<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 14, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
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>
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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
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
------------------------------
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 14, 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 13, 1999, was $55.625 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 December 31, 1998, based on our business plan, capital requirements
and growth projections as of that date, we estimated that we would require
approximately $1.4 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 December 31, 1998, we had $1.2 billion of long-term debt and $462.8
million of stockholders' equity. We incurred an additional $500 million of
long-term debt on February 22, 1999. 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
5
<PAGE>
calls. Their communications facilities allow us to provide (1) local service,
(2) long distance service and (3) private lines dedicated to our 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
6
<PAGE>
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.
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
7
<PAGE>
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
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 March 31, 1999, Interstate Energy Corporation, MHC Investment Company,
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 54% of our outstanding Class A common stock. These stockholders
can collectively control management policy and all corporate actions requiring a
stockholder vote, including election of the board of directors. 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
8
<PAGE>
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.
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 74.4 million shares of our Class A common stock outstanding as of
March 31, 1999. There were also options to purchase 15.8 million shares of Class
A common stock outstanding as of March 31, 1999. Interstate Energy, MHC
Investment, 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 40.2 million shares
as of March 31, 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.
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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
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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 December 31, 1998, based on our business plan, capital requirements
and growth projections as of that date, we estimated that we would require
approximately $1.4 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 $487.8 million in net proceeds from the sale of $500 million
of senior notes on February 22, 1999
- approximately $591.7 million of cash and investments on hand at December
31, 1998
- projected operating cash flow
12
<PAGE>
- additional issuances of debt or equity securities
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 Balance Sheet assumes that
the Ovation acquisition and the issuance of the 8 1/8% senior notes were
consummated on December 31, 1998. 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 BALANCE SHEETS
(IN THOUSANDS)
AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
ADJUSTMENTS PRO FORMA
PRO FOR THE FOR THE
ADJUSTMENTS FORMA 8 1/8% 8 1/8%
FOR THE FOR THE SENIOR SENIOR
OVATION OVATION NOTES NOTES
MCLEODUSA OVATION ACQUISITION ACQUISITION OFFERING OFFERING
------------ ---------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............ $ 455,067 $ 1,310 $(121,260) $ 335,117 $ 487,800 $ 822,917
Investment in available-for-sale
securities......................... 136,585 -- -- 136,585 -- 136,585
Other current assets................. 201,540 18,400 -- 219,940 -- 219,940
------------ ---------- ----------- ------------ ----------- ------------
TOTAL CURRENT ASSETS............... 793,192 19,710 (121,260) 691,642 487,800 1,179,442
Property and equipment, net............ 629,746 76,660 -- 706,406 -- 706,406
Intangible assets...................... 402,018 58,881 277,939 738,838 -- 738,838
Other assets........................... 100,241 904 -- 101,145 12,200 113,345
------------ ---------- ----------- ------------ ----------- ------------
TOTAL ASSETS....................... $ 1,925,197 $ 156,155 $ 156,679 $ 2,238,031 $ 500,000 $ 2,738,031
------------ ---------- ----------- ------------ ----------- ------------
------------ ---------- ----------- ------------ ----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities.................... $ 179,956 $ 22,210 $ 10,000 $ 212,166 $ -- $ 212,166
Long-term debt, less current
maturities........................... 1,245,170 91,706 -- 1,336,876 500,000 1,836,876
Other long-term liabilities............ 37,265 -- -- 37,265 -- 37,265
------------ ---------- ----------- ------------ ----------- ------------
TOTAL LIABILITIES.................. 1,462,391 113,916 10,000 1,586,307 500,000 2,086,307
------------ ---------- ----------- ------------ ----------- ------------
Stockholders' equity:
Preferred stock...................... -- 2 (2) -- -- --
Common stock......................... 637 240 (184) 693 -- 693
Additional paid-in capital........... 716,475 49,487 139,375 905,337 -- 905,337
Deferred compensation................ -- (425) 425 -- -- --
Retained earnings (deficit).......... (252,647) (7,065) 7,065 (252,647) -- (252,647)
Accumulated other comprehensive
income............................. (1,659) -- -- (1,659) -- (1,659)
------------ ---------- ----------- ------------ ----------- ------------
TOTAL STOCKHOLDERS' EQUITY......... 462,806 42,239 146,679 651,724 -- 651,724
------------ ---------- ----------- ------------ ----------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY........................... $ 1,925,197 $ 156,155 $ 156,679 $ 2,238,031 $ 500,000 $ 2,738,031
------------ ---------- ----------- ------------ ----------- ------------
------------ ---------- ----------- ------------ ----------- ------------
</TABLE>
15
<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.
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.
<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 , 1999
- Our Current Reports on Form 8-K filed on April 15, 1999, April 16, 1999
and May 5, 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 Class A common stock set forth in our registration
statement filed under Section 12 of the Securities Exchange Act on Form
8-A on May 24, 1996, including any amendment or report filed with the SEC
for the purpose of updating such description
- 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 in writing or by telephone at the following address:
McLeodUSA Incorporated
McLeodUSA Technology Park
6400 C Street SW, P.O. Box 3177
Cedar Rapids, IA 52406-3177
Attn: General Counsel
Telephone (319) 364-0000
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).
*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>
- ------------------------
* To be filed by amendment.
(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.
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
II-3
<PAGE>
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 14TH DAY
OF MAY, 1999.
<TABLE>
<S> <C> <C>
MCLEODUSA INCORPORATED
By: /s/ STEPHEN C. GRAY
-----------------------------------------
Stephen C. Gray
President and Chief Operating Officer
</TABLE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Clark E. McLeod, Stephen C. Gray and Blake O.
Fisher, Jr., jointly and severally, each in his own capacity, his true and
lawful attorneys-in-fact, with full power of substitution, for him and his name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents with full power and authority to do so and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact, or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS, IN THE CAPACITIES
INDICATED BELOW, ON THIS 14TH DAY OF MAY, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
Chairman, Chief Executive
/s/ CLARK E. MCLEOD Officer and Director
- ------------------------------ (Principal Executive
Clark E. McLeod Officer)
/s/ RICHARD A. LUMPKIN
- ------------------------------ Vice Chairman and Director
Richard A. Lumpkin
/s/ STEPHEN C. GRAY
- ------------------------------ President, Chief Operating
Stephen C. Gray Officer and Director
/s/ BLAKE O. FISHER, JR.
- ------------------------------ Group Vice President and
Blake O. Fisher, Jr. Director
Group Vice President,
Chief Financial Officer
/s/ J. LYLE PATRICK and Treasurer (Principal
- ------------------------------ Financial Officer and
J. Lyle Patrick Principal Accounting
Officer)
/s/ THOMAS M. COLLINS
- ------------------------------ Director
Thomas M. Collins
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
/s/ ROBERT J. CURREY
- ------------------------------ Director
Robert J. Currey
/s/ LEE LIU
- ------------------------------ Director
Lee Liu
/s/ PAUL D. RHINES
- ------------------------------ Director
Paul D. Rhines
/s/ PETER H.O. CLAUDY
- ------------------------------ Director
Peter H.O. Claudy
</TABLE>
II-6
<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).
*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 theyear ended
December 31, 1998, File No. 0-20763, filed with the Commission on March 24, 1999and incorporated herein
by reference).
</TABLE>
- ------------------------
* To be filed by amendment.
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this 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 14, 1999
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in 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 14, 1999
