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Filed by: McLeodUSA Incorporated
Pursuant to Rule 425 under the Securities Act of 1933
and deemed filed pursuant to Rule 14a-12 of the Securities Exchange Act of 1934
Subject Company: CapRock Communications Corp.
Commission File No.: 000-24581
[MCLEODUSA INCORPORATED LOGO] [CAPROCK COMMUNICATIONS LOGO]
McLeodUSA Incorporated CapRock Communications Corp.
McLeodUSA Technology Park 15601 Dallas Parkway
6400 C Street SW, PO Box 3177 Suite 700
Cedar Rapids, IA 52406-3177 Dallas, TX 75001
Press & Investor Contact: Press & Investor Contact:
Bryce E. Nemitz Andrew Roberts
[email protected] [email protected]
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Phone: (319) 790-7800 Phone: Phone: (972) 982-9550
Fax: (319) 790-7767 Fax: Fax: (972) 982-9676
FOR IMMEDIATE RELEASE
McLeodUSA to Acquire CapRock Communications
Acquisition Will Extend McLeodUSA Footprint to 25 States,
Add 5,200 Miles of Fiber, 65 Collocations, and 95,000 Access Lines
Cedar Rapids, Iowa and Dallas, Texas - October 3, 2000 - McLeodUSA Incorporated
(Nasdaq: MCLD) and CapRock Communications Corp. (Nasdaq: CPRK) jointly announced
today they have signed a definitive merger agreement under which McLeodUSA will
acquire CapRock. The stock-for-stock transaction, which includes approximately
$197 million in equity and net assumed debt of $335 million, extends the
McLeodUSA geography to four new states and adds 5,200 route miles of fiber optic
network. The combined company will provide integrated communication services to
25 states and advanced data services to all 50 states. This acquisition adds
Texas, Arkansas, Louisiana and Oklahoma to the McLeodUSA footprint for CLEC
(competitive local exchange carrier) services, as well as 12 voice switches and
17 data switches. CapRock will become a wholly-owned subsidiary of McLeodUSA
Incorporated and will operate under the McLeodUSA name.
Under the terms of the transaction, which have been approved unanimously by the
Boards of Directors of both companies, CapRock shareholders will receive 0.3876
of a share of McLeodUSA Class A common stock for each share of CapRock common
stock. McLeodUSA will issue approximately 15.1 million new shares in order to
complete the transaction. The transaction will be accounted for as a purchase
and is expected to be tax free. Closing is anticipated during first quarter
2001. Closing is subject to obtaining the majority consent of CapRock
noteholders to indenture amendments on terms acceptable to McLeodUSA, including
elimination of any "change of control" offer. McLeodUSA will launch an exchange
offer to replace CapRock notes with McLeodUSA notes which have covenants
consistent with existing notes of McLeodUSA.
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The acquisition extends the McLeodUSA addressable CLEC market by approximately
34 percent, covering 25 states and reaching more than 40 percent of the nation's
population. Using CapRock figures as of September 30, McLeodUSA will gain
approximately 95,000 access lines of which 94 percent are business lines, 14,000
local line customers, and 65 operational collocations with another 135 in
progress.
"This combination will enhance value for shareholders of both companies," said
Clark McLeod, Chairman and Chief Executive Officer of McLeodUSA. "The addition
of CapRock is a continuation of our pattern of acquiring companies to provide
the seed for staged growth in new markets. We are acquiring property and
equipment assets of $525 million with 2 percent dilution of our fully diluted
shares."
McLeodUSA currently divides its 21-state CLEC marketplace into three regions.
The CapRock acquisition will become the Company's fourth geographic region, led
by the current CapRock management team and headquartered in Dallas.
"We are pleased to be joining forces with the highly respected team at
McLeodUSA, said CapRock CEO Jere Thompson. "CapRock and McLeodUSA have
aggressively penetrated markets, attracted and retained customers through
quality service, and built state-of-the-art network facilities. This will truly
be an exciting combination." Leo Cyr, CapRock President and COO added, "One of
our hallmarks has been emulating the remarkable success of McLeodUSA. We are
pleased to be combining with a company we have long admired."
Steve Gray, McLeodUSA President and COO, added, "There are four primary reasons
CapRock is a good fit for McLeodUSA. First, their contiguous geography and
emphasis on small to medium-sized business customers in second and third-tier
cities. Second, the quality of their people. Third, their aggressive
construction of advanced fiber optic network and switching technology fits well
with the McLeodUSA approach. And finally, through operating and capital
synergies, the combined company's business plan is fully funded, and the
addition of CapRock is accretive to McLeodUSA EBITDA in 2001."
Combined Statistics as of 6/30/00
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<TABLE>
<CAPTION>
CapRock McLeodUSA Combined
<S> <C> <C> <C>
States 4* 21 25
Addressable Population 27 M 80 M 107 M
Sales Cities 18 110 128
Salespeople 200 1,200 1,400
Local Lines 83 K 824 K 907 K
</TABLE>
* Two of CapRock's six states, New Mexico and Arizona, overlap with the
current McLeodUSA CLEC marketplace.
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Summary of Terms
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Approved by the Boards of Directors of both companies, the terms of the
transaction include:
- CapRock shareholders will receive 0.3876 of a share of McLeodUSA Class
A common stock for each CapRock share.
- CapRock shareholders including CEO Jere Thompson, Jr. and directors Mark
Langdale and Jere Thompson, Sr., as well as other key shareholders who
together own in excess of 50 percent of CapRock shares, have agreed to vote
their shares in favor of the transaction. Messrs. Thompson and Mr. Langdale
have given an option to McLeodUSA to acquire their shares.
- Accounted for as a purchase, the transaction is expected to be a tax-free
stock-for-stock exchange to CapRock shareholders.
- Expected to close during 1Q01, the transaction is subject to CapRock
shareholder approval (which is assumed as a result of the voting agreement
with CapRock shareholders), CapRock majority noteholder consent, regulatory
approvals and other customary closing conditions.
- McLeodUSA has facilitated and CapRock has entered into a $100 million senior
secured credit facility from a commercial bank.
- Goldman Sachs is serving as financial advisor to McLeodUSA and Salomon
Smith Barney is serving as financial advisor to CapRock.
Conference Call
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An audio conference call hosted by the principals of both firms will be held
at 11 a.m. Eastern today, October 3. The U.S. number for the call is 877-
883-0253; international callers should phone 712-271-0777. The passcode for
the live call is "McLeodUSA." Replay of the call will remain available until
midnight October 11 at 888-482-2251 (domestic) and 402-998-1371
(international).
About McLeodUSA
---------------
McLeodUSA provides selected telecommunications services to customers
nationwide. Integrated communications including local services are currently
available in several Midwest and Rocky Mountain states; long distance and
advanced data services are available in all 50 states. McLeodUSA is a
facilities-based telecommunications provider with 361 ATM switches, 37 voice
switches, nearly 824,000 local lines, and over 9,000 employees. The Company
recently expanded its marketplace for advanced data and Internet services to
all 50 states through the acquisition of Splitrock Services, Inc. The
network acquired in the Splitrock transaction is capable of transmitting
integrated next-generation data, video and voice services, reaching 800
cities and 90 percent of the U.S. population. In the next 12 months,
McLeodUSA will distribute 30 million directories in 26 states, serving a
population of 52 million. McLeodUSA Incorporated is a Nasdaq-100 company
traded as MCLD. The Company's web site is available at www.mcleodusa.com.
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About CapRock
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CapRock is a southwestern U.S. facilities-based integrated communications
provider (ICP) offering local, long distance, Internet, data and private line
services to business customers. The company also provides switched and
dedicated access, regional and international long distance, private lines,
dark fiber and bandwidth to carrier customers. The company is building
extensive fiber, voice and data networks throughout Texas, Louisiana,
Arkansas, Oklahoma, New Mexico and Arizona. For more information, visit
CapRock's web site at http://www.caprock.com.
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Some of the statements contained in this press release discuss future
expectations, contain projections of results of operations or financial
condition or state other forward-looking information. Those statements are
subject to known and unknown risks, uncertainties and other factors that
could cause the actual results to differ materially from those contemplated
by the statements. The "forward-looking" information is based on various
factors and was derived using numerous assumptions. In some cases, you can
identify these so-called forward-looking statements by words like "may,"
"will," "should," "expects," "plans," "anticipates," "believes," "estimates,"
"predicts," "projects," "potential," or "continue" or the negative of those
words and other comparable words. You should be aware that those statements
only reflect the predictions of McLeodUSA. Actual events or results may
differ substantially. Important factors that could cause actual events or
results of McLeodUSA to be materially different from the forward-looking
statements include availability of financing and regulatory approvals, the
number of potential customers in a target market, the existence of strategic
alliances or relationships, technological, regulatory or other developments
in the industry, changes in the competitive climate in which McLeodUSA
operates and the emergence of future opportunities. These and other
applicable risks are summarized under the caption "Risk Factors" in the
McLeodUSA Annual Report on Form 10-K for the fiscal year ended December 31,
1999, which is filed with the Securities and Exchange Commission.
McLeodUSA and CapRock will file a proxy statement / prospectus and other
documents regarding the proposed business combination transaction referenced
in the foregoing information with the Securities and Exchange Commission.
Investors and security holders are urged to read the proxy statement /
prospectus, when it becomes available, because it will contain important
information. A definitive proxy statement / prospectus will be sent to
security holders of CapRock seeking their approval of the transaction. In
addition, McLeodUSA will file a registration statement with the Commission to
register its notes in the exchange offer for the CapRock notes as described
above. CapRock noteholders are urged to read the exchange offer prospectus,
when it becomes available, because it will contain important information.
Investors and security holders may obtain a free copy of the definitive proxy
statement / prospectus, exchange offer prospectus (when they are available)
and other documents filed by McLeodUSA and CapRock with the Commission at the
Commission's web site at www.sec.gov. The definitive proxy statement /
prospectus, exchange offer prospectus and other documents may also be
obtained for free by directing a request to:
CapRock Communications, Inc.
15601 Dallas Parkway, Suite 700
Dallas, TX 75001
Attn: Investor Relations
972-982-9550
or
McLeodUSA
PO Box 3177
Cedar Rapids, IA 52406-3177
Attn: Investor Relations
319-790-7800.
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