has
received written or, to the knowledge of the Company or any Subsidiary, oral
notice from any Governmental Entity or any other Person of any allegation of any
such violation or default under a Company License.
(b) Neither the Company nor any Subsidiary is in violation of or default
under, nor has it breached, (i) any term or provision of its certificate or
articles of incorporation or bylaws or (ii) any Agreement or restriction to
which the Company or any Subsidiary is a party or by which the Company or any
Subsidiary, or any of their respective Assets, is bound or affected, except for
any such violation, default or breach described in clause (ii) that would not
have a Company Material Adverse Effect. The Company and the Subsidiaries have
complied and are in full compliance with all Laws, except where the failure so
to comply would not have a Company Material Adverse Effect.
(c) All returns, reports, statements and other Documents required to be
filed by the Company or any Subsidiary with any Governmental Entity have been
filed and complied with and are true, correct and complete in all material
respects (and any related fees required to be paid have been paid in full). To
the knowledge of the Company and the Subsidiaries, all records of every type and
nature relating to the Company Licenses or the business, operations or Assets of
the Company or any Subsidiary have been maintained in all material respects in
accordance with good business practices and the rules of any Governmental Entity
and are maintained at the Company or the appropriate Subsidiary.
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(d) Except as provided in Section 3.07(a) of the Company Disclosure
Schedule, neither the Company nor any Subsidiary has any interest in any License
(including both any Company License and any License held by third parties in
which the Company or any Subsidiary has an interest) that is subject to
restrictions on assignment or transfer based on the circumstances under which
the License was granted (such as eligibility or auction rules), the status of
construction and operation (such as rules restricting resale for a certain
period after construction), or any other restrictions other than an ordinary
course requirement for prior approval of transactions such as the Merger
contemplated herein.
(e) Neither the Company nor any Subsidiary is aware of any fact or
circumstance related to them that could reasonably be expected to cause the
filing of any objection to any application for any Governmental consent required
hereunder, lead to any delay in processing such application, or require any
waiver of any Governmental rule, policy or other applicable Law.
SECTION 3.08. FINANCIAL STATEMENTS.
(a) The Company has prepared a consolidated balance sheet of the Company
and the Subsidiaries as of the end of the fiscal year ending in 1997, (the
"REVIEWED BALANCE SHEET") and the related consolidated statement of income,
shareholders' equity and cash flows of the Company and the Subsidiaries for such
fiscal year (the Balance Sheet and such consolidated statement of income,
shareholders' equity and cash flows are hereinafter referred to collectively as
the "REVIEWED STATEMENT"), in each case, reviewed by Arthur Anderson in
accordance with generally accepted auditing standards and accompanied by the
related report of Arthur Anderson. A true and complete copy of each of the
Reviewed Statement has been delivered to McLeod and is attached as an exhibit
to, and constitute an integral part of, the Company Disclosure Schedule. The
Company has also prepared unaudited consolidated balance sheets of the Company
and the Subsidiaries as of the last day of each month ending after January 1,
1998 (including the unaudited consolidated balance sheets to be furnished to
McLeod pursuant to Section 6.07, the "UNAUDITED BALANCE SHEETS") and the
unaudited consolidated statements of income and cash flows of the Company and
the Subsidiaries for the one-month periods then ended (the Unaudited Balance
Sheets and such statements of income and cash flows, including the unaudited
consolidated statements of income and cash flows to be furnished to McLeod
pursuant to Section 6.07, are hereinafter referred to collectively as the
"UNAUDITED STATEMENTS" and, together with the Reviewed Statements, as the
"FINANCIAL STATEMENTS").
(b) The Financial Statements, including, without limitation, the notes
thereto, (i) are complete and correct in all material respects, (ii) have been
prepared in accordance with the books and records of the Company and the
Subsidiaries, and (iii) present fairly the consolidated financial position of
the Company and the Subsidiaries and their consolidated results of operations
and cash flows as of and for the respective dates and time periods in accordance
with GAAP applied on a basis consistent with prior accounting periods, except as
noted thereon and subject to, in the case of the Unaudited Statements, normal
and recurring year-end adjustments which were not or are not expected to be
material in amount. All changes in accounting methods (for financial accounting
purposes) made, agreed to, requested or required with respect to the Company
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or any of the Subsidiaries since August 31, 1998 are reflected in the Financial
Statements.
SECTION 3.09. ABSENCE OF UNDISCLOSED LIABILITIES.
Except as described in Section 3.09 of the Company Disclosure Schedule,
there are no liabilities or obligations (whether absolute or contingent, matured
or unmatured, known or unknown) of the Company or any Subsidiary, including but
not limited to liabilities for Taxes (as defined in Article X), of a nature
required by GAAP to be reflected, or reserved against, in the Financial
Statements and that are not so reflected, or reserved against, in the Financial
Statements. Except as described in Section 3.09 of the Company Disclosure
Schedule, since August 31, 1998, neither the Company nor any Subsidiary has
incurred any liabilities or obligations (whether absolute or contingent, matured
or unmatured, known or unknown) other than in the Ordinary Course of Business
(as defined in Article X).
SECTION 3.10. ABSENCE OF CERTAIN CHANGES OR EVENTS.
Other than as set forth in Section 3.10 to the Company Disclosure
Schedule, since August 31, 1998, there has been no material adverse change, and
no change except in the Ordinary Course of Business, in the business,
operations, prospects, condition (financial or otherwise), Assets or liabilities
of the Company or any Subsidiary. Except as set forth in Section 3.10 to the
Company Disclosure Schedule, since August 31, 1998, the Company and the
Subsidiaries have conducted their respective businesses substantially in the
manner theretofore conducted and only in the Ordinary Course of Business, and
neither the Company nor any Subsidiary has (a) incurred any material damage,
destruction or loss not covered by insurance with respect to any Assets of the
Company or of any such Subsidiary; (b) issued any capital stock or other equity
securities or granted any options, warrants or other rights calling for the
issuance thereof; (c) issued any bonds or other long-term debt instruments,
granted any options, warrants or other rights calling for the issuance thereof,
or borrowed any funds; (d) incurred, or become subject to, any material
obligation or liability (whether absolute or contingent, matured or unmatured,
known or unknown), except current liabilities incurred in the Ordinary Course of
Business; (e) discharged or satisfied any Encumbrance or paid any material
obligation or liability (whether absolute or contingent, matured or unmatured,
known or unknown) other than current liabilities shown in the Unaudited Balance
Sheets (as defined in Section 6.08) and current liabilities incurred since
August 31, 1998, in the Ordinary Course of Business; (f) declared or made
payment of, or set aside for payment, any dividends or distributions of any
Assets, or purchased, redeemed or otherwise acquired any of its capital stock,
any securities convertible into capital stock, or any other securities; (g)
mortgaged, pledged or subjected to any Encumbrance any of its material Assets;
(h) sold, exchanged, transferred or otherwise disposed of any of its material
Assets, or canceled any debts or claims, except in each case in the Ordinary
Course of Business; (i) written down the value of any Assets or written off as
uncollectable any debt, notes or accounts receivable, except to the extent
previously reserved against in the Financial Statements and not material in
amount, and except for write-downs and write-offs in the Ordinary Course of
Business, none of which, individually or in the aggregate, are material; (j)
entered into any transactions other than in the Ordinary Course of Business; (k)
except in the Ordinary Course of Business, increased the rate of compensation
payable, or to become payable, by it to any of its
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officers, employees, agents or independent contractors over the rate being paid
to them on August 31, 1998, (l) made or permitted any amendment or termination
of any material Agreement to which it is a party; (m) through negotiation or
otherwise made any commitment or incurred any liability to any labor
organization; (n) made any accrual or arrangement for or payment of bonuses or
special compensation of any kind to any director, officer or employee, except
for any accrual or arrangement for or payment of bonuses or special compensation
in the Ordinary Course of Business to employees who are not directors or
officers; (o) directly or indirectly paid any severance or termination pay in
excess of two months' salary to any officer or employee with an annual salary in
excess of $60,000; (p) made capital expenditures, or entered into commitments
therefor, not provided for in the Company's capital budget for 1998 (a copy of
which has been furnished by the Company to McLeod) or, if applicable, the
Company's capital budget for 1999 (which capital budget shall have been approved
by McLeod as provided in Section 5.01(i)), except for capital expenditures
permitted by Section 5.01; (q) made any change in any method of accounting or
accounting practice except as required by GAAP; (r) entered into any transaction
of the type described in Section 3.19; (s) made any charitable contributions or
pledges exceeding $10,000 individually or $100,000 in the aggregate; or (t) made
any Agreement to do any of the foregoing. At the Closing, the Company shall
deliver to McLeod an updated Section 3.10 to the Company Disclosure Schedule in
accordance with the provisions of Section 6.04.
SECTION 3.11. LITIGATION; DISPUTES.
(a) Except as disclosed in Section 3.11(a) of the Company Disclosure
Schedule, there are no actions, suits, claims, arbitrations, proceedings or
investigations pending or, to the knowledge of the Company or any Subsidiary,
threatened against, affecting or involving the Company or any Subsidiary or
their respective businesses or Assets, or the transactions contemplated by this
Merger Agreement, at law or in equity, or before or by any court, arbitrator or
Governmental Entity, domestic or foreign. Neither the Company nor any Subsidiary
is (i) operating under or subject to any order (except for orders that Persons
similarly situated, engaged in similar businesses and owning similar Assets are
operating under or subject to), award, writ, injunction, decree or judgment of
any court, arbitrator or Governmental Entity, or (ii) in default with respect to
any order, award, writ, injunction, decree or judgment of any court, arbitrator
or Governmental Entity.
(b) Except as set forth in Section 3.11(b) of the Company Disclosure
Schedule, neither the Company nor any Subsidiary is currently involved in, or to
the knowledge of the Company or any Subsidiary, reasonably anticipates any
dispute with, any of its current or former employees, agents, brokers,
distributors, vendors, customers, business consultants, franchisees,
franchisors, representatives or independent contractors (or any current or
former employees of any of the foregoing Persons) affecting the business or
Assets of the Company or any Subsidiary, except for any such disputes that, if
resolved adversely to the Company or any Subsidiary, would not have a Company
Material Adverse Effect.
SECTION 3.12. DEBT INSTRUMENTS.
Section 3.12 of the Company Disclosure Schedule lists all mortgages,
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indentures, notes, guarantees and other Agreements for or relating to borrowed
money (including, without limitation, conditional sales agreements and capital
leases) to which the Company or any Subsidiary is a party or which have been
assumed by the Company or any Subsidiary or to which any Assets of the Company
or any Subsidiary are subject and, with respect to each such Agreement so
listed, briefly describes the principal amount, interest rate, original and
maturity dates and any sinking fund installments, prepayment premiums,
restrictive covenants and any other material provisions. With respect to the
Documents listed on Section 3.12 of the Company Disclosure Schedule, the Company
and the Subsidiaries have performed all the obligations required to be performed
by any of them to date and are not in default in any respect under any of the
foregoing, and there has not occurred any event which (whether with or without
notice, lapse of time or the happening or occurrence of any other event) would
constitute such a default, except for any failure so to perform or any such
default that would not have a Company Material Adverse Effect.
SECTION 3.13. LEASES.
Section 3.13 of the Company Disclosure Schedule lists all leases and
other Agreements with a term in excess of one (1) year or requiring payments in
excess of $5,000 in the aggregate over its term under which the Company or any
Subsidiary is the lessee or lessor of any Asset, or holds, manages or operates
any Asset owned by any third party, or under which any Asset owned by the
Company or by any Subsidiary is held, operated or managed by a third party. The
Company and the Subsidiaries are the owners and holders of all the leasehold
estates purported to be granted to them by the Documents listed in Section 3.13
of the Company Disclosure Schedule. Each such lease and other Agreement is in
full force and effect and constitutes a legal, valid and binding obligation of,
and is legally enforceable against, the respective parties thereto and grants
the leasehold estate it purports to grant free and clear of all Encumbrances.
The Company and the Subsidiaries have in all respects performed all material
obligations thereunder required to be performed by any of them to date. To the
knowledge of the Company, no party is in default in any material respect under
any of the foregoing, and there has not occurred any event which (whether with
or without notice, lapse of time or the happening or occurrence of any other
event) would constitute such a default. All of the Assets subject to such leases
and other Agreements are in a condition adequate for the uses to which they are
currently being used.
SECTION 3.14. OTHER AGREEMENTS; NO DEFAULT.
(a) Section 3.14(a) of the Company Disclosure Schedule lists each
Agreement to which the Company or any Subsidiary is a party or by which the
Company or any Subsidiary, or any of their respective Assets, is bound, and
which is:
(i) an Agreement with a term in excess of one (1) year or
requiring payments in excess of $5,000 in any twelve (12) month period
or $10,000 in the aggregate over its term for the employment of any
director, officer, employee, consultant or independent contractor, or
providing for severance payments to any such director, officer,
employee, consultant or independent contractor;
(ii) a license Agreement or distributor, dealer, sales
representative,
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sales agency, advertising, property management or brokerage Agreement
involving an annual payment in excess of $25,000;
(iii) an Agreement for the future purchase of materials,
supplies, services, merchandise or equipment involving payments of more
than $25,000 over its remaining term (including, without limitation,
periods covered by any option to renew by any party);
(iv) an Agreement for the purchase, sale or lease of any Asset
with a purchase or sale price or aggregate rental payment in excess of
$25,000;
(v) a profit-sharing, bonus, incentive compensation, deferred
compensation, stock option, severance pay, stock purchase, employee
benefit, insurance, hospitalization, pension, retirement or other
similar plan or Agreement;
(vi) an Agreement for the sale of any of its Assets or services
or the grant of any preferential rights to purchase any of its Assets,
services or rights, other than in the Ordinary Course of Business;
(vii) an Agreement that contains any provisions requiring the
Company or any Subsidiary to indemnify any other party;
(viii) a joint venture Agreement or other Agreement involving
the sharing of revenues or profits;
(ix) an Agreement with an Affiliate (as defined in Article X) of
the Company or any Subsidiary;
(x) an Agreement (including, without limitation, an Agreement
not to compete and an exclusivity Agreement) that reasonably could be
interpreted to impose any material restriction on the business or
operations of the Company or any Subsidiary, or any of their respective
Affiliates, prior to the Effective Time, or on the business or
operations of McLeod or any of its Affiliates after the Effective Time;
(xi) an Agreement material to the Company and its Subsidiaries
not otherwise described in this Section 3.14(a) which by its terms does
not terminate or is not terminable by the Company or by a Subsidiary
within thirty (30) days or upon thirty (30) days' (or less) notice;
(xii) an Agreement with any Governmental Entity;
(xiii) an Agreement with any of the twenty (20) largest
customers of the Company and the Subsidiaries, taken as a whole (based
on amounts billed), for each of (A) the year ended December 31, 1997 and
(B) the period from January 1, 1998 through the date of this Merger
Agreement;
(xiv) an Agreement to provide any customer with free listings or
advertisements or service at rates departing from the standard rate
schedules other than in the Ordinary Course of Business; or
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(xv) any other Agreement (A) that is material to the Company and
the Subsidiaries, taken as a whole, or the conduct of their businesses
or operations, or (B) the absence of which would have a Company Material
Adverse Effect,
(the foregoing Agreements referred to herein as the "COMPANY CONTRACTS"). The
Company has furnished McLeod with true and complete copies of each written
Company Contract (including any amendments thereto) and a complete written
summary of each oral Company Contract.
(b) Each Company Contract is in full force and effect and constitutes a
legal, valid and binding obligation of, and is legally enforceable against, the
respective parties thereto. All necessary approvals of any Governmental Entity
with respect thereto have been obtained (except where the failure so to obtain
any such approval would not have a Company Material Adverse Effect), all
necessary filings or registrations therefor have been made, and there are no
outstanding disputes thereunder and, to the knowledge of the Company or any
Subsidiary, no threatened cancellation or termination thereof. The Company and
the Subsidiaries have performed all material obligations thereunder required to
be performed by any of them to date. To the knowledge of the Company and the
Subsidiaries, no party is in default in any material respect under any of the
Company Contracts, and there has not occurred any event which (whether with or
without notice, lapse of time or the happening or occurrence of any other event)
would constitute such a default. No Agreement has been canceled or otherwise
terminated within the twelve (12) months prior to the date of this Merger
Agreement which would have been a "Company Contract" had such Agreement not been
canceled or terminated and the cancellation or termination of which has had or
is reasonably likely to have a Company Material Adverse Effect. Except as
specifically described in Section 3.14(a) of the Company Disclosure Schedule,
there has been no written or oral modification or amendment to any Company
Contract and there are no reasonably expected changes to any Company Contract.
At the Closing, the Company shall deliver to McLeod an updated Section 3.14(a)
to the Company Disclosure Schedule in accordance with the provisions of Section
6.04.
SECTION 3.15. LABOR RELATIONS.
Section 3.15(a) of the Company Disclosure Schedule lists all collective
bargaining or other labor union Agreements to which the Company or any
Subsidiary is a party. There are no strikes or work stoppages, or, to the
knowledge of the Company, union organization efforts or other controversies
(other than grievance proceedings) pending, threatened or reasonably anticipated
between the Company or any Subsidiary and (a) any current or former employees of
the Company or of any Subsidiary or (b) any union or other collective bargaining
unit representing such employees. The Company and the Subsidiaries have complied
and are in compliance with all Laws relating to employment or the workplace,
including, without limitation, Laws relating to wages, hours, collective
bargaining, safety and health, work authorization, equal employment opportunity,
immigration, withholding, unemployment compensation, worker's compensation,
employee privacy and right to know, except where the failure so to comply would
not have a
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Company Material Adverse Effect. Except as set forth in Section 3.15(b) of the
Company Disclosure Schedule, neither the Company nor any Subsidiary has been
notified by any Governmental Agency or counsel to any claimant of any unresolved
violation or alleged violation of any Law relating to equal employment
opportunity, civil or human rights, or employment discrimination generally.
Except as set forth in Section 3.15(c) to the Company Disclosure Schedule, there
are no collective bargaining Agreements, employment Agreements between the
Company or any Subsidiary and any of their respective employees, or professional
service Agreements not terminable at will relating to the businesses and Assets
of the Company or of any Subsidiary. Except as set forth in Section 3.15(d) to
the Company Disclosure Schedule, the consummation of the transactions
contemplated hereby will not cause McLeod, the Surviving Corporation, the
Company or any Subsidiary to incur or suffer any liability relating to, or
obligation to pay, severance, termination or other payments to any Person.
SECTION 3.16. PENSION AND BENEFIT PLANS.
(a) Except as set forth in Section 3.16(a) to the Company Disclosure
Schedule, neither the Company nor any Subsidiary (i) maintains or during the
past six (6) years has maintained any Plan (as defined in Article X) or Other
Arrangement (as defined in Article X), (ii) is or during the past six (6) years
has been a party to any Plan or Other Arrangement, or (iii) has obligations
under any Plan or Other Arrangement.
(b) The Company has furnished to McLeod true and complete copies of each
of the following Documents: (i) the Documents setting forth the terms of each
Plan; (ii) all related trust Agreements or annuity Agreements (and any other
funding Document) for each Plan; (iii) for the three (3) most recent plan years,
all annual reports (Form 5500 series) on each Plan that have been filed with any
Governmental Entity; (iv) the current summary plan description and subsequent
summaries of material modifications for each Title I Plan (as defined in Article
X); (v) all DOL (as defined in Article X) opinions on any Plan; (vi) all
correspondence with the PBGC (as defined in Article X) on any Plan exchanged
during the past three (3) years; (vii) all IRS (as defined in Article X)
rulings, opinions or technical advice relating to any Plan and the current IRS
determination letter issued with respect to each Qualified Plan (as defined in
Article X); and (viii) all current Agreements with service providers or
fiduciaries for providing services on behalf of any Plan. For each Other
Arrangement, the Company has furnished to McLeod true and complete copies of
each policy, Agreement or other Document setting forth or explaining the current
terms of the Other Arrangement, all related trust Agreements or other funding
Documents (including, without limitation, insurance contracts, certificates of
deposit, money market accounts, etc.), all significant employee communications,
all correspondence with or other submissions to any Governmental Entity, and all
current Agreements with service providers or fiduciaries for providing services
on behalf of any Other Arrangement.
(c) No Plan is a Multiemployer Plan (as defined in Article X).
(d) Section 3.16(d) of the Company Disclosure Schedule sets forth each
Individual Account Plan (as defined in Article X) that is an ESOP (as defined in
Article X) (indicating whether such ESOP is leveraged) or otherwise invests in
employer securities (as such term is defined in Section 409(l) of the Code). The
Company has furnished to
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McLeod true and complete copies of all loan Agreements and other related
Documents for each leveraged ESOP.
(e) The funding method used under each Minimum-Funding Plan (as defined
in Article X) does not violate the funding requirements in Title I, Subtitle B,
Part 3, of ERISA (as defined in Article X). For each Defined Benefit Plan (as
defined in Article X), the Company has furnished to McLeod a true and complete
copy of the actuarial valuation reports issued by the actuaries of that Defined
Benefit Plan for the three (3) most recent plan years, setting forth: (i) the
actuarial present value (based upon the same actuarial assumptions as were used
for that period for funding purposes) of all vested and nonvested accrued
benefits under that Defined Benefit Plan; (ii) the actuarial present value
(based upon the same actuarial assumptions, other than turnover assumptions, as
were used for that period for funding purposes) of vested benefits under that
Defined Benefit Plan; (iii) the net fair market value of that Defined Benefit
Plan's Assets; and (iv) a detailed description of the funding method used under
that Defined Benefit Plan.
(f) No "accumulated funding deficiency" as defined in Section 302(a)(2)
of ERISA or Section 412 of the Code, whether or not waived, and no "unfunded
current liability" as determined under Section 412(l) of the Code exists with
respect to any Minimum-Funding Plan. No security is required under Section
401(a)(29) of the Code as to any Minimum-Funding Plan. Section 3.16(f) of the
Company Disclosure Schedule sets forth all unpaid obligations and liabilities of
the Company and the Subsidiaries to provide contributions currently due with
respect to any Minimum-Funding Plan.
(g) Section 3.16(g) of the Company Disclosure Schedule sets forth the
contributions that (i) the Company or any Subsidiary has promised or is
otherwise obligated to make under each Individual Account Plan that is a
Statutory-Waiver Plan (as defined in Article X) and (ii) are unpaid as of the
date of this Merger Agreement.
(h) The Company and the Subsidiaries have made all contributions and
other payments required by and due under the terms of each Plan and Other
Arrangement and have taken no action during the past three (3) years (other than
actions required by Law) relating to any Plan or Other Arrangement that will
increase McLeod's, the Surviving Corporation's, the Company's or any
Subsidiary's obligation under any Plan or Other Arrangement.
(i) Section 3.16(i) of the Company Disclosure Schedule sets forth a list
of all Qualified Plans (as defined in Article X). All Qualified Plans and any
related trust Agreements or annuity Agreements (or any other funding Document)
comply and have complied with ERISA, the Code (including, without limitation,
the requirements for Tax qualification described in Section 401 thereof), and
all other Laws, except where the failure so to comply would not have a Company
Material Adverse Effect. The trusts established under such Plans are exempt from
federal income taxes under Section 501(a) of the Code. The Company and the
Subsidiaries have received determination letters issued by the IRS with respect
to each Qualified Plan, and the Company has furnished to McLeod true and
complete copies of all such determination letters and all correspondence
relating to the applications therefor. All statements made by or on behalf of
the Company or any Subsidiary to the IRS in connection with applications for
determinations with respect to each Qualified Plan were true and complete when
made and continue to be true and
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complete. To the knowledge of the Company and the Subsidiaries, nothing has
occurred since the date of the most recent applicable determination letter that
would adversely affect the tax-qualified status of any Qualified Plan.
(j) To their knowledge, the Company and the Subsidiaries have complied
in all material respects with all applicable provisions of the Code, ERISA, the
National Labor Relations Act, Title VII of the Civil Rights Act of 1964, the Age
Discrimination in Employment Act, the Fair Labor Standards Act, the Securities
Act, the Exchange Act, and all other Laws pertaining to the Plans, Other
Arrangements and other employee or employment related benefits, and all premiums
and assessments relating to all Plans or Other Arrangements. Neither the Company
nor any Subsidiary has any liability for any delinquent contributions within the
meaning of Section 515 of ERISA (including, without limitation, related
attorneys' fees, costs, liquidated damages and interest) or for any arrearages
of wages. Neither the Company nor any Subsidiary has any pending unfair labor
practice charges, contract grievances under any collective bargaining agreement,
other administrative charges, claims, grievances or lawsuits before any court,
arbiter or Governmental Entity arising under any Law governing any Plan, and to
the knowledge of the Company and the Subsidiaries there exist no facts that
could give rise to such a claim.
(k) Section 3.16(k) of the Company Disclosure Schedule describes all
transactions in which the Company or any Subsidiary or any of the Plans has
engaged in violation of Section 406(a) or 406(b) of ERISA for which no exemption
exists under Section 408 of ERISA and all "prohibited transactions" (as such
term is defined in Section 4975(c)(1) of the Code), for which no exemption
exists under Section 4975(c)(2) or 4975(d) of the Code. The Company has
furnished to McLeod true and complete copies of each request for a prohibited
transaction exemption and each exemption obtained in response to such request.
All such requests were true and complete when made and continue to be true and
complete.
(l) The Company and the Subsidiaries have paid all premiums (and
interest charges and penalties for late payment, if applicable) due to the PBGC
for each Defined Benefit Plan. The Company has reflected (or shall reflect) in
the Financial Statements the current value of such premium obligation that is
accrued and unsatisfied as of the date of each such Financial Statement. Section
3.16(l) of the Company Disclosure Schedule sets forth the amount of all such
unpaid premium obligations (including, without limitation, proportionate partial
accruals for the current year). Other than being required to make and making
premium payments when due, no liability to the PBGC has been incurred by the
Company or by any Common Control Entity (as defined in Article X) on account of
Title IV of ERISA. During the past three (3) years, no filing has been made by,
or required of, the Company or any Common Control Entity with the PBGC, the PBGC
has not started any proceeding to terminate any Defined Benefit Plan that was or
is maintained or wholly or partially funded by the Company or any Common Control
Entity, and to the knowledge of the Company and the Subsidiaries, no facts exist
that would permit the PBGC to begin such a proceeding. Neither the Company nor
any Common Control Entity has, or will have as a result of the transactions
contemplated hereby, (i) withdrawn as a substantial employer so as to become
subject to Section 4063 of ERISA; or (ii) ceased making contributions to any
Pension Plan that is subject to Section 4064(a) of ERISA to which the Company or
any Common Control Entity made contributions during the past five (5) years.
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(m) Section 3.16(m) of the Company Disclosure Schedule identifies any
terminated Plan that covered any current or former employees of the Company or
any Subsidiary, and any other Plan that has been terminated, during the past
five (5) years. The Company has furnished to McLeod true and complete copies of
all filings with any Governmental Entity, employee communications, board minutes
and all other Documents relating to each such Plan termination.
(n) Except as set forth in Section 3.16(n) of the Company Disclosure
Schedule, no Plan or Other Arrangement, individually or collectively, provides
for any payment by the Company or any Subsidiary to any employee or independent
contractor that is not deductible under Section 162(a)(1) or 404 of the Code or
that is an "excess parachute payment" pursuant to Section 280G of the Code.
(o) No Plan has within the past three (3) years experienced a
"reportable event" (as such term is defined in Section 4043(b) of ERISA) that is
not subject to an administrative or statutory waiver from the reporting
requirement.
(p) No Plan is a "qualified foreign plan" (as such term is defined in
Section 404A(e) of the Code), and no Plan is subject to the Laws of any
jurisdiction other than the United States of America or one of its political
subdivisions.
(q) The Company and the Subsidiaries have timely filed and the Company
has furnished to McLeod true and complete copies of each Form 5330 (Return of
Excise Taxes Related to Employee Benefit Plans) that the Company or any
Subsidiary filed on any Plan during the past three (3) years. The Company and
the Subsidiaries have no liability for Taxes required to be reported on Form
5330.
(r) Section 3.16(r) of the Company Disclosure Schedule lists all funded
Welfare Plans (as defined in Article X) that provide benefits to current or
former employees of the Company or any Subsidiary, or to their beneficiaries.
The funding under each Welfare Plan does not exceed and has not exceeded the
limitations under Sections 419A(b) and 419A(c) of the Code. To their knowledge,
the Company and the Subsidiaries are not subject to taxation on the income of
any Welfare Plan's welfare benefit fund (as such term is defined in Section
419(e) of the Code) under Section 419A(g) of the Code.
(s) Section 3.16(s) of the Company Disclosure Schedule (i) identifies
all post-retirement medical, life insurance or other benefits promised, provided
or otherwise due now or in the future to current, former or retired employees of
the Company or any Subsidiary, (ii) identifies the method of funding (including,
without limitation, any individual accounting) for all such benefits, (iii)
discloses the funded status of the Plans providing or promising such benefits,
and (iv) sets forth the method of accounting for such benefits to any key
employees (as defined in Section 416(i) of the Code) of the Company or any
Subsidiary.
(t) All Welfare Plans and the related trusts that are subject to Section
4980B(f) of the Code and Sections 601 through 607 of ERISA comply in all
material respects with and have been administered in compliance with the health
care continuation-coverage requirements for tax-favored status under Section
4980B(f) of the Code (formerly Section 162(k) of the Code), Sections 601 through
607 of ERISA, and all
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proposed or final regulations under Section 162 of the Code explaining those
requirements.
(u) The Company and the Subsidiaries have (i) filed or caused to be
filed all returns and reports on the Plans that they are required to file, and
(ii) paid or made adequate provision for all fees, interest, penalties,
assessments or deficiencies that have become due pursuant to those returns or
reports or pursuant to any assessment or adjustment that has been made relating
to those returns or reports. All other fees, interest, penalties and assessments
that are due and payable by or for the Company or any Subsidiary with respect to
any Plan have been timely reported, fully paid and discharged. There are no
unpaid fees, penalties, interest or assessments due from the Company or any
Subsidiary or from any other Person that are or could become an Encumbrance on
any Asset of the Company or any Subsidiary or could otherwise have a Company
Material Adverse Effect. The Company and the Subsidiaries have collected or
withheld all amounts that are required to be collected or withheld by them to
discharge their obligations with respect to each Plan, and all of those amounts
have been paid to the appropriate Governmental Entity or set aside in
appropriate accounts for future payment when due.
SECTION 3.17. TAXES AND TAX MATTERS.
(a) The Company and the Subsidiaries have (or, in the case of Company
Tax Returns (as defined in Article X) becoming due after the date hereof and
before the Effective Time, will have prior to the Effective Time) duly filed all
Company Tax Returns required to be filed by the Company and the Subsidiaries at
or before the Effective Time with respect to all applicable material Taxes. No
material penalties or other charges are or will become due with respect to any
such Company Tax Returns as the result of the late filing thereof. All such
Company Tax Returns are (or, in the case of returns becoming due after the date
hereof and before the Effective Time, will be) true and complete in all material
respects. The Company and the Subsidiaries: (i) have paid all Taxes due or
claimed to be due by any Taxing authority in connection with any such Company
Tax Returns (without regard to whether or not such Taxes are shown as due on any
Company Tax Returns); or (ii) have established (or, in the case of amounts
becoming due after the date hereof, prior to the Effective Time will have paid
or established) in the Financial Statements adequate reserves (in conformity
with GAAP consistently applied) for the payment of such Taxes. The amounts set
up as reserves for Taxes in the Financial Statements are sufficient for the
payment of all unpaid Taxes, whether or not such Taxes are disputed or are yet
due and payable, for or with respect to the applicable period, and for which the
Company or any Subsidiary may be liable in its own right (including, without
limitation, by reason of being a member of the same affiliated group) or as a
transferee of the Assets of, or successor to, any Person.
(b) Neither the Company nor any Subsidiary, either in its own right
(including, without limitation, by reason of being a member of the same
affiliated group) or as a transferee, has or at the Effective Time will have any
liability for Taxes payable for or with respect to any periods prior to and
including the Effective Time in excess of the amounts actually paid prior to the
Effective Time or reserved for in the Financial Statements, except for any Taxes
due in connection with the Merger or incurred in the Ordinary Course of Business
subsequent to the date of the latest Financial Statement.
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(c) Except as set forth in Section 3.17(c) of the Company Disclosure
Schedule, all Company Tax Returns have been examined by the relevant Taxing
authorities, or closed without audit by applicable Law, and all deficiencies
proposed as a result of such examinations have been paid, settled or reserved
for in the Financial Statements, for all taxable years prior to and including
the taxable year ended December 31, 1997. Except as set forth in Section 3.17(c)
of the Company Disclosure Schedule, there is no action, suit, proceeding, audit,
investigation or claim pending or, to the knowledge of the Company or any
Subsidiary, threatened in respect of any Taxes for which the Company or any
Subsidiary is or may become liable, nor has any deficiency or claim for any such
Taxes been proposed, asserted or, to the knowledge of the Company or any
Subsidiary, threatened. Except as set forth in Section 3.17(c) of the Company
Disclosure Schedule, neither the Company nor any Subsidiary has consented to any
waivers or extensions of any statute of limitations with respect to any taxable
year of the Company or any Subsidiary. Except as set forth in Section 3.17(c) of
the Company Disclosure Schedule, there is no Agreement, waiver or consent
providing for an extension of time with respect to the assessment or collection
of any Taxes against the Company or any Subsidiary, and no power of attorney
granted by the Company or any Subsidiary with respect to any Tax matters is
currently in force.
(d) The Company has furnished to McLeod true and complete copies of all
Company Tax Returns and all written communications with any Governmental Entity
relating to any such Company Tax Returns or to any deficiency or claim proposed
or asserted, irrespective of the outcome of such matter, but only to the extent
such items relate to Tax years (i) which are subject to an audit, investigation,
examination or other proceeding, or (ii) with respect to which the statute of
limitations has not expired.
(e) Section 3.17(e) of the Company Disclosure Schedule sets forth (i)
all federal Tax elections that currently are in effect with respect to the
Company or any Subsidiary, and (ii) all elections for purposes of foreign, state
or local Taxes and all consents or Agreements for purposes of federal, foreign,
state or local Taxes in each case that reasonably could be expected to affect or
be binding upon the Surviving Corporation or any Subsidiary or their respective
Assets or operations after the Effective Time. Section 3.17(e) of the Company
Disclosure Schedule sets forth all changes in accounting methods for Tax
purposes at any time made, agreed to, requested or required with respect to the
Company or any of the Subsidiaries.
(f) Except as set forth in Section 3.17(f) of the Company Disclosure
Schedule, neither the Company nor any Subsidiary (i) is or has ever been a
partner in a partnership or an owner of an interest in an entity treated as a
partnership for federal income Tax purposes; (ii) has executed or filed with the
IRS any consent to have the provisions of Section 341(f) of the Code apply to
it; (iii) is subject to Section 999 of the Code; (iv) is a passive foreign
investment company as defined in Section 1296(a) of the Code; or (v) is a party
to an Agreement relating to the sharing, allocation or payment of, or indemnity
for, Taxes (other than an Agreement the only parties to which are the Company
and the Subsidiaries).
(g) The Company has complied in all material respects with all rules and
regulations relating to the withholding of Taxes.
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SECTION 3.18. CUSTOMERS.
To the knowledge of the Company and the Subsidiaries, the relationships
of the Company and the Subsidiaries with their customers are good commercial
working relationships. Except as set forth in Section 3.18 of the Company
Disclosure Schedule, during the twelve (12) months prior to the date of this
Merger Agreement, no customer of the Company or any Subsidiary that accounted
for in excess of $25,000 of the revenues of the Company and the Subsidiaries
during such twelve (12) months has canceled or otherwise terminated its
relationship with the Company or any Subsidiary.
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SECTION 3.19. CERTAIN BUSINESS PRACTICES.
Neither the Company, the Subsidiaries nor any of their officers,
directors or, to the knowledge of the Company or any Subsidiary, any of their
employees or agents (or stockholders, distributors, representatives or other
persons acting on the express, implied or apparent authority of the Company or
of any Subsidiary) have paid, given or received or have offered or promised to
pay, give or receive, any bribe or other unlawful payment of money or other
thing of value, any unlawful discount, or any other unlawful inducement, to or
from any Person or Governmental Entity in the United States or elsewhere in
connection with or in furtherance of the business of the Company or any
Subsidiary (including, without limitation, any offer, payment or promise to pay
money or other thing of value (a) to any foreign official or political party (or
official thereof) for the purposes of influencing any act, decision or omission
in order to assist the Company or any Subsidiary in obtaining business for or
with, or directing business to, any Person, or (b) to any Person, while knowing
that all or a portion of such money or other thing of value will be offered,
given or promised to any such official or party for such purposes). The business
of the Company and the Subsidiaries is not in any manner dependent upon the
making or receipt of such payments, discounts or other inducements.
SECTION 3.20. INSURANCE.
Section 3.20 of the Company Disclosure Schedule lists and briefly
describes all policies of title, Asset, fire, hazard, casualty, liability, life,
worker's compensation and other forms of insurance of any kind owned or held by
the Company or any Subsidiary. All such policies: (a) are with insurance
companies reasonably believed by the Company to be financially sound and
reputable; (b) are in full force and effect; (c) are, to the knowledge of the
Company, sufficient for compliance by the Company and by each Subsidiary with
all requirements of Law and of all Agreements to which the Company or any
Subsidiary is a party; (d) are valid and outstanding policies enforceable
against the insurer; (e) to the knowledge of the Company, insure against risks
of the kind customarily insured against and in amounts customarily carried by
companies similarly situated and by companies engaged in similar businesses and
owning similar Assets, and provide adequate insurance coverage for the
businesses and Assets of the Company and the Subsidiaries; and (f) provide that
they will remain in full force and effect through the respective dates set forth
in Section 3.20 of the Company Disclosure Schedule.
SECTION 3.21. POTENTIAL CONFLICTS OF INTEREST.
Except as set forth in Section 3.21 of the Company Disclosure Schedule,
neither any present or, to the knowledge of the Company or any Subsidiary,
former director, officer, employee with a salary in excess of $60,000, or
stockholder of the Company or any Subsidiary who beneficially owns more than 5%
of the capital stock of the Company or any Subsidiary, nor any Affiliate of such
director, officer, employee or stockholder:
(a) owns, directly or indirectly, any interest in (except for holdings
in securities that are listed on a national securities exchange, quoted on a
national automated quotation system or regularly traded in the over-the-counter
market, where such holdings
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are not in excess of two percent (2%) of the outstanding class of such
securities and are held solely for investment purposes), or is a stockholder,
partner, other holder of equity interests, director, officer, employee,
consultant or agent of, any Person that is a competitor, lessor, lessee or
customer of, or supplier of goods or services to, the Company or any Subsidiary,
except where the value to such individual of any such arrangement with the
Company or any Subsidiary has been less than $60,000 in the last twelve (12)
months;
(b) owns, directly or indirectly, in whole or in part, any Assets with a
fair market value of $60,000 or more which the Company or any Subsidiary
currently uses in its business;
(c) has any cause of action or other suit, action or claim whatsoever
against, or owes any amount to, the Company or any Subsidiary, except for claims
arising in the Ordinary Course of Business from any such Person's service to the
Company or any Subsidiary as a director, officer or employee;
(d) has sold or leased to, or purchased or leased from, the Company or
any Subsidiary any Assets for consideration in excess of $60,000 in the
aggregate since January 1, 1995;
(e) is a party to any Agreement pursuant to which the Company or any
Subsidiary provides office space to any such Person, or provides services of any
nature to any such Person, other than in the Ordinary Course of Business in
connection with the employment of such Person by the Company or any Subsidiary;
or
(f) has, since January 1, 1995, engaged in any other material
transaction with the Company or any Subsidiary involving in excess of $60,000,
other than (i) in the Ordinary Course of Business in connection with the
employment of such Person by the Company or any Subsidiary, and (ii) dividends,
distributions and stock issuances to all common and preferred stockholders (as
applicable) on a pro rata basis.
SECTION 3.22. RECEIVABLES.
To the knowledge of the Company, the accounts receivable of the Company
and the Subsidiaries shown on the Reviewed Balance Sheets and the Unaudited
Balance Sheets, or thereafter acquired by any of them, have been collected or
are collectible in amounts not less than the amounts thereof carried on the
books of the Company and the Subsidiaries, without right of recourse, defense,
deduction, counterclaim, offset or setoff on the part of the obligor, and can
reasonably be expected to be collected within ninety (90) days of the date
incurred or due, except to the extent of the allowance for doubtful accounts
shown on such Reviewed Balance Sheets and Unaudited Balance Sheets.
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SECTION 3.23. BOOKS AND RECORDS.
The books of account, stock records, minute books and other corporate
and financial records of the Company are complete and correct in all material
respects and have been maintained in accordance with good business practices,
and the matters contained therein are appropriately and accurately reflected in
all material respects in the Financial Statements in accordance with GAAP.
SECTION 3.24. ASSETS.
Except as set forth in Section 3.24 of the Company Disclosure Schedule,
the Company and the Subsidiaries have good, valid, marketable and insurable (at
standard rates) title to, or a valid leasehold interest in, all material Assets
respectively owned or leased by them, including, without limitation, all
material Assets reflected in the Reviewed Balance Sheets and in the Unaudited
Balance Sheets and all material Assets purchased or leased by the Company or by
any Subsidiary since August 31, 1998 (except for Assets reflected in such
Reviewed Balance Sheets and Unaudited Balance Sheets or acquired since August
31, 1998 which have been sold or otherwise disposed of in the Ordinary Course of
Business), free and clear of all Encumbrances. All personal property of the
Company and the Subsidiaries is in good operating condition and repair (ordinary
wear and tear excepted) and is suitable and adequate for the uses for which it
is intended or is being used. All inventory (as defined in Article X) of the
Company and the Subsidiaries (i) consists of items which are good and
merchantable and of a quality and quantity presently usable and salable in the
Ordinary Course of Business and (ii) have been reflected in the Financial
Statements at the lower of cost or market, in accordance with GAAP, and include
no absolute or discontinued items, except to the extent reserved against in the
Financial Statements.
SECTION 3.25. NO INFRINGEMENT OR CONTEST.
(a) Section 3.25(a) of the Company Disclosure Schedule identifies and
describes each item of Intellectual Property (as defined in Article X) (i) owned
by the Company or a Subsidiary, (ii) owned by any third party and used by the
Company or any Subsidiary pursuant to license, sublicense or other Agreement, or
(iii) otherwise used by the Company or any Subsidiary (including, in each case,
specification of whether each such item is owned, licensed or used by the
Company or any Subsidiary).
(b) With respect to each item of Intellectual Property listed in Section
3.25(a) of the Company Disclosure Schedule that is owned by the Company or any
Subsidiary, such Intellectual Property can be used by the Company and the
Subsidiaries in their respective businesses as presently conducted by them, free
and clear of restrictions, Encumbrances and royalties on such use, and the
Company and the Subsidiaries have the right to bring action for infringement of
such Intellectual Property. With respect to the Intellectual Property listed in
Section 3.25(a) of the Company Disclosure Schedule that is used by the Company
or a Subsidiary pursuant to license, sublicense or other Agreement, such
Intellectual Property has been licensed on an arm's-length basis and can be used
by the Company and the Subsidiaries in their respective businesses as currently
conducted by them in accordance with the terms and conditions of such licenses,
sublicenses or other
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Agreements. With respect to each item of Intellectual Property listed in Section
3.25(a) of the Company Disclosure Schedule that is otherwise used by the Company
or any Subsidiary, such Intellectual Property can be used by the Company and the
Subsidiaries in their respective businesses as presently conducted by them, free
and clear of restrictions, Encumbrances and royalties on such use Each item of
Intellectual Property owned or used by the Company or any Subsidiary immediately
prior to the Closing will be owned or available for use by the Company or such
Subsidiary on identical terms and conditions immediately after the Closing.
(c) As used in the businesses of the Company and the Subsidiaries as
conducted in the past and as currently conducted, none of the Intellectual
Property listed in Section 3.25(a) of the Company Disclosure Schedule has at any
time infringed or misappropriated or otherwise violated, or is likely to
infringe, misappropriate or violate, any Intellectual Property of any other
Person, nor is the Company or any Subsidiary otherwise in the conduct of their
respective businesses infringing upon, or alleged to be infringing upon, any
Intellectual Property of any other Person. There are no pending or, to the
knowledge of the Company or any Subsidiary, threatened claims against the
Company or any Subsidiary alleging that the conduct of the Company's or any
Subsidiary's business infringes or conflicts with any Intellectual Property
rights of others. To the knowledge of the Company or any Subsidiary, there is no
Intellectual Property of another Person that infringes, misappropriates or
violates any of the Intellectual Property listed in Section 3.25(a) of the
Company Disclosure Schedule.
(d) The Company and the Subsidiaries own or have the right to use
pursuant to a valid license, sublicense or other Agreement all Intellectual
Property used in the operation of the businesses of the Company and the
Subsidiaries as currently conducted and as currently proposed to be conducted.
(e) The Company and the Subsidiaries have not caused obscene, libelous
or indecent material to be transmitted or received through the Company's or the
Subsidiaries' services or directories and have instituted procedures to ensure
that no such material is transmitted.
SECTION 3.26. BOARD RECOMMENDATION.
At a meeting duly called and held, or by unanimous written consent, in
compliance with Michigan Law, the Board of Directors of the Company has adopted
by unanimous vote a resolution approving and adopting this Merger Agreement and
the transactions contemplated hereby and recommending approval and adoption of
this Merger Agreement and the transactions contemplated hereby by the Company
Stockholders.
SECTION 3.27. VOTE REQUIRED.
The affirmative vote of the holders of a majority of the outstanding
shares of Company Common Stock is the only vote of the holders of any class or
series of capital stock of the Company necessary to approve the transactions
contemplated by this Merger Agreement.
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SECTION 3.28. BANKS; ATTORNEYS-IN-FACT.
Section 3.28 of the Company Disclosure Schedule sets forth a complete
list showing the name of each bank or other financial institution in which the
Company or any Subsidiary has accounts (including a description of the names of
all Persons authorized to draw thereon or to have access thereto). Such list
also shows the name of each Person holding a power of attorney from the Company
or any Subsidiary and a brief description thereof.
SECTION 3.29. BROKERS.
No broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated by this Merger Agreement based upon arrangements made by or on
behalf of the Company or any Subsidiary or any of their respective Affiliates.
SECTION 3.30. ENVIRONMENTAL MATTERS.
(a) To the knowledge of the Company, the Company and each of the
Subsidiaries have complied and are in compliance with, and the Real Property (as
defined in Article X) and all improvements thereon are in compliance with, all
Environmental Laws (as defined in Article X), except where the failure so to
comply would not have a Company Material Adverse Effect.
(b) To the knowledge of the Company and the Subsidiaries, neither the
Company nor any Subsidiary has any liability under any Environmental Law, nor is
the Company or any Subsidiary responsible for any liability of any other Person
under any Environmental Law. Except as set forth in Section 3.30(b) of the
Company Disclosure Schedule, there are no pending or, to the knowledge of the
Company or any Subsidiary, threatened actions, suits, claims, legal proceedings
or other proceedings based on, and neither the Company nor any Subsidiary, has
received any formal or informal notice of any complaint, order, directive,
citation, notice of responsibility, notice of potential responsibility, or
information request from any Governmental Entity or any other Person since
January 1, 1993 (or prior thereto with respect to any such complaint, order,
directive, citation, notice of responsibility, notice of potential
responsibility, or information request which has not been finally resolved) or
knows any fact(s) which might reasonably be expected to form the basis for any
such actions or notices arising out of or attributable to: (i) the current or
past presence at any part of the Real Property of Hazardous Materials (as
defined in Article X) or any substances that pose a hazard to human health or an
impediment to working conditions; (ii) the current or past release or threatened
release into the environment from the Real Property (including, without
limitation, into any storm drain, sewer, septic system or publicly owned
treatment works) of any Hazardous Materials or any substances that pose a hazard
to human health or an impediment to working conditions; (iii) the off-site
disposal of Hazardous Materials originating on or from the Real Property or the
businesses or Assets of the Company or any Subsidiary; (iv) any facility
operations, procedures or designs of the Company or any Subsidiary which do not
conform to requirements of the Environmental Laws; or (v) any violation of
Environmental Laws at any part of the Real Property or otherwise arising from
the Company's or any Subsidiary's activities (or the activities of the Company's
or any Subsidiary's predecessors in title)
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involving Hazardous Materials.
(c) The Company and the Subsidiaries have been duly issued, and
currently have and will maintain through the Effective Time, all Licenses
required under any Environmental Law. A true and complete list of such Licenses,
all of which are valid and in full force and effect, is set out in Section
3.30(c) of the Company Disclosure Schedule. Except in accordance with such
Licenses, as described in Section 3.30(c) of the Company Disclosure Schedule or
as otherwise permitted by Law, there has been no Hazardous Discharge (as defined
in Article X) or discharge of any other material regulated by such Licenses.
Except as disclosed in Section 3.30(c) of the Company Disclosure Schedule, to
the knowledge of the Company and the Subsidiaries no such Licenses are
non-transferable or which require consent, notification or other action to
remain in full force and effect following consummation of the Merger and the
other transactions contemplated hereby.
(d) Except as set forth in Section 3.30(d) of the Company Disclosure
Schedule, the Real Property contains no underground improvements, including but
not limited to treatment or storage tanks, or underground piping associated with
such tanks, used currently or in the past for the storage, throughput or other
management of Hazardous Materials, and no portion of the Real Property is or has
been used as a dump or landfill or consists of or contains filled in land or
wetlands.
SECTION 3.31. DISCLOSURE.
To the knowledge of the Company, all facts regarding the business,
operations, prospects, condition (financial or otherwise), Assets or liabilities
of the Company and the Subsidiaries which have been disclosed in writing
(including, without limitation, in this Merger Agreement and the Company
Disclosure Schedule) or otherwise provided to McLeod by the Company have been
fully and truthfully disclosed to McLeod. No representation or warranty by the
Company, and no Document furnished or to be furnished to McLeod by the Company
pursuant to this Merger Agreement or otherwise in connection herewith or with
the transactions contemplated hereby, contains or will contain any untrue
statement of a material fact or omits or will omit to state any material fact
necessary in order to make the statements contained therein, in light of the
circumstances under which they were made, not misleading.
SECTION 3.32. DIRECTORS, OFFICERS AND AFFILIATES
Section 3.32 of the Company Disclosure Schedule lists all current
directors and officers of the Company and the Subsidiaries, showing each such
person's name, positions, and annual remuneration, bonuses and fringe benefits
paid by the Company or any Subsidiary for the current fiscal year and the most
recently completed fiscal year.
SECTION 3.33. COPIES OF DOCUMENTS.
True and complete copies of all Documents listed in the Company
Disclosure Schedule have been, or will be, furnished to McLeod.
SECTION 3.34. PUBLICATION OF DIRECTORIES.
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Section 3.34 of the Company Disclosure Schedule lists the white and
yellow page directories published by the Company, the month of publication, the
number of each directory published, and the Net Cash Revenue (as defined in
Article X) from each directory. Except as set forth in Section 3.34 of the
Company Disclosure Schedule, all sales, production and distribution of the last
edition of the directories has been completed by the Company in the same manner
as the previously published editions of such directories, including but not
limited to, the number of directories printed and distributed, the distribution
area and system, the pricing, the credit terms, the quality and size of print
and paper, and the general production standards. The Company has paid all sales
and production expenses for all editions of the directories published by the
Company.
SECTION 3.35. REORGANIZATION.
To the knowledge of the Company, neither it nor any of the Subsidiaries
has taken any action or failed to take any action which action or failure would
jeopardize the qualification of the Merger as a reorganization within the
meaning of Section 368(a) of the Code.
SECTION 3.36. STATE TAKEOVER STATUTES; CERTAIN CHARTER PROVISIONS.
No state of Michigan takeover statutes or charter or bylaw provisions
will prevent the Merger or this Merger Agreement and the transactions
contemplated hereby or thereby.
SECTION 3.37. DISSENTERS RIGHTS.
All Company Stockholders have waived any appraisal or dissenters' rights
under Michigan Law or any other Law arising from, or in connection with, the
consummation of the Merger and the other transactions contemplated hereby.
SECTION 3.38. YEAR 2000 REVIEW.
(a) To the knowledge of the Company, the Company and the Subsidiaries
will not be materially adversely affected by (i) any failure of the Company's
and the Subsidiaries computer hardware, software, firmware or embedded chip
technology to be Year 2000 Compliant (as defined in Article X); or (ii) the cost
and/or disruption to normal activities caused by work to be carried out to
ensure such computer hardware, software or embedded chip technology is year 2000
Compliant; provided, however, Section 3.38(a) of the Company Disclosure Schedule
lists any computer hardware, software or embedded chip technology that is not
year 2000 Compliant.
(b) The Company and the Subsidiaries are currently reviewing their
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 "Company Year 2000 Review"). The
Company Year 2000 review covers all of the Company's and the Subsidiaries'
operations and is centrally managed.
SECTION 3.39. INVESTMENT AGREEMENTS.
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In accordance with Section 6.01, Investment Agreements substantially in
the form attached hereto as Exhibit A (the "Investment Agreements") will be
executed and delivered to McLeod by the Company Stockholders and each such
Investment Agreement constitutes a legal, valid and binding obligation of the
respective Company Stockholder who is a party thereto, enforceable against such
Company Stockholder in accordance with its terms.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF MCLEOD AND PUBCO SUB
Except as specifically set forth in the Disclosure Schedule delivered by
McLeod and Pubco Sub to the Company prior to the execution and delivery of this
Merger Agreement (the "MCLEOD DISCLOSURE SCHEDULE"), McLeod and Pubco Sub hereby
jointly and severally represent and warrant (which representation and warranty
shall be deemed to include the disclosures with respect thereto so specified in
the McLeod Disclosure Schedule) to the Company as follows, in each case as of
the date of this Merger Agreement, unless otherwise specifically set forth
herein or in the McLeod Disclosure Schedule:
SECTION 4.01. ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
Each of McLeod, Pubco Sub and McLeod's Significant Subsidiaries (as
defined in Article X) is a corporation duly organized, validly existing and in
good standing under the Laws of the jurisdiction of its incorporation or
organization, and has the full and unrestricted corporate power and authority to
own, operate and lease its Assets, and to carry on its business as currently
conducted. Each of McLeod, Pubco Sub and McLeod's Significant Subsidiaries is
duly qualified to conduct business as a foreign corporation and is in good
standing in the states, countries and territories in which the nature of the
business conducted by it or the character of the Assets owned, leased or
otherwise held by it makes such qualification necessary, except where the
absence of such qualification as a foreign corporation would not have a McLeod
Material Adverse Effect (as defined in Article X).
SECTION 4.02. CERTIFICATE OF INCORPORATION AND BYLAWS.
McLeod has furnished to the Company a true and complete copy of the
Certificate of Incorporation of McLeod and the certificate of incorporation of
Pubco Sub, as currently in effect, certified as of a recent date by the
Secretary of State (or comparable Governmental Entity) of their respective
jurisdictions of incorporation, and a true and complete copy of the Bylaws of
McLeod and the Bylaws of Pubco Sub, as currently in effect, certified by their
respective corporate secretaries. Such certified copies are attached as exhibits
to, and constitute an integral part of, the McLeod Disclosure Schedule.
SECTION 4.03. AUTHORITY; BINDING OBLIGATION.
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Each of McLeod and Pubco Sub has the full and unrestricted corporate
power and authority to execute and deliver this Merger Agreement and to carry
out the transactions contemplated hereby. The execution and delivery by McLeod
and Pubco Sub of this Merger Agreement and all other Documents contemplated
hereby, and the consummation by McLeod and Pubco Sub of the transactions
contemplated hereby and thereby, have been duly authorized by all necessary
corporate action and no other corporate proceedings on the part of McLeod or
Pubco Sub are necessary to authorize this Merger Agreement and the other
Documents contemplated hereby, or to consummate the transactions contemplated
hereby and thereby. This Merger Agreement has been duly executed and delivered
by McLeod and Pubco Sub and constitutes a legal, valid and binding obligation of
McLeod and Pubco Sub in accordance with its terms, except as such enforceability
may be subject to the effect of any applicable bankruptcy, insolvency fraudulent
conveyance, reorganization, moratorium or similar Laws affecting creditors'
rights generally and subject to the effect of general equitable principles
(whether considered in a proceeding in equity or at law).
SECTION 4.04. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution, delivery and performance by McLeod and Pubco Sub of
this Merger Agreement and all other Documents contemplated hereby, the
fulfillment of and compliance with the respective terms and provisions hereof
and thereof, and the consummation by McLeod and Pubco Sub of the transactions
contemplated hereby and thereby, do not and will not: (i) conflict with, or
violate any provision of, the Certificate of Incorporation or the Bylaws of
McLeod, or the Certificate or Articles of Incorporation or Bylaws of Pubco Sub
or any of McLeod's Significant Subsidiaries; or (ii) subject to obtaining the
consents, approvals, authorizations and permits of, and making filings with or
notifications to, the applicable Governmental Entity pursuant to the applicable
requirements, if any, of the Securities Act, the Exchange Act, Blue Sky Laws,
the HSR Act, the Communications Act, the Federal Aviation Act, applicable state
utility Laws and applicable municipal franchise Laws, and the filing and
recordation of the Articles of Merger as required by Michigan Law and Iowa Law,
conflict with or violate any Law applicable to McLeod, Pubco Sub or any of
McLeod's Significant Subsidiaries, or any of their respective Assets; (iii)
conflict with, result in any breach of, constitute a default (or an event that
with notice or lapse of time or both would become a default) under any Agreement
to which McLeod, Pubco Sub or any of McLeod's Significant Subsidiaries is a
party or by which McLeod, Pubco Sub or any of McLeod's Significant Subsidiaries,
or any of their respective Assets, may be bound; or (iv) result in or require
the creation or imposition of, or result in the acceleration of, any
indebtedness or any Encumbrance of any nature upon, or with respect to, McLeod,
Pubco Sub or any of McLeod's Significant Subsidiaries or any of the Assets of
McLeod, Pubco, Pubco Sub or any of McLeod's Significant Subsidiaries; except for
any such conflict or violation described in clause (ii), any such conflict,
breach or default described in clause (iii), or any such creation, imposition or
acceleration described in clause (iv) that would not have an McLeod Material
Adverse Effect and that would not prevent McLeod or Pubco Sub from consummating
the Merger on a timely basis.
(b) Except as set forth in Section 4.04(b) of the McLeod Disclosure
Schedule, the execution, delivery and performance by McLeod and Pubco Sub of
this Merger Agreement and all other Documents contemplated hereby, the
fulfillment of and
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compliance with the respective terms and provisions hereof and thereof, and the
consummation by McLeod and Pubco Sub of the transactions contemplated hereby and
thereby, do not and will not: (i) require any consent, approval, authorization
or permit of, or filing with or notification to, any Person not party to this
Merger Agreement, except (A) pursuant to the applicable requirements, if any, of
the Securities Act, the Exchange Act, Blue Sky Laws, the HSR Act, the
Communications Act, the Federal Aviation Act, and applicable state utility Laws
and applicable municipal franchise Laws and (B) the filing and recordation of
the Articles of Merger as required by Michigan and Iowa Law; or (ii) result in
or give rise to any penalty, forfeiture, Agreement termination, right of
termination, amendment or cancellation, or restriction on business operations of
McLeod, the Surviving Corporation or Pubco Sub.
SECTION 4.05. NO PRIOR ACTIVITIES OF PUBCO SUB.
Pubco Sub was formed solely for the purpose of engaging in the
transactions contemplated by this Merger Agreement and has engaged in no other
business activities and has conducted its operations only as contemplated
hereby.
SECTION 4.06. BROKERS.
No broker or finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated by this Merger Agreement based upon arrangements made by or on
behalf of McLeod, Pubco Sub or any of their Affiliates.
SECTION 4.07. SEC DOCUMENTS.
McLeod has filed all required reports, schedules, forms, statements and
other Documents with the SEC (as defined in Article X) since January 1, 1997
(including the McLeod Post-Signing SEC Documents (as defined in Section 6.10),
the "MCLEOD SEC DOCUMENTS"). As of their respective dates, the McLeod SEC
Documents complied or, in the case of the McLeod Post-Signing SEC Documents,
will comply as to form in all material respects with the applicable requirements
of the Securities Act or the Exchange Act, as the case may be, and none of the
McLeod SEC Documents contained or, in the case of the McLeod Post-Signing SEC
Documents, will contain, any untrue statement of a material fact or omitted or,
in the case of the McLeod Post-Signing SEC Documents, will omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The consolidated financial statements of McLeod included in the
McLeod SEC Documents comply or, in the case of the McLeod Post-Signing SEC
Documents, will comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, have been or, in the case of the McLeod Post-Signing SEC
Documents, will have been prepared in accordance with GAAP (except, in the case
of unaudited statements, for the absence of footnotes and as permitted by Form
10-Q of the SEC) applied on a consistent basis during the periods subject
thereto (except as may be indicated in the notes thereto) and fairly present the
consolidated financial position of McLeod and its consolidated subsidiaries as
of the dates thereof and the consolidated results of operations and cash flows
for the periods then ended (subject,
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in the case of unaudited statements, to normal year-end adjustments and the
absence of footnotes). Except as disclosed in the McLeod SEC Documents, as
required by GAAP or as required by any Governmental Entity, McLeod has not,
since December 31, 1997, made any change in accounting practices or policies
applied in the preparation of financial statements.
SECTION 4.08. MCLEOD COMMON STOCK.
The McLeod Common Stock to be issued and delivered to the Company
Stockholders pursuant to the Merger has been duly authorized and, when issued in
the Merger in accordance with this Merger Agreement, will be validly issued,
fully paid and nonassessable and will have been approved for listing by The
Nasdaq Stock Market's National Market System.
SECTION 4.09. CAPITALIZATION.
The authorized capital stock of McLeod consists of (a) 250,000,000
shares of McLeod Common Stock, of which, as of January 5, 1999: (i)
63,545,925shares were issued and outstanding, all of which were duly authorized,
validly issued, fully paid and nonassessable; (ii) no shares were held in the
treasury of McLeod;(iii) 12,278,323 shares were reserved for issuance pursuant
to outstanding options to purchase McLeod Common Stock granted to employees and
certain other Persons; (iv) 245,536 shares were reserved for issuance pursuant
to a Stock Option Agreement dated August 21, 1998 between McLeod and QST
Enterprises, Inc.; (vi) 10,414 shares were reserved for issuance pursuant to a
Stock Option Agreement dated November 25, 1998 between McLeod, Inlet, Inc. and
certain shareholders of Inlet, Inc.; (vi) 917,398 shares were reserved for
issuance pursuant to the McLeodUSA Incorporated Employee Stock Purchase Plan;
and (vii) 961,920 shares were reserved pursuant to the McLeodUSA 401(k) Profit
Sharing Plan; (b) 22,000,000 shares of Class B common stock, par value $.01 per
share ("MCLEOD CLASS B COMMON STOCK"), of which, as of January 5, 1999: (i) no
shares were issued and outstanding; (ii) no shares were
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held in the treasury of McLeod; and (iii) 1,300,688shares were reserved for
issuance pursuant to outstanding options to purchase McLeod Class B Common Stock
granted to a significant stockholder of McLeod; and (c) 2,000,000 shares of
serial preferred stock, par value $.01 per share, of which: (i) no shares are
issued and outstanding; and (ii) no shares are held in the treasury of McLeod.
Except for the options set forth in clauses (a)(iii) through (a)(vi) and
(b)(iii) above and as set forth in Section 4.09(a) of the McLeod Disclosure
Schedule, as of January 5, 1999, there were no outstanding securities
convertible into or exchangeable for capital stock or any other securities of
McLeod, or any capital stock or other securities of any of McLeod's Significant
Subsidiaries and no outstanding options, rights (preemptive or otherwise), or
warrants to purchase or to subscribe for any shares of such capital stock or
other securities of McLeod or any of McLeod's Significant Subsidiaries. Except
as set forth in Section 4.09(b) of the McLeod Disclosure Schedule and except for
Agreements relating to the options specified in clauses (a)(iii) through (a)(vi)
and (b)(iii) above, there are no outstanding Agreements to which McLeod or any
of its Significant Subsidiaries is a party affecting or relating to the voting,
issuance, purchase, redemption, registration, repurchase or transfer of capital
stock or any other securities of McLeod, or any capital stock or other
securities of any of McLeod's Significant Subsidiaries, except as contemplated
hereunder. Each of the outstanding
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shares of McLeod Common Stock, and of capital stock of, or other equity
interests in, McLeod's Significant Subsidiaries was issued in compliance with
all applicable federal and state Laws concerning the issuance of securities,
and, except as set forth in Section 4.09(d) of the McLeod Disclosure Schedule,
such shares or other equity interests owned by McLeod or any of its Significant
Subsidiaries are owned free and clear of all Encumbrances. There are no
obligations, contingent or otherwise, of McLeod or any of its Significant
Subsidiaries to provide funds to, make any investment (in the form of a loan,
capital contribution or otherwise) in, or provide any guarantee with respect to,
any of McLeod's Significant Subsidiaries or any other Person. Except as set
forth in Section 4.09(e) of the McLeod Disclosure Schedule, there are no
Agreements pursuant to which any Person is or may be entitled to receive any of
the revenues or earnings, or any payment based thereon or calculated in
accordance therewith, of McLeod or any of its Significant Subsidiaries. No vote
of the stockholders of McLeod is required in connection with the consummation of
the Merger and the other transactions contemplated hereby.
SECTION 4.10. REORGANIZATION.
To the knowledge of McLeod, neither McLeod, Pubco Sub nor any of
McLeod's Significant Subsidiaries has taken any action or failed to take any
action which action or failure would jeopardize the qualification of the Merger
as a reorganization within the meaning of Section 368(a) of the Code.
SECTION 4.11. COMPLIANCE.
Neither McLeodor Pubco Sub is aware of any fact or circumstance related
to them that could reasonably be expected to cause the filing of any objection
to any application for any Governmental consent required hereunder, lead to any
delay in processing such application, or require any waiver of any Governmental
rule, policy or other applicable Law.
SECTION 4.12. DISCLOSURE.
All material facts regarding the business, operations, prospects,
condition (financial or otherwise), Assets or liabilities of McLeod, Pubco Sub
and McLeod's Significant Subsidiaries that have been disclosed orally or in
writing (including, without limitation, in this Merger Agreement and the McLeod
Disclosure Schedule) or otherwise provided to the Company by McLeod have been
fully and truthfully disclosed to the Company. No representation or warranty by
McLeod or Pubco Sub, and no Document furnished or to be furnished to the Company
by McLeod or Pubco Sub pursuant to this Merger Agreement or otherwise in
connection herewith or with the transactions contemplated hereby, contains or
will contain any untrue statement of a material fact or omits or will omit to
state any material fact necessary in order to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading.
ARTICLE V
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COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 5.01. CONDUCT OF BUSINESS OF THE COMPANY.
The Company hereby covenants and agrees that, from the date of this
Merger Agreement until the Effective Time, the Company, unless otherwise
expressly contemplated by this Merger Agreement or consented to in writing by
McLeod, will, and will cause the Subsidiaries to, carry on their respective
businesses only in the Ordinary Course of Business, use their respective
reasonable best efforts to preserve intact their business organizations and
Assets, maintain their rights and franchises, retain the services of their
officers and key employees and maintain their relationships with customers,
suppliers, licensors, licensees and others having business dealings with them,
and use their respective reasonable best efforts to keep in full force and
effect liability insurance and bonds comparable in amount and scope of coverage
to that currently maintained. Without limiting the generality of the foregoing,
except as otherwise expressly contemplated by this Merger Agreement, from the
date of this Merger Agreement until the Effective Time the Company shall not,
and shall not permit any of the Subsidiaries to:
(a) (i) increase in any manner the compensation or fringe benefits of,
or pay any bonus to, any director, officer or employee, except for increases or
bonuses in the Ordinary Course of Business to employees who are not directors or
officers; (ii) grant any severance or termination pay (other than pursuant to
the normal severance practices or existing Agreements of the Company or any
Subsidiary in effect on the date of this Merger Agreement as described in
Schedule 5.01(a)(ii)) to, or enter into any severance Agreement with, any
director, officer or employee, or enter into any employment Agreement with any
director, officer or employee; (iii) establish, adopt, enter into or amend any
Plan or Other Arrangement, except as may be required to comply with applicable
Law; (iv) pay any benefit not provided for under any Plan or Other Arrangement;
(v) grant any awards under any bonus, incentive, performance or other
compensation plan or arrangement or Plan or Other Arrangement (including the
grant of stock options, stock appreciation rights, stock-based or stock-related
awards, performance units or restricted stock, or the removal of existing
restrictions in any Plan or Other Arrangement or Agreement or awards made
thereunder), except for grants in the Ordinary Course of Business or as required
under the Agreements set forth in Schedule 5.01(a)(v), or (vi) take any action
to fund or in any other way secure the payment of compensation or benefits under
any Agreement, except as required under the Agreements set forth in Schedule
5.01(a)(vi);
(b) declare, set aside or pay any dividend on, or make any other
distribution in respect of, outstanding shares of capital stock;
(c) (i) redeem, purchase or otherwise acquire any shares of capital
stock of the Company or any Subsidiary or any securities or obligations
convertible into or exchangeable for any shares of capital stock of the Company
or any Subsidiary, or any options, warrants or conversion or other rights to
acquire any shares of capital stock of the Company or any Subsidiary or any such
securities or obligations, or any other securities thereof; (ii) effect any
reorganization or recapitalization; or (iii) split, combine or reclassify any of
its capital stock or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for, shares of its
capital stock;
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(d) issue, deliver, award, grant or sell, or authorize the issuance,
delivery, award, grant or sale (including the grant of any limitations in voting
rights or other Encumbrances) of, any shares of any class of its capital stock
(including shares held in treasury), any securities convertible into or
exercisable or exchangeable for any such shares, or any rights, warrants or
options to acquire, any such shares, or amend or otherwise modify the terms of
any such rights, warrants or options the effect of which shall be to make such
terms more favorable to the holders thereof;
(e) except as contemplated by Agreements that have been identified in
Section 3.14(a) of the Company Disclosure Schedule, acquire or agree to acquire,
by merging or consolidating with, by purchasing an equity interest in or a
portion of the Assets of, or by any other manner, any business or any
corporation, partnership, association or other business organization or division
thereof, or otherwise acquire or agree to acquire any Assets of any other Person
(other than the purchase of assets from suppliers or vendors in the Ordinary
Course of Business);
(f) sell, lease, exchange, mortgage, pledge, transfer or otherwise
subject to any Encumbrance or dispose of, or agree to sell, lease, exchange,
mortgage, pledge, transfer or otherwise subject to any Encumbrance or dispose
of, any of its Assets;
(g) adopt any amendments to its articles or certificate of
incorporation, bylaws or other comparable charter or organizational documents;
(h) make or rescind any express or deemed election relating to Taxes,
settle or compromise any claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy relating to Taxes, or change
any of its methods of reporting income or deductions for federal income tax
purposes from those employed in the preparation of the federal income tax
returns for the taxable year ended December 31, 1997, except in either case as
may be required by Law, the IRS or GAAP;
(i) make or agree to make any new capital expenditure or expenditures
which are not included in the Company's 1999 capital budget, a copy of which was
furnished to McLeod, and which are, individually, in excess of $25,000 or, in
the aggregate, in excess of $50,000;
(j) (i) incur any indebtedness for borrowed money or guarantee any such
indebtedness of another Person, issue or sell any debt securities or warrants or
other rights to acquire any debt securities of the Company or any Subsidiary,
guarantee any debt securities of another Person, enter into any "keep well" or
other Agreement to maintain any financial statement condition of another Person
or enter into any Agreement having the economic effect of any of the foregoing,
except for short-term borrowings incurred in the Ordinary Course of Business, or
(ii) make any loans, advances or capital contributions to, or investments in,
any other Person other than intra-group loans, advances, capital contributions
or investments between or among the Company and any of its wholly owned
Subsidiaries;
(k) pay, discharge, settle or satisfy any claims, liabilities or
obligations (whether absolute or contingent, matured or unmatured, known or
unknown), other than the payment, discharge or satisfaction, in the Ordinary
Course of Business or in accordance with
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their terms, of liabilities reflected or reserved against in, or contemplated
by, the most recent Financial Statement or incurred in the Ordinary Course of
Business, or waive any material benefits of, or agree to modify in any material
respect, any confidentiality, standstill or similar Agreements to which the
Company or any Subsidiary is a party;
(l) except in the Ordinary Course of Business, waive, release or assign
any rights or claims, or modify, amend or terminate any Agreement to which the
Company or any Subsidiary is a party;
(m) make any change in any method of accounting or accounting practice
or policy other than those required by GAAP or a Governmental Entity;
(n) take any action or fail to take any action which could reasonably be
expected to have a Company Material Adverse Effect prior to or after the
Effective Time or an McLeod Material Adverse Effect after the Effective Time, or
that could reasonably be expected to adversely affect the ability of the Company
or any Subsidiary prior to the Effective Time, or McLeod or any of its
subsidiaries after the Effective Time, to obtain consents of third parties or
approvals of Governmental Entities required to consummate the transactions
contemplated in this Merger Agreement; or
(o) authorize, or commit or agree to do any of the foregoing.
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SECTION 5.02. OTHER ACTIONS.
The Company and McLeod shall not, and shall not permit any of their
respective Affiliates to, take any action that would, or that could reasonably
be expected to, result in (a) any of the representations and warranties of such
party set forth in this Merger Agreement becoming untrue, or (b) any of the
conditions to the Merger set forth in Article VII not being satisfied.
SECTION 5.03. CERTAIN TAX MATTERS.
From the date hereof until the Effective Time, the Company and the
Subsidiaries (a) will prepare and timely file with the relevant Taxing authority
all Company Tax Returns ("POST-SIGNING RETURNS") required to be filed, which
Post-Signing Returns shall be accurate in all material respects, (b) will timely
pay all Taxes due and payable with respect to such Post-Signing Returns, (c)
will pay or otherwise make adequate provision for all Taxes payable by the
Company and the Subsidiaries for which no Post-Signing Return is due prior to
the Effective Time, and (d) will promptly notify McLeod of any action, suit,
proceeding, claim or audit pending against or with respect to the Company or any
Subsidiary in respect of any Taxes.
SECTION 5.04. ACCESS AND INFORMATION.
For so long as this Merger Agreement is in effect, the Company shall,
and shall cause each Subsidiary to, (a) afford to McLeod and its officers,
employees, accountants, consultants, legal counsel and other representatives
reasonable access during normal business hours, subject to reasonable advance
notice, to all of their respective properties, Agreements, books, records and
personnel and (b) furnish promptly to McLeod (i) a copy of each Document filed
with, or received from any Governmental Entity and (ii) all other information
concerning their respective businesses, operations, prospects, conditions
(financial or otherwise), Assets, liabilities and personnel as McLeod may
reasonably request.
SECTION 5.05. NO SOLICITATION.
(a) The Company shall, and shall cause its directors, officers,
employees, representatives, agents and Subsidiaries and their respective
directors, officers, employees, representatives and agents to, immediately cease
any discussions or negotiations with any Person that may be ongoing with respect
to a Competing Transaction (as defined in this Section 5.05(a)). The Company
shall not, and shall cause the Subsidiaries not to, initiate, solicit or
encourage (including by way of furnishing information or assistance), or take
any other action to facilitate, any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any Competing
Transaction, or enter into discussions or furnish any information or negotiate
with any Person or otherwise cooperate in any way in furtherance of such
inquiries or to obtain a Competing Transaction, or agree to or endorse any
Competing Transaction, or authorize any of the directors, officers, employees,
agents or representatives of the Company or any Subsidiary to take any such
action, and the Company shall, and shall cause the Subsidiaries to, direct and
instruct and use its or their reasonable best efforts to cause the directors,
officers, employees, agents
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and representatives of the Company and the Subsidiaries (including, without
limitation, any investment banker, financial advisor, attorney or accountant
retained by the Company or any Subsidiary) not to take any such action, and the
Company shall promptly notify McLeod if any such inquiries or proposals are
received by the Company or any Subsidiary, or any of its or their respective
directors, officers, employees, agents, investment bankers, financial advisors,
attorneys, accountants or other representatives, and the Company shall promptly
inform McLeod as to the material terms of such inquiry or proposal and, if in
writing, promptly deliver or cause to be delivered to McLeod a copy of such
inquiry or proposal, and the Company shall keep McLeod informed, on a current
basis, of the nature of any such inquiries and the status and terms of any such
proposals. For purposes of this Merger Agreement, "COMPETING TRANSACTION" shall
mean any of the following involving the Company or the Subsidiaries (other than
the transactions contemplated by this Merger Agreement): (i) any merger,
consolidation, share exchange, business combination, or other similar
transaction; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of ten percent (10%) or more of the Assets of the Company and the
Subsidiaries, taken as a whole, or issuance of ten percent (10%) or more of the
outstanding voting securities of the Company or any Subsidiary in a single
transaction or series of transactions; (iii) any tender offer or exchange offer
for ten percent (10%) or more of the outstanding shares of capital stock of the
Company or any Subsidiary or the filing of a registration statement under the
Securities Act in connection therewith; (iv) any solicitation of proxies in
opposition to approval by the Company Stockholders of the Merger; (v) any Person
shall have acquired beneficial ownership or the right to acquire beneficial
ownership of, or any "GROUP" (as such term is defined under Section 13(d) of the
Exchange Act) shall have been formed after the date of this Merger Agreement
which beneficially owns or has the right to acquire beneficial ownership of, ten
percent (10%) or more of the then outstanding shares of capital stock of the
Company or any Subsidiary; or (vi) any Agreement to, or public announcement by
the Company or any other Person of a proposal, plan or intention to, do any of
the foregoing.
(b) Neither the Board of Directors of the Company nor any committee
thereof shall (i) withdraw or modify, or propose to withdraw or modify, in a
manner adverse to McLeod or Pubco Sub, the approval or recommendation by such
Board of Directors or any such committee of this Merger Agreement or the Merger,
(ii) approve or recommend, or propose to approve or recommend, any Competing
Transaction or (iii) enter into any Agreement with respect to any Competing
Transaction.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. INVESTMENT AGREEMENTS.
(a) As promptly as practicable after the date of this Merger Agreement,
the Company shall use its best efforts to obtain Investment Agreements from each
Company Stockholder who is to receive shares of McLeod Common Stock in the
Merger.
(b) The parties hereto acknowledge, agree, and confirm that the McLeod
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Common Stock to be issued pursuant to Section 2.01,(i) will not be registered
under the Securities Act of 1933, as amended (as defined in Article X), or
registered or qualified under any state securities laws, (ii) must be held
indefinitely unless a subsequent disposition thereof is made pursuant to an
effective registration thereof under the Securities Act or is exempt from such
registration and cannot be offered for sale, sold or otherwise transferred
unless the McLeod Common Stock is subsequently so registered or qualified for
exemption from registration under the Securities Act, (iii) will bear a legend
to that effect (and McLeod will make a notation on its transfer of books to that
effect), and (iv) will be considered "registered securities" within the meaning
of Rule 144 of the Securities Act; Rule 144 may not be available to exempt from
the registration requirements of the Securities Act the sale of such "restricted
securities;" if Rule 144 is available, sale may be made in reliance upon Rule
144 only in accordance with the terms and conditions of Rule 144; and if an
exemption for such sale is not available, registration of the McLeod Common
Stock may be required, but McLeod is under no obligation to register the McLeod
Common Stock or to facilitate compliance or to comply with any exemption, except
as expressly set out in Section 6.19 below.
SECTION 6.02. MEETING OF STOCKHOLDERS.
The Company shall promptly after the date of this Merger Agreement take
all action necessary in accordance with Michigan and Iowa Law and its
certificate of incorporation and bylaws to duly call, give notice of, convene
and hold the Stockholders' Meeting, and the Company shall consult with McLeod in
connection therewith. The Company shall use its reasonable best efforts to
solicit from the Company Stockholders proxies or consents to approve this Merger
Agreement and the transactions contemplated hereby and shall take all other
actions reasonably necessary or advisable to secure the vote or consent of the
Company Stockholders required by Michigan and Iowa Law to approve this Merger
Agreement and the transactions contemplated hereby.
SECTION 6.03. APPROPRIATE ACTION; CONSENTS; FILINGS.
(a) Upon the terms and subject to the conditions set forth in this
Merger Agreement, the Company and McLeod shall use all reasonable efforts to
take, or cause to be taken, all appropriate action, and do, or cause to be done,
and to assist and cooperate with the other parties in doing all things
necessary, proper or advisable under applicable Law or otherwise to consummate
and make effective the transactions contemplated by this Merger Agreement as
promptly as practicable, including (i) executing and delivering any additional
instruments necessary, proper or advisable to consummate the transactions
contemplated by, and to carry out fully the purposes of, this Merger Agreement,
(ii) obtaining from any Governmental Entities any Licenses required to be
obtained or made by McLeod or the Company or any of their subsidiaries in
connection with the authorization, execution and delivery of this Merger
Agreement and the consummation of the transactions contemplated herein,
including, without limitation, the Merger, and (iii) making all necessary
filings, and thereafter making any other required submissions, with respect to
this Merger Agreement and the Merger required under (A) the Securities Act and
any other applicable federal or state securities Laws, (B) the HSR Act and (C)
any other applicable Law; PROVIDED that McLeod and the Company shall cooperate
with each other in connection with the making of all such filings, including
providing copies of all such
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Documents to the non-filing party and its advisors prior to filing and
discussing all reasonable additions, deletions or changes suggested in
connection therewith. The Company and McLeod shall furnish to each other all
information required for any application or other filing to be made pursuant to
the rules and regulations of any applicable Law in connection with the
transactions contemplated by this Merger Agreement.
(b) (i) The Company and McLeod shall give (or shall cause their
respective subsidiaries to give) any notices to third parties, and use, and
cause their respective subsidiaries to use, all reasonable efforts to obtain any
third party consents, approvals or waivers (A) necessary, proper or advisable to
consummate the transactions contemplated in this Merger Agreement, (B) disclosed
or required to be disclosed in the Company Disclosure Schedule or the McLeod
Disclosure Schedule, as the case may be, or (C) required to prevent a Company
Material Adverse Effect from occurring prior to or after the Effective Time or
an McLeod Material Adverse Effect from occurring prior to or after the Effective
Time.
(ii) If any party shall fail to obtain any third party consent,
approval or waiver described in subsection (b)(i) above, such party shall use
all reasonable efforts, and shall take any such actions reasonably requested by
the other parties hereto, to minimize any adverse effect upon the Company and
McLeod, their respective subsidiaries, and their respective businesses
resulting, or which could reasonably be expected to result after the Effective
Time, from the failure to obtain such consent, approval or waiver.
(c) From the date of this Merger Agreement until the Effective Time, the
Company and McLeod shall promptly notify each other in writing of any pending
or, to the knowledge of the Company or McLeod (or their respective
subsidiaries), threatened action, proceeding or investigation by any
Governmental Entity or any other Person (i) challenging or seeking damages in
connection with the Merger or the conversion of the Company Common Stock into
McLeod Common Stock pursuant to the Merger or (ii) seeking to restrain or
prohibit the consummation of the Merger or otherwise limit the right of McLeod
or its subsidiaries to own or operate all or any portion of the businesses or
Assets of the Company or any Subsidiary. The Company and McLeod shall cooperate
with each other in defending any such action, proceeding or investigation,
including seeking to have any stay or temporary restraining order entered by any
court or other Governmental Entity vacated or reversed.
SECTION 6.04. UPDATE DISCLOSURE; BREACHES.
From and after the date of this Merger Agreement until the Effective
Time, each party hereto shall promptly notify the other parties hereto by
written update to its Disclosure Schedule of (i) any representation or warranty
made by it in connection with this Merger Agreement becoming untrue or
inaccurate, (ii) the occurrence, or non-occurrence, of any event the occurrence,
or non-occurrence, of which would be likely to cause any condition to the
obligations of any party to effect the Merger and the other transactions
contemplated by this Merger Agreement not to be satisfied, or (iii) the failure
of the Company, McLeod or Pubco Sub, as the case may be, to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it pursuant to this
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Merger Agreement which would be likely to result in any condition to the
obligations of any party to effect the Merger and the other transactions
contemplated by this Merger Agreement not to be satisfied. The Company shall
deliver to McLeod updated versions of Sections 3.10 and 3.14(a) of the Company
Disclosure Schedule as of the Closing Date, solely to reflect events occurring
between the date of this Merger Agreement and the Closing Date, or shall have
notified McLeod that no changes to such Sections of the Company Disclosure
Schedule are required.
SECTION 6.05. PUBLIC ANNOUNCEMENTS.
McLeod, Pubco Sub and the Company shall consult with each other before
issuing or making, and shall give each other the opportunity to review and
comment upon, any press release or other public statement with respect to the
Merger and the other transactions contemplated in this Merger Agreement, and
shall not issue any such press release or make any such public statement prior
to such consultation, except as may be required by Law or any listing agreement
with the NASD (as defined in Article X).
SECTION 6.06. EMPLOYEE MATTERS.
The Company and McLeod shall use their respective reasonable best
efforts to cause the officers and employees of the Company and the Subsidiaries
listed in SCHEDULE 6.06 (the "COMPANY KEY EMPLOYEES") to enter into employment,
confidentiality and non-competition agreements, substantially in the form of
McLeod's standard Employment, Confidentiality and Non-Competition Agreement, a
copy of which is attached hereto as EXHIBIT B (the "EMPLOYMENT AGREEMENTS"), at
or prior to the Effective Time.
SECTION 6.07. UNAUDITED FINANCIAL INFORMATION.
The Company will cause to be prepared and will furnish to McLeod as
promptly as possible an unaudited consolidated balance sheet of the Company and
the Subsidiaries as of the last day of each month ending after August 31, 1998
and the related unaudited consolidated statements of income and cash flows of
the Company and the Subsidiaries for the one-month periods then ended. The
Company will ensure that such Unaudited Statements are complete and correct in
all material respects, have been prepared in accordance with the books and
records of the Company and the Subsidiaries, and present fairly the consolidated
financial position of the Company and the Subsidiaries and their consolidated
results of operations and cash flows as of and for the respective dates and time
periods applied on a basis consistent with prior accounting periods, except as
noted thereon and subject to normal and recurring year-end adjustments.
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SECTION 6.08. ENVIRONMENTAL MATTERS.
The Company will promptly furnish to McLeod written notice of any
Hazardous Discharge or of any actions or notices described in Section 3.30(b).
SECTION 6.09. POST-SIGNING SEC DOCUMENTS.
McLeod will file with the SEC all reports, schedules, forms, statements
and other Documents required to be filed by it after the date of this Merger
Agreement but before the Effective Time (the "MCLEOD POST-SIGNING SEC
DOCUMENTS").
SECTION 6.10. INDEMNIFICATION BY PRINCIPAL COMPANY STOCKHOLDERS.
(a) After the Effective Time, the Principal Company Stockholders,
individually and as Trustees, shall, severally and not jointly, indemnify and
hold harmless McLeod, the Surviving Corporation and their respective officers
and directors, and each person, if any, who controls or may control McLeod or
the Surviving Corporation within the meaning of the Securities Act (all such
persons hereinafter are referred to individually as an "INDEMNIFIED PERSON" and
collectively as "INDEMNIFIED PERSONS," but in no event shall any stockholder of
the Company be such an Indemnified Person), from and against any and all losses,
costs, damages, liabilities and expenses, including reasonable attorneys' fees
and expenses, ("DAMAGES") actually suffered and (i) arising out of the breach of
the representations, warranties, covenants and agreements given or made by the
Company or the Principal Company Stockholders in this Merger Agreement, in the
Articles of Merger or in the Exhibits or Schedules hereto or in any certificate
or document delivered by or on behalf of the Company or the Principal Company
Stockholders pursuant hereto, or (ii) which were not reflected on or adequately
reserved against in the Financial Statements. The Principal Company Stockholders
shall have no liability under this Section 6.10 to the extent claims for Damages
hereunder do not exceed an aggregate of $250,000 (the "Bucket") (other than for
Damages incurred in connection with any income tax liabilities of the Company or
the Principal Company Stockholders, in which case the Basket shall not apply);
PROVIDED, FURTHER, that if such Damages exceed an aggregate of $250,000 then the
indemnification provided for hereunder shall apply only to Damages exceeding the
$250,000 threshold provided for above. It shall be a condition of the right of
each Indemnified Person to indemnification pursuant to this Section 6.10 that
such Indemnified Person shall assert a claim for such indemnification on or
prior to the date that the particular representation, warranty, covenant or
agreement for the breach of which the indemnification is being sought, expires
under the terms of this Merger Agreement.
(b) Any payment to be made to an Indemnified Person by a Principal
Company Stockholder under this Section 6.10 shall be made in cash.
(c) The amount of any Damages under this Section 6.10 shall be computed
net of (i) any tax benefit realized therefrom to an Indemnified Person, and (ii)
any insurance proceeds received with respect thereto that reduces the Damages
that would otherwise be sustained. Additionally, the Principal Company
Stockholders shall be entitled to a credit against any Damages for which they
are liable for indemnification under this Section 6.10 in an amount equal to the
sum of the amount, if any, by which the actual amount of any liability shown on
the balance sheet of the Company as of the Closing Date
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is less than the amount of such liability or reserve therefor as recorded on
such balance sheet.
SECTION 6.11. PROCEDURES; CONDITIONS OF INDEMNIFICATION.
With respect to any indemnification provided pursuant to this Merger
Agreement, the Indemnified Person agrees to give prompt written notice to the
Principal Company Stockholders of any claim or other assertion of liability by
third parties (hereinafter called collectively "CLAIMS"), it being understood
that the failure to give such notice shall not affect the Indemnified Person's
right to indemnification and the indemnifying party's obligation to indemnify as
set forth in this Agreement, unless the Principal Company Stockholders' rights
with respect to such Claim are thereby demonstrably and materially prejudiced.
The obligations and liabilities of the parties hereto with respect to
their respective indemnities pursuant to this Merger Agreement resulting from
any Claim shall be subject to the following terms and conditions:
(a) The Principal Company Stockholders shall have the right to
undertake, by counsel or other representatives of their own choosing, the
defense of such Claim.
(b) If the Principal Company Stockholders elect not to undertake such
defense, or within a reasonable time after notice of any such Claim from the
Indemnified Person shall fail to defend, the Indemnified Person (upon further
written notice to the Principal Company Stockholders) shall have the right to
undertake the defense, compromise or settlement of such Claim, by counsel or
other representatives of its own choosing, on behalf of and for the account and
risk of the Principal Company Stockholders (subject to the right of the
Principal Company Stockholders to assume defense of such Claim at any time prior
to settlement, compromise or final determination thereof).
(c) Anything in this Section 6.11 to the contrary notwithstanding, (i)
if the Indemnified Person notifies the Principal Company Stockholder that the
Indemnified Person has concluded that a Claim may materially and adversely
affect the Indemnified Person other than as a result of money damages or other
money payments, the Indemnified Person shall have the right, at its own cost and
expense, to participate in the defense, compromise or settlement of the Claim,
(ii) the Principal Company Stockholders shall not, without the Indemnified
Person's written consent, settle or compromise any Claim or consent to entry of
any judgment that does not include as an unconditional term thereof the giving
by the claimant or the plaintiff to the Indemnified Person of a release from all
liability in respect of such Claim, and (iii) in the event that the Principal
Company Stockholders undertake defense of any Claim, the Indemnified Person, by
counsel or other representative of its own choosing and at its sole cost and
expense, shall have the right to consult with the Principal Company Stockholders
and their counsel or other representatives concerning such Claim and the
Principal Company Stockholders and the Indemnified Person and their respective
counsel or other representatives shall cooperate with respect to such Claim.
(d) Notwithstanding any other provision of this Section 6.11, the
Indemnified Person may at any time assume full control over the responsibility
for any
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Claim, by written notice to the Principal Company Stockholders releasing the
Principal Company Stockholders from any further indemnity obligation pursuant to
this Merger Agreement with respect to said Claim.
(e) Any decision with respect to any matter under this Section 6.11
(including, without limitation, the defense, prosecution, settlement or
resolution of Claims) shall be binding on all Principal Company Stockholders if
consented to by those Principal Company Stockholders who, immediately prior to
the Effective Time, hold a majority of the Company Common Stock held by all
Principal Company Stockholders.
SECTION 6.12. TAX TREATMENT.
Each party hereto shall use its reasonable best efforts to cause the
Merger to qualify, and shall not take any actions which could prevent the Merger
from qualifying, as a reorganization qualifying under the provisions of Section
368(a) of the Code.
SECTION 6.13. TAX RETURNS.
To the extent permitted under applicable Tax Laws, the Merger shall be
reported as a "reorganization" within the meaning of Section 368(a) of the Code
in all federal, state and local Tax Returns filed after the Effective Time.
Notwithstanding any other provision of this Merger Agreement, the obligations
set forth in this Section 6.13 shall survive the Effective Time without
limitation as to time or in any other respect.
SECTION 6.14. REORGANIZATION.
During the period from the date of this Merger Agreement through the
Effective Time, unless McLeod and the Company shall otherwise agree in writing,
McLeodand the Company shall not, and shall cause their respective subsidiaries
not to knowingly take or fail to take any action which action or failure would
jeopardize the qualification of the Merger as a reorganization within the
meaning of Section 368(a) of the Code.
SECTION 6.15. DIRECTORS' AND OFFICERS' INSURANCE; INDEMNIFICATION.
McLeod agrees that for the entire period from the Effective Time until
at least six (6) years after the Effective Time, (a) McLeod will cause the
Surviving Corporation to maintain the Company's current directors' and officers'
insurance and indemnification policy and related arrangements, if any, or an
equivalent policy and related arrangements, subject in either case to terms and
conditions no less advantageous to the present and former directors and officers
of the Company than those contained in the policy and arrangements in effect on
the date hereof, for all present and former directors and officers of the
Company, covering claims made and insurable events occurring prior to or within
six (6) years after the Effective Time (provided that the Surviving Corporation
will not be required to maintain such policy except to the extent that the
aggregate annual cost of maintaining such policy is not in excess of two hundred
percent (200%) of the current annual cost, in which case the Surviving
Corporation shall maintain such policies up to an annual cost of two hundred
percent (200%) of the current annual cost); and (b) McLeod
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will cause the Surviving Corporation to maintain indemnification provisions,
including, without limitation, provisions for expense advances, for present and
former officers and directors in the Surviving Corporation's certificate of
incorporation and bylaws to the fullest extent permitted by Iowa Law. In the
event of any threatened or actual claim, action, suit, proceeding or
investigation, whether civil, criminal or administrative, including, without
limitation, any such claim, action, suit proceeding or investigation in which
any of the present or former officers or directors (the "MANAGERS") of the
Company is, or is threatened to be, made a party by reason of the fact that such
Manager is or was a director, officer, employee or agent of the Company, or is
or was serving at the request of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other entity,
whether before or after the Effective Time, the parties hereto agree to
cooperate and use their reasonable best efforts to defend against and respond
thereto. It is understood and agreed that the Company shall indemnify and hold
harmless, and after the Effective Time each of the Surviving Corporation and
McLeod shall indemnify and hold harmless, as and to the full extent that the
Surviving Corporation would be permitted by applicable Law (and as to matters
arising from or relating to this Merger Agreement and the possible change in
control of the Company, to the full extent that McLeod would be permitted under
applicable Law), each such Manager against any losses, claims, damages,
liabilities, costs, expenses (including reasonable attorneys' fees), judgments,
fines and amounts paid in settlement in connection with any such claim, action,
suit, proceeding or investigation; and in the event of any such claim, action,
suit, proceeding or investigation (whether arising before or after the Effective
Time), (i) the Managers may retain counsel satisfactory to them, and the
Company, or the Surviving Corporation and McLeod after the Effective Time, shall
pay all reasonable fees and expenses of such counsel for the Managers promptly
as statements therefor are received whether before or after final determination
of the matter, and (ii) the Company, or the Surviving Corporation and McLeod
after the Effective Time, will use their respective reasonable best efforts to
assist in the vigorous defense of any such matter; PROVIDED that neither the
Company nor the Surviving Corporation or McLeod shall be liable for any
settlement effected without its prior written consent (which consent shall not
be unreasonably withheld); and PROVIDED FURTHER that the Company's, the
Surviving Corporation's and McLeod's obligations hereunder shall only be reduced
or relieved when and if a court of competent jurisdiction shall ultimately
determine, and such determination shall have become final and non-appealable,
that indemnification of such Manager in the manner contemplated is prohibited by
applicable Law.
SECTION 6.16. OBLIGATIONS OF PUBCO SUB.
McLeod shall take all action necessary to cause Pubco Sub to perform its
obligations under this Merger Agreement and to consummate the Merger on the
terms and conditions set forth in this Merger Agreement.
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SECTION 6.17. PAYMENT OF CERTAIN DEBT.
At or immediately after Closing, the Surviving Corporation shall pay in
full the notes payable listed on Schedule 6.17. In addition, at or immediately
after Closing, the Surviving Corporation shall pay the employee bonuses in
Section 3.09 of the Company Disclosure Schedule. In addition, the notes
receivable listed on the attached Schedule 6.17 shall be cancelled and in
substitution therefore the Principal Company Stockholders, individually and as
trustees, shall execute a substitute promissory note payable to the Surviving
Corporation in the amount of $6,256,512, payable in full on or before August 1,
1999, such substitute note to be in the form attached hereto as EXHIBIT C. The
parties hereto agree that the substitute note shall be increased to the extent
the reserve for bad debts reflected on the Financial Statements prove to be
inadequate based on a review by the parties to be completed on or before August
1, 1999. If the amount due under the substitute note is so increased, such
increased amount shall be deemed to have been due as of the date of the Closing,
with interest due on said amount from the date of Closing until paid in full.
SECTION 6.18. LEASE MODIFICATION.
The Company shall cause the real estate lease for the Company's
headquarters in Wyoming, Michigan, described in Section 3.13 of the Company
Disclosure Schedule, to be modified, as of the Effective Date, to provide for a
two (2) year term, but allowing the Surviving Corporation to terminate the Lease
at any time upon six months notice to the Landlord.
SECTION 6.19. AGREEMENT TO REGISTER STOCK.
(a) Subject to Section 6.19(b) below, within ninety (90) days following
the Closing, McLeod shall prepare and file a registration statement on Form S-3
(the "Resale Registration Statement") under the Securities Act of 1933 (the
"Securities Act") covering the resale of a maximum of 25% of the McLeod Common
Stock to be issued in the Merger (and any shares of the capital stock of McLeod
that may be issued with respect to the McLeod Common Stock issued in the Merger
as a result of a reclassification, recapitalization, dividend, stock split or
comparable event). McLeod shall thereafter use its reasonable best efforts to
have such Resale Registration Statement declared effective by the Securities and
Exchange Commission ("SEC") as soon after the filing as practicable and to keep
that Resale Registration Statement effective and current, including through the
filing of any amendments and supplements that may be required under provisions
of applicable law, for one year after its original effectiveness. McLeod may
include other shares of McLeod Common Stock on the Resale Registration
Statement. At McLeod's option, McLeod may satisfy its obligations under this
Section 6.19(a) on another form of registration statement under the Securities
Act. McLeod agrees to notify each holder of McLeod Common Stock registered on
the Resale Registration Statement (i)when the Resale Registration Statement (or
any post-effective amendment thereto) has become effective, (ii) if the SEC has
issued any stop order with respect to the Resale Registration Statement or
initiated any proceedings for that purpose, and (iii) if McLeod has received any
written notification with respect to the suspension of qualification of any
McLeod Common Stock for sale in any jurisdiction or on any securities
exchange or market or with respect to the initiation or threat of any proceeding
for such purpose. McLeod further agrees to furnish
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holders of McLeod Common Stock registered on the Resale Registration Statement
such numbers of copies of a prospectus, in conformity with the requirements of
applicable law, and such other documents as each such holder may reasonably
request in order to facilitate the disposition of the McLeod Common Stock owned
by such holder.
(b) Intentionally omitted.
(c) McLeod will give notice to holders of McLeod Common Stock registered
on the Resale Registration Statement, at any time when a prospectus relating
thereto is required to be delivered under applicable law, of the happening of
any event as a result of which the prospectus included in such Resale
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing. Any such holder shall cease using such prospectus
immediately upon receipt of notice from McLeod to that effect. If so requested
by McLeod, each holder shall return promptly to McLeod any copies of any
prospectus in its possession that contains an untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing. At the request of such holder, McLeod shall prepare
and furnish to each holder a reasonable number of copies of a supplement to or
an amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such securities, such prospectus shall not
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing.
(d) (i) McLeod shall bear all costs incurred in preparing and
filling the Resale Registration Statement including, without limitation, all
applicable legal, accounting, printing, blue sky and SEC filing fees, provided,
however, that McLeod shall not be responsible for any underwriting commissions
or discounts, brokerage fees or legal fees or disbursements incurred by any
person or entity (other than McLeod) that sells any shares of McLeod Common
Stock under the Resale Registration Statement. McLeod shall also bear all costs
of keeping the Resale Registration Statement current during the applicable
period described in Section 6.19(a).
(ii) McLeod will indemnify and hold harmless each holder of
McLeod Common Stock registered on the Resale Registration Statement against any
losses, claims, damages or liabilities to which such holder may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Resale Registration
Statement, any final prospectus contained therein, or any amendment or
supplement thereof, 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; provided, however, that
McLeod will not be liable in any such case if and to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission so made in
conformity with information furnished by such holder in writing specifically for
use in the Resale Registration Statement or prospectus.
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(iii) Each holder of McLeod Common Stock registered on the
Resale Registration Statement shall furnish to McLeod in writing such
information with respect to such holder as McLeod may reasonably request or as
may be required by law for use in connection with the Resale Registration
Statement and the final prospectus contained therein, and each such holder will
indemnify and hold harmless McLeod against any losses, claims, damages or
liabilities to which McLeod may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities arise out of
or are based upon any untrue statement or alleged untrue statement of any
material fact contained in the Resale Registration Statement, any final
prospectus contained therein, or any amendment or supplement thereof, 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 to the same extent as the foregoing indemnity from McLeod
to the holders of McLeod Common Stock registered on the Resale Registration
Statement, but only with respect to (i) any such information with respect to
such holder furnished in writing to McLeod expressly for use therein or (ii) a
breach of any obligations of such holder under this Section 6.19; provided,
however, that the total amount to be indemnified by such holder under this
Section 6.19(d)(iii) shall be limited to the net proceeds received by such
holder in the offering to which the Resale Registration Statement or prospectus
relates.
(e) The rights described in this Section 6.19 shall not be transferable
and shall not be afforded to any person or entity to whom holders of McLeod
Common Stock received in the Merger transfer such stock.
ARTICLE VII
CONDITIONS PRECEDENT
SECTION 7.01. CONDITIONS TO OBLIGATIONS OF EACH PARTY UNDER THIS MERGER
AGREEMENT.
The respective obligations of each party to effect the Merger and the
other transactions contemplated herein shall be subject to the satisfaction at
or prior to the Effective Time of the following conditions, any or all of which
may be waived by agreement of McLeod and the Company, in whole or in part, to
the extent permitted by applicable Law:
(a) STOCKHOLDER APPROVAL. This Merger Agreement and the Merger shall
have been approved and adopted by the requisite vote of the Company
Stockholders.
(b) NO ORDER. No Governmental Entity or federal or state court of
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, executive order, decree, judgment,
injunction or other order (whether temporary,
preliminary or permanent), in any case which is in effect and which prevents or
prohibits consummation of the Merger; PROVIDED, HOWEVER, that each of the
parties shall use its reasonable best efforts to cause any such decree,
judgment, injunction or other order to be vacated or lifted.
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(c) HSR ACT. The applicable waiting period, together with any extensions
thereof, under the HSR Act shall have expired or been terminated.
(d) OTHER APPROVALS. All consents, waivers, approvals and authorizations
required to be obtained, and all filings or notices required to be made, by
McLeod or the Company prior to consummation of the transactions contemplated in
this Merger Agreement (other than the filing of the Articles of Merger in
accordance with Michigan and Iowa Law) shall have been obtained from and made
with all required Governmental Entities, except for such consents, waivers,
approvals or authorizations which the failure to obtain, or such filings or
notices which the failure to make, would not have a Company Material Adverse
Effect or a McLeod Material Adverse Effect or be reasonably likely to subject
the Company, any Subsidiary, McLeod, Pubco Sub or any of their respective
directors or officers to criminal liability or substantial penalties.
(e) CDPS AGREEMENT. The current agreement between CDPS and the Company
shall be terminated at or prior to the Closing, and CDPS and the Surviving
Corporation shall execute a new agreement in the form of EXHIBIT D attached
hereto.
SECTION 7.02. ADDITIONAL CONDITIONS TO OBLIGATIONS OF MCLEOD AND PUBCO SUB.
The obligations of McLeod and Pubco Sub to effect the Merger and the
other transactions contemplated herein are also subject to the satisfaction at
or prior to the Effective Time of the following conditions, any or all of which
may be waived by McLeod, in whole or in part, to the extent permitted by
applicable Law:
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of the Company contained in this Merger Agreement shall be true and
correct as of the date of this Merger Agreement and shall be true and correct in
all material respects (except that where any statement in a representation or
warranty expressly includes a standard of materiality, such statement shall be
true and correct in all respects giving effect to such standard) as of the
Effective Time as though made as of the Effective Time, except that those
representations and warranties which address matters only as of a particular
date shall remain true and correct in all material respects (except that where
any statement in a representation or warranty expressly includes a standard of
materiality, such statement shall be true and correct in all respects giving
effect to such standard) as of such date, and except (A) for changes permitted
or contemplated by this Merger Agreement, or (B) in a representation and
warranty that does not expressly include a standard of materiality, any untrue
or incorrect statements therein that, considered in the aggregate, do not
indicate a Company Material Adverse Effect. McLeod shall have received a
certificate of the chief executive officer or chief financial officer of the
Company to that effect.
(b) UPDATED COMPANY DISCLOSURE SCHEDULE. The revised versions of
Sections 3.10 and 3.14(a) of the Company Disclosure Schedule delivered to McLeod
pursuant to Section 6.04 shall not disclose any Company Material Adverse Effect
as compared to such Sections of the Company Disclosure Schedule as of the date
of this Merger Agreement.
(c) AGREEMENTS AND COVENANTS. The Company shall have performed or
complied in all material respects with all agreements and covenants required by
this Merger
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Agreement to be performed or complied with by it on or prior to the Effective
Time. McLeod shall have received a certificate of the chief executive officer or
chief financial officer of the Company to that effect.
(d) CONSENTS UNDER AGREEMENTS. The Company or the appropriate Subsidiary
shall have obtained the consent or approval of each Person whose consent or
approval shall be required in connection with the Merger under all Agreements to
which the Company or any Subsidiary is a party, except where the failure to
obtain any such consents or approvals, considered in the aggregate, would not
have a Company Material Adverse Effect or a McLeod Material Adverse Effect.
(e) OPINION OF COUNSEL. McLeod shall have received from Miller, Johnson,
Snell & Cumminskey, P.L.C., counsel to the Company, an opinion dated the Closing
Date, in form usual and customary for similar transactions and reasonably
acceptable to McLeod and the Company.
(f) NO CHALLENGE. There shall not be pending any action, proceeding or
investigation by any Governmental Entity (i) challenging or seeking material
damages in connection with the Merger or the conversion of Company Common Stock
into McLeod Common Stock pursuant to the Merger, or seeking to place limitations
on the ownership of shares of Company Common Stock (or shares of common stock of
the Surviving Corporation) by McLeod or Pubco Sub, (ii) seeking to restrain or
prohibit the consummation of the Merger or otherwise limit the right of the
Company, any Subsidiary, McLeod or any of its subsidiaries to own or operate all
or any portion of the business or Assets of the Company and the Subsidiaries, or
(iii) which otherwise is likely to have a Company Material Adverse Effect or a
McLeod Material Adverse Effect.
(g) ACCOUNTANT LETTERS. McLeod shall have received from Arthur Anderson,
its accountants, an opinion, satisfactory in form and substance to McLeod, to
the effect that the Merger may be treated as a "purchase" for accounting
purposes.
(h) EMPLOYMENT AGREEMENTS. McLeod shall have received executed copies of
Employment Agreements from the Company Key Employees.
(i) COMPANY MATERIAL ADVERSE EFFECT. Since August 31, 1998, there shall
not have occurred a Company Material Adverse Effect (or any development that,
insofar as reasonably can be foreseen, is reasonably likely to result in any
Company Material Adverse Effect) not disclosed in the Company Disclosure
Schedule.
(j) DUE DILIGENCE INVESTIGATION. McLeod shall have completed its due
diligence investigation of the Company and the Subsidiaries and shall have
determined (in McLeod's reasonable discretion) that no development has occurred
or information been discovered that has, or is reasonably likely to have, or
indicates a Company Material Adverse Effect.
(k) TAX OPINION. McLeod shall have received the opinion of Hogan &
Hartson L.L.P., counsel to McLeod, dated the Closing Date, to the effect that
the Merger and any other transactions contemplated herein, will not result in
taxation to McLeod or Pubco Sub under the Code. In rendering such opinion, Hogan
& Hartson L.L.P. shall require
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delivery of and rely upon the representation letters delivered by McLeod, Pubco
Sub and the Company substantially in the forms of EXHIBIT E and EXHIBIT FE
hereto.
(l) ENVIRONMENTAL MATTERS. Any Environmental Reports shall indicate that
the Real Property does not contain any Hazardous Materials and is not subject to
any risk of contamination from any off-site Hazardous Materials, except to the
extent that the presence of any such Hazardous Materials or the risk of such
contamination would not have a Company Material Adverse Effect or a McLeod
Material Adverse Effect.
(m) BOARD APPROVAL. The principal terms of this Agreement shall have
been approved and adopted by McLeod's Board of Directors in accordance with
applicable law and its Articles of Incorporation and Bylaws.
(n) INVESTMENT AGREEMENTS. McLeod shall have received from each Company
Stockholder that is to receive shares of McLeod Common Stock in the Merger a
duly executed and delivered Investment Agreement. The number of Company
Stockholders that are to receive shares of McLeod Common Stock in the Merger and
that are not "accredited investors" within the meaning of 501(a) under the
Securities Act shall not exceed thirty-five (35), and each Company Stockholder
that is not an accredited investor shall have such knowledge and experience in
financial and business matters, either alone or with an appropriate purchaser
representative that has been appointed by such Company Stockholder, that it is
capable of evaluating the merits and risks of the Merger and its investment in
the McLeod Common Stock.
SECTION 7.03. ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY.
The obligations of the Company to effect the Merger and the other
transactions contemplated herein are also subject to the satisfaction at or
prior to the Effective Time of the following conditions, any or all of which may
be waived by the Company, in whole or in part, to the extent permitted by
applicable Law:
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of McLeod and Pubco Sub contained in this Merger Agreement shall be
true and correct as of the date of this Merger Agreement and shall be true and
correct in all material respects (except that where any statement in a
representation or warranty expressly includes a standard of materiality, such
statement shall be true and correct in all respects giving effect to such
standard) as of the Effective Time as though made as of the Effective Time,
except that those representations and warranties which address matters only as
of a particular date shall remain true and correct in all material respects
(except that where any statement in a representation or warranty expressly
includes a standard of materiality, such statement shall be true and correct in
all respects giving effect to such standard) as of such date, and except (A) for
changes permitted or contemplated by this Merger Agreement or (B) in a
representation and warranty that does not expressly include a standard of
materiality, any untrue or incorrect statements therein that, considered in the
aggregate, do not indicate a McLeod Material Adverse Effect. The Company shall
have received a certificate of the chief executive officer or chief financial
officer of McLeod to that effect.
(b) AGREEMENTS AND COVENANTS. McLeod and Pubco Sub shall have
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performed or complied in all material respects with all agreements and covenants
required by this Merger Agreement to be performed or complied with by them on or
prior to the Effective Time. The Company shall have received a certificate of
the chief executive officer or chief financial officer of McLeod and Pubco Sub
to that effect.
(c) OPINION OF COUNSEL. The Company shall have received from Bradley &
Riley, P.C. an opinion dated the Closing Date, in form usual and customary for
similar transactions and reasonably acceptable to the Company and McLeod.
(d) NO CHALLENGE. There shall not be pending any action, proceeding or
investigation by any Governmental Entity (i) challenging or seeking material
damages in connection with the Merger or the conversion of Company Common Stock
into McLeod Common Stock pursuant to the Merger, or (ii) seeking to restrain or
prohibit the consummation of the Merger.
(e) TAX OPINION. The Company shall have received the opinion of Arthur
Anderson, its accountants, dated the Closing Date, to the effect that the
Merger, and any other transactions contemplated herein, will not result in
taxation to the Company or the Company Stockholders under the Code. In rendering
such opinion, Arthur Anderson shall require delivery of and rely upon the
representation letters delivered by McLeod, Pubco Sub and the Company
substantially in the forms of EXHIBIT E and EXHIBIT F hereto.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. TERMINATION.
This Merger Agreement may be terminated at any time (except where
otherwise indicated) prior to the Effective Time, whether before or after
approval of this Merger Agreement and the Merger by the Company Stockholders:
(a) by mutual written consent of McLeod and the Company;
(b) (i) by McLeod, if there has been a breach by the Company of any
of its representations, warranties, covenants or agreements contained in this
Merger Agreement, or any such representation and warranty shall have become
untrue, in any such case such that Section 7.02(a), Section 7.02(b) or Section
7.02(c) will not be satisfied and such breach or condition has not been cured
within ten (10) business days following receipt by the Company of written notice
of such breach;
(ii) by the Company, if there has been a breach by McLeod or
Pubco Sub of any of its representations, warranties, covenants or agreements
contained in this Merger Agreement, or any such representation and warranty
shall have become untrue, in any such case such that Section 7.03(a) or Section
7.03(b) will not be satisfied and such breach or condition has not been cured
within ten (10) business days following receipt by McLeod of written notice of
such breach;
(c) by McLeod, upon McLeod's determination, based on its due diligence
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investigation and review of the Company and the Subsidiaries, that (i) there is,
or is reasonably likely to be, any material diminution in the benefits expected
to be derived by McLeod as a result of the transactions contemplated by this
Merger Agreement or (ii) any development has occurred or information been
discovered that has, or is reasonably likely to have, or that indicates a
Company Material Adverse Effect;
(d) by either McLeod or the Company if any decree, permanent injunction,
judgment, order or other action by any court of competent jurisdiction or any
Governmental Entity preventing or prohibiting consummation of the Merger shall
have become final and non-appealable;
(e) by either McLeod or the Company if the Agreement shall fail to
receive the requisite vote for approval and adoption by the Company Stockholders
at the Stockholders' Meeting;
(f) by either McLeod or the Company if the Merger shall not have been
consummated by February 15, 1999; PROVIDED HOWEVER, that the right to terminate
this Merger Agreement under this Section 8.01(f) shall not be available to (i)
McLeod, where McLeod's willful failure to fulfill any obligation under this
Merger Agreement has been the cause of, or resulted in, the failure of the
Effective Time to occur on or before such date, or (ii) the Company, where the
Company's willful failure to fulfill any obligation under this Merger Agreement
has been the cause of, or resulted in, the failure of the Effective Time to
occur on or before such date; and
(g) by the Company if the average of the closing bid and ask price for
McLeod Common Stock quoted on the National Association of Securities Dealers'
Automated Quotation System on the Closing Date, as reported in the WALL STREET
JOURNAL, is $20.00 or less per share.
SECTION 8.02. EFFECT OF TERMINATION.
In the event of termination of this Merger Agreement by either McLeod or
the Company as provided in Section 8.01, this Merger Agreement shall forthwith
become void and there shall be no liability or obligation on the part of McLeod,
Pubco Sub or the Company or any of their respective directors or officers except
(i) as set forth in Sections 8.03 and 9.01 hereof, (ii) nothing herein shall
relieve any party from liability for any breach hereof, (iii) each party shall
be entitled to any remedies at law or in equity for such breach and (iv)
Sections 8.02 and 8.03 and Article IX shall remain in full force and effect and
survive any termination of this Merger Agreement.
SECTION 8.03. EXPENSES.
All costs and expenses incurred in connection with this Merger Agreement
and the transactions contemplated hereby shall be paid by the party incurring
such expense. McLeod shall pay the applicable HSR filing fee.
SECTION 8.04. AMENDMENT.
This Merger Agreement may be amended by the parties hereto at any time
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prior to the Effective Time; PROVIDED, HOWEVER, that, after approval of the
Merger by the Company Stockholders, no amendment may be made which would reduce
the amount or change the type of consideration into which each share of Company
Common Stock shall be converted pursuant to this Merger Agreement upon
consummation of the Merger. This Merger Agreement may not be amended except by
an instrument in writing signed by the parties hereto.
SECTION 8.05. EXTENSION; WAIVER.
At any time prior to the Effective Time, the parties hereto may (a)
extend the time for the performance of any of the obligations or other acts of
the other parties hereto, (b) waive any inaccuracies in the representations and
warranties contained herein or in any Document delivered pursuant hereto and (c)
subject to the proviso of Section 8.04, waive compliance with any of the
agreements or conditions contained herein. Any such extension or waiver shall be
valid if set forth in an instrument in writing signed by the party or parties to
be bound thereby. The failure of any party to assert any of its rights under
this Merger Agreement or otherwise shall not constitute a waiver of such rights.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company contained in this
Merger Agreement shall survive the Effective Time for a period of eighteen (18)
months, except for the representations and warranties contained in Sections
3.05, 3.16, 3.17 and 3.30, which shall survive until the expiration of the
statute of limitations. The representations and warranties of McLeod contained
in the Merger Agreement shall survive the Effective Time for a period of
eighteen (18) months. Notwithstanding anything herein to the contrary, any
representation, warranty, covenant or agreement that is the subject of a Claim
asserted in writing prior to the expiration of the applicable period set out
above, shall survive with respect to such Claim until the final resolution
thereof.
SECTION 9.02. NOTICES.
All notices and other communications given or made pursuant hereto shall
be in writing and shall be deemed to have been duly given or made as of the date
delivered, mailed or transmitted if delivered personally, mailed by registered
or certified mail (postage prepaid, return receipt requested) or sent by
overnight courier (providing proof of delivery) to the parties at the following
addresses or sent by electronic transmission to the following telecopier numbers
(or at such other address or telecopy number for a party as shall be specified
by like notice):
(a) If to McLeod or Pubco Sub:
McLeodUSA Incorporated
McLeodUSA Technology Park
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6400 C Street SW
PO Box 3177
Cedar Rapids, Iowa 52406-3177
Telecopier No.: (319) 298-7901
Attention: Randall Rings
Vice President, General Counsel and Secretary
With a copy (which shall not constitute notice) to:
Hogan & Hartson L.L.P.
Columbia Square
555 Thirteenth Street, N.W.
Washington, DC 20004
Telecopier No.: (202) 637-5910
Attention: Joseph G. Connolly, Jr.
(b) If to the Company:
Talking Directories, Inc.
5311 Clyde Park Avenue
Wyoming, MI 49509-9529
Telecopier No.:
Attention: John P. Morgan, President
With a copy (which shall not constitute notice) to:
Miller, Johnson, Snell & Cumminskey
250 Monroe Avenue NW, Suite 800
PO Box 306
Grand Rapids, MI 49501-0306
Telecopier No.: (616) 831-1701
Attention: Jeffrey B. Lawson
SECTION 9.03. HEADINGS.
The headings contained in this Merger Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Merger Agreement.
SECTION 9.04. SEVERABILITY.
If any term or other provision of this Merger Agreement is invalid,
illegal or incapable of being enforced by any rule of Law or public policy, all
other conditions and provisions of this Merger Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Merger Agreement so as to effect the
original
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intent of the parties as closely as possible in an acceptable manner to the end
that transactions contemplated hereby are fulfilled to the extent possible.
SECTION 9.05. ENTIRE AGREEMENT.
This Merger Agreement (together with the Exhibits, Schedules, the
Company Disclosure Schedule and the McLeod Disclosure Schedule and the other
Documents delivered pursuant hereto) and the Confidentiality Agreement (as
defined in Article X) constitute the entire agreement of the parties and
supersede all prior agreements and undertakings, both written and oral, among
the parties, or any of them, with respect to the subject matter hereof and,
except as otherwise expressly provided herein, are not intended to confer upon
any other Person any rights or remedies hereunder.
SECTION 9.06. ASSIGNMENT.
This Merger Agreement shall not be assigned by operation of Law or
otherwise.
SECTION 9.07. PARTIES IN INTEREST.
This Merger Agreement shall be binding upon and inure solely to the
benefit of each party hereto, and nothing in this Merger Agreement, express or
implied, other than the right to receive the consideration payable in the Merger
pursuant to Article II, is intended to or shall confer upon any other Person any
right, benefit or remedy of any nature whatsoever under or by reason of this
Merger Agreement.
SECTION 9.08. MUTUAL DRAFTING.
Each party hereto has participated in the drafting of this Merger
Agreement, which each party acknowledges is the result of extensive negotiations
between the parties.
SECTION 9.09. SPECIFIC PERFORMANCE.
In addition to any other remedies McLeod may have at law or in equity,
the Company hereby acknowledges that the Company Common Stock and the Company
and the Subsidiaries are unique, and that the harm to McLeod resulting from
breaches by the Company of its obligations cannot be adequately compensated by
damages. Accordingly, the Company agrees that McLeod shall have the right to
have all obligations, undertakings, agreements, covenants and other provisions
of this Merger Agreement specifically performed by the Company and that McLeod
shall have the right to obtain an order or decree of such specific performance
in any of the courts of the United States of America or of any state or other
political subdivision thereof.
SECTION 9.10. GOVERNING LAW.
This Merger Agreement shall be governed by, and construed in accordance
with, the Laws of the State of Iowa, regardless of the Laws that might otherwise
govern under applicable principles of conflicts of law.
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SECTION 9.11. COUNTERPARTS.
This Merger Agreement may be executed and delivered in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed and delivered shall be deemed to be an original but all
of which taken together shall constitute one and the same agreement.
SECTION 9.12. CONFIDENTIALITY.
Except to the extent disclosure, filing, reporting or announcement of
this Merger Agreement is required by law, including by any rules or regulations
of any applicable governmental, regulatory or stock exchange agency or
authority, the existence and substance of this Merger Agreement shall remain
confidential until publically announced by McLeod. If the transactions
contemplated by this Merger Agreement are not consummated, McLeod agrees that it
will return to the Company, and the Company agrees that it will return to
McLeod, all records and other documents of the other then in that party's
possession and will not itself use, or disclose, directly or indirectly, to any
Business Information with respect to the other party or the business learned by
the party during the period between the date hereof and the termination of this
Merger Agreement. The term "Business Information" as used herein means all
information of a business or technical nature relevant to each party's business
that is not generally known to or by those persons generally knowledgeable about
such types of business. The foregoing shall survive the closing or any
termination of this Merger Agreement without limitation.
ARTICLE X
DEFINITIONS
For purposes of this Merger Agreement, the following terms, and the
singular and plural thereof, shall have the meanings set forth below:
"AFFILIATE" means: (a) with respect to an individual, any member of such
individual's family; (b) with respect to an entity, any officer, director,
stockholder, partner or investor of or in such entity or of or in any Affiliate
of such entity; and (c) with respect to a Person, any Person which directly or
indirectly, through one or more intermediaries, Controls, is Controlled by, or
is under common Control with such person or entity.
"AFFILIATE" means, with respect to any Person, a Person that directly or
indirectly, through one or more intermediaries, Controls, is Controlled by, or
is under common Control with, such Person.
"AGREEMENT" means any legally binding concurrence of understanding and intention
between two or more Persons with respect to their relative rights and/or
obligations or with respect to a thing done or to be done (whether or not
conditional, executory, express, implied, in writing or meeting the requirements
of contract), including, without limitation, contracts, leases, promissory
notes, covenants, easements, rights of way, covenants, commitments, arrangements
and understandings.
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"ARTICLES OF MERGER" is defined in Section 1.02.
"ASSETS" means assets of every kind and everything that is or may be available
for the payment of liabilities (whether inchoate, tangible or intangible),
including, without limitation, real and personal property.
"BENEFICIAL OWNER" means, with respect to any shares of Company Common Stock, a
Person who shall be deemed to be the beneficial owner of such shares (i) which
such Person or any of its affiliates or associates beneficially owns, directly
or indirectly, (ii) which such Person or any of its affiliates or associates (as
such term is defined in Rule 12b-2 under the Exchange Act) has, directly or
indirectly, (A) the right to acquire (whether such right is exercisable
immediately or subject only to the passage of time), pursuant to any Agreement
or upon the exercise of conversion rights, exchange rights, warrants or options,
or otherwise, or (B) the right to vote pursuant to any Agreement, (iii) which
are beneficially owned, directly or indirectly, by any other Persons with whom
such Person or any of its affiliates or associates has any Agreement for the
purpose of acquiring, holding, voting or disposing of any such shares, or (iv)
pursuant to Section 13(d) of the Exchange Act and any rules or regulations
promulgated thereunder.
"BUSINESS DAY" means a day other than a Saturday, a Sunday or any other day on
which commercial banks in the State of Michigan and in the State of Iowa are
authorized or obligated to be closed.
"BLUE SKY LAWS" means state securities or blue sky laws and the rules and
regulations thereunder.
"CERTIFICATES" is defined in Section 2.02(b).
"CLOSING" is defined in Section 2.04.
"CLOSING DATE" is defined in Section 2.04.
"CODE" is defined in the Preamble to this Merger Agreement.
"COMMON CONTROL ENTITY" means any trade or business under common control (as
such term is defined in Section 414(b) or 414(c) of the Code) with the Company
or any Subsidiary.
"COMMON SHARE EXCHANGE RATIO" is defined in Section 2.01(a).
"COMPANY" is defined in the Preamble to this Merger Agreement.
"COMPANY COMMON STOCK" is defined in Section 2.01(a).
"COMPANY CONTRACTS" is defined in Section 3.14(a).
"COMPANY DISCLOSURE SCHEDULE" is defined in Article III.
"COMPANY KEY EMPLOYEES" is defined in Section 6.06.
"COMPANY LICENSES" is defined in Section 3.07(a).
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"COMPANY MATERIAL ADVERSE EFFECT" means any event, change or effect that,
individually or when taken together with all other such events, changes or
effects, is or is reasonably likely to be materially adverse to the business,
operations, condition (financial or otherwise), Assets or liabilities of the
Company and the Subsidiaries, taken as a whole.
"COMPANY PREFERRED STOCK" is defined in Section 3.04.
"COMPANY STOCKHOLDERS" is defined in the Preamble to this Merger Agreement.
"COMPANY TAX RETURNS" means all Tax Returns required to be filed by the Company
or any of the Subsidiaries (without regard to extensions of time permitted by
law or otherwise).
"COMPETING TRANSACTION" is defined in Section 5.05(a).
"CONTROL" (including the terms "CONTROLLED BY" and "UNDER COMMON CONTROL WITH")
means, as used with respect to any Person, possession, directly or indirectly or
as a trustee or executor, of power to direct or cause the direction of
management or policies of such Person (whether through ownership of voting
securities, as trustee or executor, by Agreement or otherwise).
"DAMAGES" is defined in Section 6.10.
"DEFINED BENEFIT PLAN" means a Plan that is or was a "defined benefit plan" as
such term is defined in Section 3(35) of ERISA.
"DOCUMENTS" means any paper or other material (including, without limitation,
computer storage media) on which is recorded (by letters, numbers or other
marks) information that may be evidentially used, including, without limitation,
legal opinions, mortgages, indentures, notes, instruments, leases, Agreements,
insurance policies, reports, studies, financial statements (including, without
limitation, the notes thereto), other written financial information, schedules,
certificates, charts, maps, plans, photographs, letters, memoranda and all
similar materials.
"DOL" means the United States Department of Labor and its successors.
"EFFECTIVE TIME" is defined in Section 1.02.
"EMPLOYMENT AGREEMENTS" is defined in Section 6.06.
"ENCUMBRANCE" means any mortgage, lien, pledge, security interest, deed of
trust, option, encroachment, reservation, order, decree, judgment, condition,
restriction, charge, or Agreement of any kind.
"ENVIRONMENTAL LAWS" means any Laws (including, without limitation, the
Comprehensive Environmental Response, Compensation, and Liability Act),
including any plans, other criteria, or guidelines promulgated pursuant to such
Laws, now or hereafter in effect relating to Hazardous Materials generation,
production, use, storage, treatment, transportation or disposal, or noise
control, or the protection of human health or the environment.
"ENVIRONMENTAL REPORTS" is defined in Section 6.08.
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"ERISA" means the Employee Retirement Income Security Act of 1974, as amended,
and all Laws promulgated pursuant thereto or in connection therewith.
"ESOP" means an "employee stock ownership plan" as such term is defined in
Section 407(d)(6) of ERISA or Section 4975(e)(7) of the Code.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and all
Laws promulgated pursuant thereto or in connection therewith.
"FCC" means the United States Federal Communications Commission and its
successors.
"FINANCIAL STATEMENTS" is defined in Section 3.08.
"GAAP" means United States generally accepted accounting principles.
"GOVERNMENTAL ENTITIES" (including the term "GOVERNMENTAL") means any
governmental, quasi-governmental or regulatory authority, whether domestic or
foreign.
"GROUP" is defined in Section 5.05(a).
"HAZARDOUS DISCHARGE" means any emission, spill, release or discharge (whether
on Real Property, on property adjacent to the Real Property, or at any other
location or disposal site) into or upon the air, soil or improvements, surface
water or groundwater, or the sewer, septic system, or waste treatment, storage
or disposal systems servicing the Real Property, in each case of Hazardous
Materials used, stored, generated, treated or disposed of at the Real Property.
"HAZARDOUS MATERIALS" means any wastes, substances, radiation or materials
(whether solids, liquids or gases) that are regulated by a Governmental Entity
or defined or listed by a Governmental Entity as hazardous, toxic, pollutants or
contaminants, including, without limitation, substances defined as "hazardous
wastes," "hazardous substances," "toxic substances," "radioactive materials," or
other similar designations in, or otherwise subject to regulation under, any
Environmental Laws. "HAZARDOUS MATERIALS" includes polychlorinated biphenyls
(PCBs), asbestos, lead-based paints, and petroleum and petroleum products
(including, without limitation, crude oil or any fraction thereof).
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and all Laws promulgated pursuant thereto or in connection therewith.
"INDIVIDUAL ACCOUNT PLAN" means a Plan that is or was an "individual account
plan" as such term is defined in Section 3(34) of ERISA.
"INTELLECTUAL PROPERTY" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, all rights to database
information, and
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all applications, registrations, and renewals in connection therewith, (d) all
moral rights, including all rights of paternity and integrity, all rights to
claim authorship of copyrightable works, to object to a modification of
copyrightable works, and all similar rights existing under the judicial or
statutory Law of any country in the world or under any treaty, regardless of
whether or not such right is denominated or generally referred to as a "moral
right," (e) all mask works and all applications, registrations, and renewals in
connection therewith, (f) all trade secrets and confidential business
information (including ideas, research and development, know-how, formulas,
compositions, manufacturing and production processes and techniques, technical
data, designs, drawings, specifications, customer and supplier lists, pricing
and cost information, and business and marketing plans and proposals), (g) all
computer software (including data and related documentation), (h) all rights,
including rights of privacy and publicity, to use the names, likenesses and
other personal characteristics of any individual, (i) all other proprietary
rights, and (j) all copies and tangible embodiments thereof (in whatever form or
medium) existing in any part of the world.
"INVENTORY" means all new materials, work in process and finished goods and
inventorable supplies.
"IRS" means the United States Internal Revenue Service and its successors.
"KNOWLEDGE" will be deemed to be present with respect to the Company and the
Subsidiaries or McLeod, when the matter in question was brought to the attention
of or, if due diligence had been exercised, would have been brought to the
attention of, any officer or responsible employee of the Company or any
Subsidiary, on the one hand, or McLeod, on the other hand.
"LAWS" means all foreign, federal, state and local statutes, laws, ordinances,
regulations, rules, resolutions, orders, tariffs, determinations, writs,
injunctions, awards (including, without limitation, awards of any arbitrator),
judgments and decrees applicable to the specified Person and to the businesses
and Assets thereof (including, without limitation, Laws relating to securities
registration and regulation; the sale, leasing, ownership or management of real
property; employment practices, terms and conditions, and wages and hours;
building standards, land use and zoning; safety, health and fire prevention; and
environmental protection, including Environmental Laws).
"LICENSE" means any franchise, grant, authorization, license, tariff, permit,
easement, variance, exemption, consent, certificate, approval or order of any
Governmental Entity.
"MCLEOD COMMON STOCK" is defined in Section 2.01.
"MCLEOD DISCLOSURE SCHEDULE" is defined in Article IV.
"MCLEOD MATERIAL ADVERSE EFFECT" means any event, change or effect that,
individually or when taken together with all other such events, changes or
effects, is or is reasonably likely to be materially adverse to the business,
operations, condition (financial or otherwise), Assets or liabilities of McLeod
and its subsidiaries, taken as a whole.
"MCLEOD POST-SIGNING SEC DOCUMENTS" is defined in Section 6.09.
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"MCLEOD SEC DOCUMENTS" is defined in Section 4.07.
"MERGER" is defined in the Preamble to this Merger Agreement.
"MERGER AGREEMENT" is defined in the Preamble to this Merger Agreement.
"MERGER CONSIDERATION" is defined in Section 2.01(a).
"MINIMUM-FUNDING PLAN" means a Pension Plan that is subject to Title I, Subtitle
B, Part 3, of ERISA (concerning "funding").
"MULTIEMPLOYER PLAN" means a "multiemployer plan" as such term is defined in
Section 3(37) of ERISA.
"NASD" means the National Association of Securities Dealers, Inc.
"NET CASH REVENUE" means all contracted for revenue in the form of cash paid or
accounts receivable, including national revenue, but excluding cancellations,
promotional discounts, payment plan discounts, and any revenue traded for value
other than cash or accounts receivable.
"OTHER ARRANGEMENT" means a benefit program or practice providing for bonuses,
incentive compensation, vacation pay, severance pay, insurance, restricted
stock, stock options, employee discounts, company cars, tuition reimbursement or
any other perquisite or benefit (including, without limitation, any fringe
benefit under Section 132 of the Code) to employees, officers or independent
contractors that is not a Plan.
"ORDINARY COURSE OF BUSINESS" means ordinary course of business consistent with
past practices and prudent business operations.
"PBGC" means the Pension Benefit Guaranty Corporation or its successors.
"PENSION PLAN" means an "employee pension benefit plan" as such term is defined
in Section 3(2) of ERISA.
"PERSON" means an individual, corporation, partnership, joint venture, trust,
unincorporated organization or other entity, or a Governmental Entity.
"PLAN" means any plan, program or arrangement, whether or not written, that is
or was an "employee benefit plan" as such term is defined in Section 3(3) of
ERISA and (a) which was or is established or maintained by the Company or any
Subsidiary; (b) to which the Company or any Subsidiary contributed or was
obligated to contribute or to fund or provide benefits; or (c) which provides or
promises benefits to any person who performs or who has performed services for
the Company or any Subsidiary and because of those services is or has been (i) a
participant therein or (ii) entitled to benefits thereunder.
"POST-SIGNING RETURNS" is defined in Section 5.03.
"PUBCO SUB" is defined in the Preamble to this Merger Agreement.
"QUALIFIED PLAN" means a Pension Plan that satisfies, or is intended by the
Company to
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satisfy, the requirements for Tax qualification described in Section 401 of the
Code.
"REAL PROPERTY" means the real property owned, operated, or used by the Company
or any of the Subsidiaries as of December 31, 1996, and any additional real
property owned, operated, or used since that date, and, for purposes of Section
3.30, any real property formerly owned or operated by the Company or any of the
Subsidiaries.
"REVIEWED BALANCE SHEETS" is defined in Section 3.08(a).
"REVIEWED STATEMENTS" is defined in Section 3.08(a)
"SEC" means the United States Securities and Exchange Commission and its
successors.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and all Laws
promulgated pursuant thereto or in connection therewith.
"SIGNIFICANT SUBSIDIARY" means any subsidiary of McLeod disclosed in its most
recent Annual Report on Form 10-K, and any other subsidiary that would
constitute a "Significant Subsidiary" of McLeod within the meaning of Rule 1-02
of Regulation S-X of the SEC.
"STATUTORY-WAIVER PLAN" means a Pension Plan that is not subject to Title I,
Subtitle B, Part 3, of ERISA (concerning "funding").
"STOCKHOLDERS' MEETING" is defined in Section 6.02.
"SUBSIDIARY" means a corporation, partnership, joint venture or other entity of
which the Company owns, directly or indirectly, at least 50% of the outstanding
securities or other interests the holders of which are generally entitled to
vote for the election of the board of directors or other governing body or
otherwise exercise Control of such entity.
"TAXES" (including the terms "TAX" and "TAXING") means all federal, state, local
and foreign taxes (including, without limitation, income, profit, franchise,
sales, use, real property, personal property, ad valorem, excise, employment,
social security and wage withholding taxes) and installments of estimated taxes,
assessments, deficiencies, levies, imports, duties, license fees, registration
fees, withholdings, or other similar charges of every kind, character or
description imposed by any Governmental Entity, and any interest, penalties or
additions to tax imposed thereon or in connection therewith.
"TAX RETURNS" means all federal, state, local, foreign and other applicable
returns, declarations, reports and information statements with respect to Taxes
required to be filed with the IRS or any other Governmental Entity or Tax
authority or agency, including, without limitation, consolidated, combined and
unitary tax returns.
"TITLE I PLAN" means a Plan that is subject to Title I of ERISA.
"TOTAL OUTSTANDING COMPANY SHARES" is defined in Section 2.01(a).
"UNAUDITED BALANCE SHEETS" is defined in Section 6.07.
"UNAUDITED FINANCIAL STATEMENTS" is defined in Section 6.07.
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"WELFARE PLAN" means an "employee welfare benefit plan" as such term is defined
in Section 3(1) of ERISA.
"YEAR 2000 COMPLAINT" means that neither performance nor functionality is
affected by dates prior to, during or after the year 2000; in particular (i) no
value for current date will cause any interruption in operation; (ii) date-based
functionality must behave consistently for dates before, during and after the
year 2000; (iii) in all interfaces and data storage, the century in any date is
specified either explicitly or by unambiguous algorithms or inferencing rules;
and (iv) the year 2000 must be recognized as a leap year.
IN WITNESS WHEREOF, McLeod, Pubco Sub, the Company and the Principal
Company Stockholders have caused this Merger Agreement to be executed and
delivered as of the date first written above.
McLEODUSA INCORPORATED
By: /s/ Arthur L. Christoffersen
-------------------------------------
Arthur L. Christoffersen, Group Vice
President, Publishing Services
PUBCO MERGING CO.
By: /s/ Arthur L. Christoffersen
-------------------------------------
Arthur L. Christoffersen, President
TALKING DIRECTORIES, INC.
By: /s/ John P. Morgan
-------------------------------------
John P. Morgan, President
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PRINCIPAL COMPANY STOCKHOLDERS
/s/ HENDRIK G. MEIJER
- ---------------------------------------
HENDRIK G. MEIJER, individually
and as Trustee of the Hendrik G. Meijer
Trust dated August 30, 1988
/s/ JOHN P. MORGAN
- --------------------------------------
JOHN P. MORGAN, individually and as
First Trustee of the John P. Morgan
Trust under a Trust Agreement dated
May 24, 1988, as amended and restated
in its entirety on February 22, 1991
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Exhibit 4.10
AGREEMENT
THIS AGREEMENT is entered into this day of May 11, 1999, by and among
McLeodUSA Incorporated ("McLeodUSA"), on its own behalf and on behalf of its
wholly owned subsidiaries Talking Directories, Inc. ("TDI") and Info America
Phone Books, Inc. ("Info America"), the Hendrik G. Meijer GST Exempt 1997
Special Trust F/B/O Haley Elizabeth Meyer, the Hendrik G. Meijer GST Exempt
1997 Special Trust F/B/O Peter James Frederik Meyer, the Hendrik G. Meijer
GST Exempt 1997 Special Trust F/B/O Hanna Lee Meyer (collectively, the
"Meijer Trusts"), Hendrik G. Meijer, individually and as Trustee of the
Hendrik G. Meijer Trust dated August 30, 1988 ("Meijer"), John P. Morgan,
individually and as First Trustee of the John P. Morgan Trust ("Morgan") and
the other parties listed on the signature pages below. All capitalized terms
used in this Agreement shall, unless otherwise defined herein, have the
meanings ascribed to them in the TDI Merger Agreement (as defined below) or
the Info America Merger Agreement (as defined below), as applicable.
WHEREAS, on February 10, 1999, McLeodUSA, Pubco Merging Co., TDI,
Meijer, and Morgan entered into an Amended and Restated Agreement and Plan of
Merger (the "TDI Merger Agreement"), which amended and restated the Agreement
and Plan of Merger among such parties originally dated as of January 7, 1999;
and
WHEREAS, in connection with the TDI Merger Agreement, the parties
thereto entered into an Investment Agreement dated as of February 10, 1999 (the
"TDI Investment Agreement"); and
WHEREAS, in a related transaction, McLeodUSA, Publication Merge Co.,
Info America, Meijer and Morgan entered into an Amended and Restated Agreement
and Plan of Merger (the "Info America Merger Agreement"), which amended and
restated the Agreement and Plan of Merger among such parties originally dated as
of January 7, 1999; and
WHEREAS, in connection with the Info America Merger Agreement, the
parties thereto, the Meijer Trusts and certain other parties entered into an
Investment Agreement dated as of February 10, 1999 (the "Info America Investment
Agreement"); and
WHEREAS, McLeodUSA consummated the transactions contemplated by the TDI
Merger Agreement and the Info America Merger Agreement on February 10, 1999;
WHEREAS, the TDI Merger Agreement granted Meijer and Morgan certain
registration rights and the Info America Merger Agreement granted Meijer,
Morgan, the Meijer Trusts and the other parties thereto certain registration
rights; and
WHEREAS, the parties hereto desire to revise certain terms of the
registration rights provided in those agreements.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby expressly acknowledged, the undersigned parties
agree as follows:
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<PAGE>
1. The parties hereto hereby waive the requirement set out in Section
6.19(a) of the TDI Merger Agreement and the Info America Merger Agreement that
McLeodUSA file the Resale Registration Statement by May 11, 1999, and expressly
agree that the deadline for McLeodUSA to file such Resale Registration Statement
shall be extended until May 14, 1999.
2. For good and valuable consideration transferred from Meijer to the
Meijer Trusts, the Meijer Trusts, acting by and through their authorized
trustees, hereby transfer to Meijer, which transfer is hereby approved by the
parties hereto, any and all registration and related rights they have pursuant
to Section 6.19 of Info America Merger Agreement (including the right of
indemnification), and do hereby waive, release and relinquish any and all claims
they may have to the rights so transferred.
3. The parties hereto acknowledge that pursuant to paragraph 2 hereof,
and subject to paragraph 5 below, Meijer shall have, in addition to Meijer's
existing rights under Section 6.19 of the TDI Merger Agreement and the Info
America Merger Agreement, the right to register the number of shares of McLeod
Common Stock that the Meijer Trusts otherwise would have been entitled to
register under Section 6.19 of the Info America Merger Agreement. The parties
acknowledge that Meijer consequently shall have the right, subject to paragraph
5 below, to register up to a total of 469,909 shares of McLeod Common Stock
pursuant to the terms of Section 6.19 of the TDI Merger Agreement and the Info
America Merger Agreement and the Resale Registration Statement described
therein.
4. Meijer hereby represents to McLeodUSA that Meijer intends (a) to
transfer the shares of McLeod Common Stock owned by Meijer that have been
registered pursuant to the Resale Registration Statement to a charitable
remainder unitrust formed by Meijer for subsequent sale by such charitable
remainder unitrust pursuant to the Resale Registration Statement, and (b) to
transfer the registration rights associated with such shares of McLeod Common
Stock under the TDI Merger Agreement, the Info America Merger Agreement and
paragraph 2 hereof to such charitable remainder unitrust ( the transfers
described in clauses (a) and (b) of this paragraph 4 are referred to herein
collectively as, the "Proposed Transfers").
5. Subject to (a) McLeodUSA receiving from Miller, Johnson, Snell &
Cummiskey, P.L.C. a written opinion letter, in form and substance acceptable to
McLeodUSA and its legal counsel and upon which McLeodUSA and its legal counsel
may rely, to the effect that (i) the execution, delivery and performance of this
Agreement (including the Proposed Transfers) by Meijer and the Meijer Trusts (A)
has been duly authorized by all necessary corporate or trust action, and (B)
does not conflict with or violate any provision of the trust agreement or other
organizational documents of the Meijer Trusts, any right of any beneficiary of
any of the Meijer Trusts, or any provision of applicable law, and (ii) this
Agreement constitutes the legal, valid and binding obligation of Meijer and the
Meijer Trusts, enforceable in accordance with its terms, and (b) such charitable
remainder unitrust agreeing to be bound by the terms of Section 6.19 of the TDI
Merger Agreement and the Info America Merger Agreement, the Meijer Trusts,
Meijer and such charitable remainder unitrust may make the
-2-
<PAGE>
Proposed Transfers, notwithstanding the terms of Section 6.19(e) of the TDI
Merger Agreement and the Info America Merger Agreement.
6. Meijer and each of the Meijer Trusts, jointly and severally, shall
indemnify, defend and hold harmless McLeodUSA and its officers, directors and
affiliates from and against any and all losses, costs, damages, liabilities and
expenses, including reasonable attorney's fees and expenses, arising out of any
breach of the representations, covenants and agreements given or made by Meijer
or the Meijer Trusts under this Agreement.
7. Meijer and each of the Meijer Trusts, jointly and severally,
represent and warrant as follows:
(a) the execution, delivery and performance of this Agreement by
Meijer and the Meijer Trusts (i) has been duly authorized by all necessary
corporate or trust action and (ii) does not conflict with or violate any
provision of the trust agreement or other organizational documents of the Meijer
Trusts, any right of any beneficiary of any of the Meijer Trusts, or any
provision of applicable law, and
(b) this Agreement constitutes the legal, valid and binding
obligation of Meijer and the Meijer Trusts, enforceable in accordance with its
terms.
8. Except as otherwise set out herein, the terms of the TDI Merger
Agreement, the TDI Investment Agreement, the Info America Merger Agreement, the
Info America Investment Agreement, and all other documents and instruments
executed in connection with the transactions contemplated by those agreements,
shall remain in full force and effect.
This Agreement may be executed in multiple counterparts, each of which,
when executed and delivered, shall be deemed to be an original and all of which
shall constitute one and the same Agreement.
EXECUTED as of the date set out above.
McLEODUSA INCORPORATED
By: /s/ Randall Rings /s/ Hendrik G. Meijer
-------------------------------- ---------------------------------------
Randall Rings, Secretary HENDRIK G. MEIJER, Individually and as
Trustee of the Hendrik G. Meijer Trust
dated August 30, 1988
/s/ John P. Morgan
- -----------------------------------
JOHN P. MORGAN, Individually and as HENDRIK G. MEIJER GST EXEMPT 1997
First Trustee of the John P. Morgan SPECIAL TRUST F/B/O HALEY
Trust under a Trust Agreement dated ELIZABETH MEYER
May 24, 1988, as amended and
restated in its entirety on BY OLD KENT BANK, TRUSTEE
February 22, 1991
By: /s/ Jon R. Winters
------------------------------------
Jon R. Winters, Vice President
------------------------------------
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<PAGE>
HENDRIK G. MEIJER GST EXEMPT 1997 HENDRIK G. MEIJER GST EXEMPT 1997
SPECIAL TRUST F/B/O PETER JAMES SPECIAL TRUST F/B/0 HANNA LEE
FREDERIK MEYER MEYER
BY OLD KENT BANK, TRUSTEE BY OLD KENT BANK
By: /s/ Jon R. Winters By: /s/ Jon R. Winters
-------------------------------- ------------------------------------
Jon R. Winters, Vice President Jon R. Winters, Vice President
-------------------------------- ------------------------------------
KARRI J. GABRIDGE EXEMPT TRUST KACIE K. MCLEAN EXEMPT TRUST
UNDER THE MORGAN 1997 SPECIAL UNDER THE MORGAN 1997 SPECIAL
TRUST, DATED OCTOBER 24, 1997 TRUST, DATED OCTOBER 24, 1997
By: /s/ Jeffrey B. Lawson By: /s/ Jeffrey B. Lawson
-------------------------------- ------------------------------------
Jeffrey B. Lawson, Trustee Jeffrey B. Lawson, Trustee
-------------------------------- ------------------------------------
JOSEPH J. MORGAN EXEMPT TRUST
UNDER THE MORGAN 1997 SPECIAL
TRUST, DATED OCTOBER 24, 1997
By: /s/ Jeffrey B. Lawson
--------------------------------
Jeffrey B. Lawson, Trustee
--------------------------------
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<PAGE>
Exhibit 5.1
[Letterhead of Hogan & Hartson L.L.P.]
May 28, 1999
Board of Directors
McLeodUSA Technology Park
McLeodUSA Incorporated
6400 C Street SW, P.O. Box 3177
Cedar Rapids, IA 52406-3177
Gentlemen:
We are acting as special counsel to McLeodUSA Incorporated, a Delaware
corporation (the "Company"), in connection with its registration statement on
Form S-3, as amended (File No. 333-78561) (the "Registration Statement") filed
with the Securities and Exchange Commission relating to the proposed public
offering of up to 939,847 shares of the Company's Class A common stock, par
value $0.01 per share, all of which shares (the "Shares") are to be sold by the
Selling Stockholders identified in the Registration Statement. 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. Section
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. The Amended and Restated Certificate of Incorporation of the
Company, as certified by the Secretary of State of the State of
Delaware on May 10, 1999 (the "Amended and Restated
Certificate"), the Certificate of Amendment of Amended and
Restated Certificate of Incorporation of the Company, as
certified by the Secretary of State of the State of Delaware on
May 10, 1999 (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 May 10, 1999 (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.
<PAGE>
May 28, 1999
Page 2
3. The Amended and Restated By-laws of the Company, as certified by
the Secretary of the Company on the date hereof as then being
complete, accurate and in effect.
4. A certificate of certain officers of the Company, dated as of
the date hereof, as to certain facts relating to the Company.
5. Resolutions of the Board of Directors of the Company adopted on
January 6, 1999, as certified by the Secretary of the
Company on the date hereof as then being complete, accurate and
in effect, relating to the sale of the Shares and and
arrangements in connection therewith.
In our examination of the aforesaid documents, we have assumed the
genuineness of all signatures, the legal capacity of natural persons, the
authenticity, accuracy and completeness of all documents submitted to us, and
the conformity with the original documents of all documents submitted to us as
certified, telecopied, photostatic, or reproduced copies. This opinion letter is
given, and all statements herein are made, in the context of the foregoing.
In rendering this opinion letter we have relied as to factual matters,
without independent investigation, upon the representations, warranties and
certifications made by the Company in or pursuant to the officers' certificate
indentified in Paragraph 4 above.
This opinion letter is based as to matters of law solely on the General
Corporation Law of the State of Delaware. We express no opinion herein as to any
other laws, statutes, regulations, or ordinances.
Based upon, subject to and limited by the foregoing, we are of the
opinion that, assuming the receipt by the Company of the consideration as
provided in resolutions of the Company's Board of Directors authorizing issuance
of the Shares, the Shares are validly issued, fully paid and non-assessable
under the General Corporation Law of the State of Delaware.
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 be referred to, nor filed with or furnished to any
governmental agency or other person or entity, without the prior written consent
of this firm.
<PAGE>
May 28, 1999
Page 3
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 Amendment No. 1 to the Form S-3 Registration Statement of our
McLeodUSA Incorporated reports dated January 27, 1999 (except with respect to
the matter discussed in Note 16, as to which the date is March 5, 1999) and to
all references to our Firm included in or made a part of this Registration
Statement.
/s/ ARTHUR ANDERSEN LLP
Chicago, Illinois
May 27, 1999
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
Amendment No. 1 to the Registration Statement (Form S-3) and related Prospectus
of McLeodUSA Incorporated for the registration of 939,847 shares of its Class A
Common Stock and to the incorporation by reference therein of our report dated
February 26, 1999, with respect to the consolidated financial statements of
Ovation Communications, Inc. as of December 31, 1998 and 1997 and for the period
from March 27, 1997 (inception) to December 31, 1997 and the year ended December
31, 1998, included in the Registration Statement on Form S-4 (No. 333-71811) of
McLeodUSA Incorporated filed with the Securities and Exchange Commission.
/s/ Ernst & Young L.L.P.
Minneapolis, Minnesota
May 27, 1999
