Exhibit 10.1
STOCK PURCHASE AGREEMENT
dated as of
August 30, 1999
by and between
McLeodUSA Incorporated
and
The Purchasers Listed on the Signature Pages Hereto
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of August 30,
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1999, by and between McLeodUSA Incorporated, a Delaware corporation (the
"Company"), and the entities listed on the signature page hereto under the
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caption "Purchasers" (each such entity, a "Purchaser" and collectively, the
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"Purchasers").
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W I T N E S S E T H :
WHEREAS, upon the terms and subject to the conditions set forth in
this Agreement, the Company wishes to sell to the Purchasers and the Purchasers
wish to purchase from the Company (i) an aggregate of 275,000 shares of the
Company's Series B Preferred Stock, par value $.01 per share (the "Series B
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Preferred Stock") and (ii) an aggregate of 125,000 shares of the Company's
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Series C Preferred Stock, par value $.01 per share (the "Series C Preferred
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Stock" and, collectively with the Series B Preferred Stock, the "Preferred
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Shares"); and
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WHEREAS, the Purchasers and the Company desire to provide for the
purchase and sale of the Preferred Shares and to establish certain rights and
obligations in connection therewith.
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants and agreements set forth in this
Agreement, the parties hereto agree as follows:
ARTICLE I
ISSUANCE AND SALE OF PREFERRED SHARES
1.1. Issuance, Purchase and Sale. Upon the terms and subject to the
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conditions set forth herein, at the Closing (as defined below) the Company shall
sell to the Purchasers and the Purchasers shall purchase from the Company (a) an
aggregate of 275,000 shares of Series B Preferred Stock for an aggregate
purchase price of $693,125,000 in cash and (b) an aggregate of 125,000 shares of
Series C Preferred Stock for an aggregate purchase price of $321,875,000 in cash
(the cash amounts set forth in (a) and (b) being collectively referred to herein
as, the "Purchase Price"). The number of shares of Series B Preferred Stock and
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the number of shares of Series C Preferred Stock being acquired by each
Purchaser, and the portion of the Purchase Price payable therefor is set forth
opposite such Purchaser's name on the signature page hereto; provided, that the
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Purchasers shall have the right to reallocate among the Purchasers the Preferred
Shares to be purchased by each Purchaser by delivering written notice of such
reallocation to the Company not less than three days prior to the Closing so
long as such
reallocation does not change the total number of Preferred Shares being acquired
hereunder or the Purchase Price.
1.2. The Closing; Deliveries. (a) The closing of the purchase and
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sale of the Preferred Shares hereunder (the "Closing") shall take place at the
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offices of Fried, Frank, Harris, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ at 9:00 a.m. on the fifth business day following the
satisfaction or waiver of the conditions set forth in Article V (other than
those conditions that by their nature are to be satisfied at the Closing, but
subject to the satisfaction or waiver of those conditions) or at such other
place, time and/or date as shall be mutually agreed by the Company and the
Purchasers (the date of the Closing, the "Closing Date").
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(b) At the Closing, the Company shall deliver to each Purchaser
certificates representing the Preferred Shares being purchased by such
Purchaser, each registered in the name of such Purchaser in such amounts as such
Purchaser shall inform the Company prior to the Closing. Delivery of such
certificates shall be made against receipt by the Company of the portion of the
Purchase Price payable therefor (less an amount equal to $10,389,759, or such
other amount not in excess of $15,000,000 as determined by the Purchasers no
later than three days prior to the Closing, payable to certain of the Purchasers
as a special dividend as set forth on the signature page hereto), which shall be
paid by wire transfer to an account designated at least three business days
prior to the Closing Date by the Company.
1.3. Capitalized Terms. Capitalized terms not otherwise defined
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herein shall have the meanings ascribed to such terms in Section 8.1.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to each Purchaser, as of
the date hereof and as of the Closing, as follows:
2.1. Organization; Subsidiaries. (a) The Company is a corporation
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duly organized, validly existing and in good standing under the laws of the
State of Delaware and has the requisite corporate power and authority to carry
on its business as it is now being conducted. The Company is duly qualified and
licensed as a foreign corporation to do business, and is in good standing (and
has paid all relevant franchise or analogous taxes), in each jurisdiction where
the character of its assets owned or held under lease or the nature of its
business makes such qualification necessary, except where the failure to so
qualify or be licensed would not individually or in the aggregate have a
Material Adverse Effect.
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(b) Except as set forth on Schedule 2.1(b), (i) the Company owns,
either directly or indirectly through one or more Subsidiaries, all of the
capital stock or other equity interests of the Significant Subsidiaries free and
clear of all liens, charges, claims, security interests, restrictions, options,
proxies, voting trusts or other encumbrances ("Encumbrances") and (ii) there are
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no outstanding subscription rights, options, warrants, convertible or
exchangeable securities or other rights of any character whatsoever relating to
issued or unissued capital stock or other equity interests of any Significant
Subsidiary, or any Commitments of any character whatsoever relating to issued or
unissued capital stock or other equity interests of any Significant Subsidiary
or pursuant to which any Significant Subsidiary is or may become bound to issue
or grant additional shares of its capital stock or other equity interests or
related subscription rights, options, warrants, convertible or exchangeable
securities or other rights, or to grant preemptive rights. Except for the
Subsidiaries and except as set forth on Schedule 2.1(b), the Company does not
own, directly or indirectly, any interest in any corporation, limited liability
company, partnership, business association or other Person in excess of 9.9% of
the outstanding equity.
2.2. Due Authorization. The Company has all right, corporate power
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and authority to enter into this Agreement and each of the other Transaction
Documents to which it is a party and to consummate the transactions contemplated
hereby and thereby. The execution and delivery by the Company of this Agreement
and each of the other Transaction Documents to which it is a party, the
issuance, sale and delivery of the Preferred Shares by the Company and the
compliance by the Company with each of the provisions of this Agreement and each
of the other Transaction Documents to which it is a party (including the
reservation and issuance of the Shares upon conversion of the Preferred Stock
and the consummation by the Company of the transactions contemplated hereby and
thereby) (a) are within the corporate power and authority of the Company, and
(b) have been duly authorized by all necessary corporate action of the Company.
This Agreement has been, and each of the other Transaction Documents to which
the Company is a party when executed and delivered by the Company will be, duly
and validly executed and delivered by the Company, and this Agreement
constitutes, and each of such other Transaction Documents when executed and
delivered by the Company will constitute, a valid and binding agreement of the
Company enforceable against the Company in accordance with its terms except as
such enforcement is limited by bankruptcy, insolvency and other similar laws
affecting the enforcement of creditors' rights generally and for limitations
imposed by general principles of equity. The Shares have been validly reserved
for issuance, and upon issuance, will be duly and validly issued and
outstanding, fully paid, and nonassessable. The terms, designations, powers,
preferences and relative participation, optional and other special rights,
qualifications, limitations and restrictions of the Series B Preferred Stock and
the Series C Preferred Stock will be as set forth in the Certificate of
Designation for the Series B Preferred Stock and the Certificate of Designation
for the Series C Preferred Stock (the "Certificates of Designation"), the forms
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of which are attached to this Agreement as Exhibits 2.2A and
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2.2B. The Preferred Shares issued to the Purchasers in accordance with the terms
of the Certificates of Designation, when issued and delivered in accordance with
the terms of this Agreement will be validly issued and outstanding, fully paid
and non-assessable free and clear of any Encumbrances and not subject to the
preemptive or other similar rights of the stockholders of the Company.
2.3. Capitalization. As of the date hereof, the authorized capital
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stock of the Company consists of (i) 250,000,000 shares of Class A Common Stock,
par value $0.01 per share (the "Class A Common Stock"), of which, as of
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August 25, 1999, 154,590,393 shares are issued and outstanding and of which no
more than 400,000 additional shares (excluding any shares issued upon exercise
of outstanding options disclosed on Schedule 2.3) have been issued between
August 25, 1999 and the date hereof; (ii) 22,000,000 shares of Class B Common
Stock, par value $0.01 per share ("the Class B Common Stock", and together with
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the Class A Common Stock, the "Common Stock"), of which, as of the date hereof
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no shares are issued and outstanding; and (iii) 2,000,000 shares of Preferred
Stock, par value $0.01 per share, of which as of the date hereof 1,150,000
shares are issued and outstanding as 6.75% Series A Cumulative Convertible
Preferred Stock (the "Series A Preferred Stock"). All of the issued and
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outstanding shares of Class A Common Stock and Series A Preferred Stock have
been duly authorized and are validly issued, fully paid and nonassessable. No
shares of capital stock of the Company are entitled to preemptive rights. Except
as set forth on Schedule 2.3 or as otherwise contemplated by Article 1 of this
Agreement, there are no outstanding subscription rights, options, warrants,
convertible or exchangeable securities or other rights of any character
whatsoever relating to issued or unissued capital stock of the Company, or any
Commitments of any character whatsoever relating to issued or unissued capital
stock of the Company or pursuant to which the Company is or may become bound to
issue or grant additional shares of its capital stock or related subscription
rights, options, warrants, convertible or exchangeable securities or other
rights, or to grant preemptive rights. Except as set forth on Schedule 2.3 or as
otherwise contemplated by Article 1 of this Agreement, (i) the Company has not
agreed to register any securities under the Securities Act or under any state
securities law or granted registration rights to any Person or entity and
(ii) there are no voting trusts, stockholders agreements, proxies or other
Commitments or understandings in effect to which the Company is a party or of
which it has Knowledge with respect to the voting or transfer of any of the
outstanding shares of Class A Common Stock or Series A Preferred Stock. To the
extent that any options, warrants or any of the other rights described above are
outstanding, neither the issuance and sale of the Preferred Shares nor any
issuance of Shares upon conversion thereof will result in an adjustment of the
exercise or conversion price or number of shares issuable upon the exercise or
conversion of any such options, warrants or other rights.
2.4. SEC Reports. The Compnay has timely filed all proxy statements,
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reports and other documents required to be filed by it under the Exchange Act
and made
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available to the Purchasers complete copies of all annual reports, quarterly
reports, proxy statements and other reports filed by the Company under the
Exchange Act, each as filed with the SEC (collectively, the "SEC Reports").
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Each SEC Report was, on the date of its filing, in compliance in all material
respects with the requirements of its respective report form and the Exchange
Act and did not, on the date of its filing, contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
2.5. Financial Statements. The consoliated financial statements of
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the Company (including any related schedules and/or notes) included in the SEC
Reports have been prepared in accordance with United States generally accepted
accounting principles ("GAAP") consistently followed throughout the periods
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involved (except as may be indicated in the notes thereto) and fairly present in
accordance with GAAP the consolidated financial condition, results of
operations, cash flows and changes in stockholders' equity of the Company and
the Subsidiaries as of the respective dates thereof and for the respective
periods then ended (except as may be indicated in the notes thereto and except,
in the case of interim statements, for the absence of footnotes and as permitted
by Form 10-Q and subject to changes resulting from year-end adjustments, none of
which are material in amount or effect). Except as set forth on Schedule 2.5 or
disclosed in the SEC Reports, neither the Company nor any Subsidiary has any
liability or obligation (whether accrued, absolute, contingent, unliquidated or
otherwise, whether known or unknown, whether due or to become due and regardless
of when asserted), except (i) liabilities and obligations in the respective
amounts reflected or reserved against in the audited consolidated balance sheet
of the Company and the Subsidiaries as of December 31, 1998, (ii) liabilities
and obligations incurred in the ordinary course of business since December 31,
1998 or (iii) liabilities and obligations which individually or in the aggregate
would not reasonably be expected to have or result in a Material Adverse Effect.
2.6. Absence of Certain Changes. Except as set forth on Schedule 2.6
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or as disclosed in the SEC Reports, since December 31, 1998 neither the Company
nor any of the Subsidiaries has suffered any change, event or development or
series of changes, events or developments which individually or in the aggregate
has had or would reasonably be expected to have a Material Adverse Effect or, to
the Knowledge of the Company, an adverse effect on the ability of the Company to
perform its obligations under this Agreement or any of the Transaction Documents
to which it is a party.
2.7. Litigation. (a) Except as set forth on Schedule 2.7(a) or as
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disclosed in the SEC Reports, there is no claim, action, suit, investigation or
proceeding ("Litigation") pending or, to the Knowledge of the Company,
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threatened against the Company or any of the Subsidiaries or involving any of
their respective properties or assets by or before any court, arbitrator or
other Governmental Entity which (i) in any
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manner challenges or seeks to prevent, enjoin, alter or materially delay the
transactions contemplated by this Agreement or (ii) if resolved adversely to the
Company or a Subsidiary would reasonably be expected to have a Material Adverse
Effect.
(b) Except as set forth on Schedule 2.7(b) or as disclosed in the SEC
Reports, neither the Company nor any of the Subsidiaries is in default under or
in breach of any order, judgment or decree of any court, arbitrator or other
Governmental Entity, except for defaults or breaches, which individually or in
the aggregate would not reasonably be expected to have a Material Adverse
Effect.
2.8. Consents, No Violations. Except as set forth on Schedule 2.8,
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neither the execution, delivery or performance by the Company of this Agreement
or any of the other Transaction Documents to which it is a party nor the
consummation of the transactions contemplated hereby or thereby will
(a) conflict with, or result in a breach or a violation of, any provision of the
certificate of incorporation or by-laws or other organizational documents of the
Company or any of the Subsidiaries including, without limitation, any of the
provisions of the Certificate of Designation for the Series A Preferred Stock;
(b) constitute, with or without notice or the passage of time or both, a breach,
violation or default, create an Encumbrance, or give rise to any right of
termination, modification, cancellation, prepayment, suspension, limitation,
revocation or acceleration, under (i) any Law or (ii) any provision of any
agreement or other instrument to which the Company or any of the Subsidiaries is
a party or pursuant to which any of them or any of their assets or properties is
subject, except, with respect to the matters set forth in this clause (ii), for
breaches, violations, defaults, Encumbrances, or rights of termination,
modification, cancellation, prepayment, suspension, limitation, revocation or
acceleration, which, individually or in the aggregate, would not reasonably be
expected to result in a Material Adverse Effect or, to the Knowledge of the
Company, adversely affect the ability of the Company to consummate the
transactions contemplated by this Agreement or any Transaction Document to which
it is a party; or (c) except for the filings of the Certificates of Designation
with the Secretary of State of the State of Delaware, any required filing under
the HSR Act, the Exchange Act, the Securities Act and other filings or
notifications that are immaterial to the consummation of the transactions
contemplated hereby, require any consent, approval or authorization of,
notification to, filing with, or exemption or waiver by, any Governmental Entity
or any other Person on the part of the Company or any of the Subsidiaries.
Without limiting the generality of the foregoing (i) no consent or other
approval of the holders of the Series A Preferred Stock is required in
connection with the consummation of the transactions contemplated hereby or the
performance by the Company of any of its obligations under this Agreement or any
Transaction Document to which it is a party, (ii) the issuance of the Preferred
Shares or any Shares upon conversion thereof will not result in any anti-
dilution or other adjustment to the conversion price or the number of shares of
Class A Common Stock issuable upon conversion of the Series A Preferred Stock or
(iii) the holders of the Series A Preferred Stock will not be entitled to
exercise any voting rights as
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a result of any of the provisions contained in this Agreement or any other
Transaction Documents.
2.9. Compliance with Laws. Except as set forth on Schedule 2.9 or as
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disclosed in the SEC Reports, the Company and the Subsidiaries are in compliance
in all material respects with all Laws and the Company and the Subsidiaries
possess all material licenses, franchise permits, consents, registrations,
certificates, and other governmental or regulatory permits, authorizations or
approvals required for the operation of the business as presently conducted and
for the ownership, lease or operation of the Company's and its Subsidiaries'
properties (collectively, "Licenses"). Except as set forth on Schedule 2.9, the
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Company and the Subsidiaries have all Licenses, and all of such Licenses are
valid and in full force and effect, and the Company and the Subsidiaries have
duly performed and are in compliance in all material respects with all of their
obligations under such Licenses.
2.10. Commitments. Schedule 2.10 sets forth a complete and correct
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list of each contract, agreement, understanding, arrangement and commitment of
any nature whatsoever, whether written or oral, including all amendments thereof
and supplements thereto ("Commitments") of the following types to which the
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Company or any Subsidiary is a party or by or to which the Company or any
Subsidiary or any of their properties may be bound or subject, (i) Commitments,
to the Knowledge of the Company, containing covenants purporting to limit the
freedom of the Company or any Subsidiary to compete in any line of business in
any geographic area or to hire any individual or group of individuals, except in
connection with or resulting from directory acquisitions, (ii) Commitments
relating to capital expenditures in excess of $10,000,000, (iii) Commitments
relating to indentures, mortgages, promissory notes, loan agreements,
guarantees, letters of credit or other agreements or instruments of the Company
or any Subsidiary involving amounts in excess of $1,000,000, (iv) Commitments in
respect of any joint venture, partnership or other similar arrangement,
(v) Commitments with any Governmental Entity involving payments in excess of
$1,000,000 and (vi) Commitments relating to interconnection agreements with
local carriers, Commitments with resellers and material Commitments with
customers in each case involving payments in excess of $1,000,000 per year.
2.11. Brokers or Finders. Except for ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ Inc.,
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whose fees will be paid by the Company, upon the consummation of the
transactions contemplated by this Agreement, no agent, broker, investment banker
or other Person is or will be entitled to any broker's or finder's fee or any
other commission or similar fee from the Company or any of the Subsidiaries in
connection with any of the transactions contemplated by this Agreement or the
other Transaction Documents.
2.12. Section 203 of the DGCL; Takeover Statute. The Board of
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Directors has taken all actions necessary or advisable so that the restrictions
contained in Section 203 of the DGCL applicable to a "business combination" (as
defined in such
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Section) will not apply to the execution, delivery or performance of this
Agreement or any of the other Transaction Documents or the consummation of the
transactions contemplated hereby or thereby. The execution, delivery and
performance of this Agreement or any of the other Transaction Documents and the
consummation of the transactions contemplated hereby or thereby will not cause
to be applicable to the Company any "fair price," "moratorium," "control share
acquisition" or other similar antitakeover statute or regulation enacted under
state or federal laws.
2.13. Offering of Preferred Shares. Neither the Company nor any
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Person acting on its behalf has taken or will take any action (including,
without limitation, any offering of any securities of the Company under
circumstances which would require, under the Securities Act, the integration of
such offering with the offering and sale of the Preferred Shares) which might
reasonably be expected to subject the offering, issuance or sale of the
Preferred Shares to the registration requirements of Section 5 of the Securities
Act.
2.14. Disclosure. Neither this Agreement nor any other Transaction
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Document, nor any schedule or exhibit hereto or thereto, nor any certificate
furnished to the Purchasers by or on behalf of the Company in connection with
the transactions contemplated hereby and thereby, contains any untrue statement
of a material fact or omits to state a material fact necessary in order to make
the statements contained herein or therein not misleading (for purposes of the
preceding sentence, any preliminary document or written information shall be
disregarded if a final or updated version of such document or written
information was delivered to the Purchasers by the Company prior to the date
hereof). To the Company's Knowledge the financial forecasts furnished by the
Company to the Purchasers have been reasonably prepared and reflect the best
currently available estimates and judgment of the Company's management as to the
expected future financial performance of the Company and the Subsidiaries. There
is no fact or information relating to the Company and/or any of its Subsidiaries
that, to the Company's Knowledge, would reasonably be expected to be material to
the Company and its Subsidiaries taken as a whole and that has not been
disclosed to the Purchasers.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser hereby represents and warrants to the Company,
severally and not jointly, as of the date hereof and as of the Closing, as
follows:
3.1. Acquisition for Investment. Such Purchaser is acquiring the
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Preferred Shares, for its own account, for investment and not with a view to, or
for sale in connection with, the distribution thereof within the meaning of the
Securities Act.
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3.2. Restricted Securities. Such Purchaser understands that
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(i) except as provided in the Registration Rights Agreement, the Preferred
Shares and the Shares will not be registered under the Securities Act or any
state securities laws by reason of their issuance by the Company in a
transaction exempt from the registration requirements thereof and (ii) the
Preferred Shares and any Shares issued upon conversion thereof may not be sold
unless such disposition is registered under the Securities Act and applicable
state securities laws or is exempt from registration thereunder.
3.3. No Brokers or Finders. Except for Chase Securities, Inc., whose
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fees will be paid by the Purchasers, no agent, broker, investment banker or
other Person is or will be entitled to any broker's or finder's fee or any other
commission or similar fee from the Purchasers in connection with the
transactions contemplated by this Agreement or the other Transaction Documents.
3.4. Accredited Investor. Such Purchaser is an "accredited investor"
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(as defined in Rule 501(a) under the Securities Act). Such Purchaser has
sufficient knowledge and experience in financial and business matters so as to
be capable of evaluating the merits and risks of its investment in the Preferred
Shares and is capable of bearing the economic risks of such investment.
3.5 Organization. Such Purchaser is a limited partnership duly
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organized, validly existing and in good standing under the laws of the State of
Delaware and has the requisite power and authority to carry on its business as
it is now being conducted.
3.6. Due Authorization. Such Purchaser has all right, power and
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authority to enter into this Agreement and each of the other Transaction
Documents to which it is a party and to consummate the transactions contemplated
hereby and thereby. The execution and delivery by such Purchaser of this
Agreement and each of the other Transaction Documents to which it is a party and
the compliance by such Purchaser with each of the provisions of this Agreement
and each of the Transaction Documents to which it is a party (including the
consummation by such Purchaser of the transactions contemplated hereby and
thereby) (a) are within the power and authority of such Purchaser and (b) have
been duly authorized by all necessary action on the part of such Purchaser. This
Agreement has been, and each of the other Transaction Documents to which it is a
party when executed and delivered by such Purchaser will be, duly and validly
executed and delivered by such Purchaser, and this Agreement constitutes, and
each of such other Transaction Documents when executed and delivered by such
Purchaser will constitute, a valid and binding agreement of such Purchaser
enforceable against such Purchaser in accordance with its respective terms
except as such enforcement is limited by bankruptcy, insolvency and other
similar laws affecting the enforcement of creditors' rights generally and for
limitations imposed by general principles of equity.
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3.7. Consents, No Violations. Neither the execution, delivery or
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performance by such Purchaser of this Agreement or any of the other Transaction
Documents to which it is a party nor the consummation of the transactions
contemplated hereby or thereby will (a) conflict with, or result in a breach or
a violation of, any provision of the organizational documents of such Purchaser;
(b) constitute, with or without notice or the passage of time or both, a breach,
violation or default, create an Encumbrance, or give rise to any right of
termination, modification, cancellation, prepayment, suspension, limitation,
revocation or acceleration, under (i) any Law, or (ii) any provision of any
agreement or other instrument to which such Purchaser is a party or pursuant to
which the Purchaser or its assets or properties is subject, except, with respect
to the matters set forth in clause (ii), for breaches, violations, defaults,
Encumbrances, or rights of termination, modification, cancellation, prepayment,
suspension, limitation, revocation or acceleration, which, individually or in
the aggregate, would not materially adversely affect the ability of such
Purchaser to consummate the transactions contemplated by this Agreement or any
Transaction Document to which it is a party; or (c) except for any required
filing under the HSR Act and the filings set forth on Schedule 3.7, require any
consent, approval or authorization of, notification to, filing with, or
exemption or waiver by, any Governmental Entity or any other Person on the part
of the Purchaser.
3.8. Availability of Funds. Such Purchaser has available sufficient
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funds to pay its portion of the Purchase Price.
3.9. Litigation. There is no Litigation pending or, to the knowledge
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of such Purchaser, threatened against such Purchaser or any of its Affiliates or
involving any of its properties or assets by or before any court, arbitrator or
other Governmental Entity which in any manner challenges or seeks to prevent,
enjoin, alter or materially delay the transactions contemplated by this
Agreement.
ARTICLE IV
COVENANTS
4.1. Conduct of Business by the Company Pending the Closing. The
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Company covenants and agrees that, during the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
or the Closing, unless the Purchasers otherwise agree in writing, the Company
shall, and shall cause each of the Subsidiaries to, (i) conduct its business
only in the ordinary course and consistent with past practice; (ii) use
reasonable best efforts to preserve and maintain its assets and properties and
its relationships with its customers, suppliers, advertisers, distributors,
agents, officers and employees and other Persons with which it has significant
business relationships; (iii) use reasonable best efforts to maintain all of the
material assets it owns
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or uses in the ordinary course of business consistent with past practice;
(iv) use reasonable best efforts to preserve the goodwill and ongoing operations
of its business; (v) maintain its books and records in the usual, regular and
ordinary manner, on a basis consistent with past practice; and (vi) comply in
all material respects with applicable Laws. Except as expressly contemplated by
this Agreement or as set forth on Schedule 4.1, between the date of this
Agreement and the Closing, the Company shall not, and shall cause each of the
Subsidiaries not to, do any of the following without the prior written consent
of the Purchaser, which consent shall not be unreasonably withheld or delayed:
(a) (i) issue any debt securities, (ii) incur any additional
indebtedness, (iii) assume, grant, guarantee or endorse, or make any other
accommodation or arrangement making the Company or any Subsidiary responsible
for, any liabilities or other obligations of any other Person or (iv) make any
loans, advances or capital contributions to, or investments in, any Person;
(b) change any method of accounting or accounting practice used by
the Company or any Subsidiary, other than such changes required by GAAP;
(c) repurchase, redeem (except pursuant to Section 4.5 of the
Company's Certificate of Incorporation) or otherwise acquire or exchange any
share of Common Stock or other equity interests; except for issuances of Class A
Common Stock pursuant to the exercise of options to purchase Class A Common
Stock outstanding on the date hereof and other issuances of Class A Common
Stock, in each case as listed on Schedule 2.3, issue or sell any additional
shares of the capital stock of, or other equity interests in, the Company or any
Subsidiary, or securities convertible into or exchangeable for such shares or
other equity interests, or issue or grant any subscription rights, options,
warrants or other rights of any character relating to shares of such capital
stock, such other equity interests or such securities; or declare, set aside,
make or pay any dividend, or make any distribution, in respect of any shares of
capital stock of the Company other than as required with respect to the Series A
Preferred Stock;
(d) amend the Company's or any Subsidiary's charter or by-laws or
other organizational documents except with respect to the filing of the
Certificates of Designation;
(e) take any action that is reasonably likely to result in (i) any of
the representations and warranties set forth in Article II becoming false or
inaccurate in any material respect as of the Closing Date or (ii) any of the
conditions to the obligations of the Purchasers set forth in Section 5.2 not
being satisfied; or
(f) agree to take any of the actions restricted by this Section 4.1.
4.2. Press Releases; Interim Public Filings. The Company shall, and
--------------------------------------
shall cause each Subsidiary to, deliver to the Purchasers complete and correct
copies of
-11-
all press releases and public filings made between the date hereof and the
Closing Date, and, to the extent any such press releases and public filings
refer in any way to the Purchasers and/or their Affiliates, shall give the
Purchasers the reasonable opportunity to review and comment on such releases and
filings, in each case prior to release in the form in which it will be issued.
4.3. HSR Act. Each of the Purchasers and the Company shall cooperate
-------
in making filings under the HSR Act and shall use its reasonable best efforts to
take, or cause to be taken, all actions necessary, proper or advisable to
consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement, including using its reasonable best efforts to
resolve such objections, if any, as the Antitrust Division of the Department of
Justice or the Federal Trade Commission or state antitrust enforcement or other
Governmental Entities may assert under antitrust Laws with respect to the
transactions contemplated hereby.
4.4. Consents; Approvals. The Company shall use its reasonable best
-------------------
efforts to obtain all consents, waivers, exemptions, approvals, authorizations
or orders (collectively, "Consents") (including, without limitation (i) Consents
--------
required to avoid any breach, violation, default, encumbrance or right of
termination, modification, cancellation, prepayment, suspension, limitation,
revocation or acceleration of any material agreement or instrument to which the
Company is a party or its properties or assets are bound, (ii) all Consents
pursuant to the Company's or any Subsidiary's financing documents, including
without limitation, all indentures and credit agreements of the Company or any
Subsidiary, and (iii) all United States and foreign governmental and regulatory
rulings and approvals). The Company also shall use its reasonable best efforts
to obtain all necessary state securities laws or blue sky permits and approvals
required to carry out the transactions contemplated hereby and shall furnish all
information as may be reasonably requested in connection with any such action.
4.5. Listing. The Company shall use its reasonable best efforts to
-------
continue to have its Class A Common Stock listed on the NASDAQ National Market
System (the "NMS") or a national securities exchange for so long as any
---
Preferred Shares or any Shares are outstanding. Prior to the Closing, the
Company shall prepare and submit to the NMS a listing application covering the
shares of Class A Common Stock issuable upon conversion of the Preferred Shares
and shall obtain approval for the listing of such shares, subject to official
notice of issuance.
4.6. Board Representation; Observers, VCOC. (a) Section 9(b)(i) of
-------------------------------------
the Certificate of Designation for the Series B Preferred Stock provides that
the holders of Series B Preferred Stock shall be entitled to elect two directors
to the Board of Directors subject to the terms set forth therein. In addition,
Section 9(b)(i) of the Certificate of Designation for the Series C Preferred
Stock provides that the holders of Series C Preferred Stock shall be entitled to
designate one non-voting observer to attend and participate in (but not vote at)
all meetings of the Board of Directors (the "Non-Voting
----------
-12-
Observer"). Accordingly, subject to the Certificate of Designation for the
--------
Series B Preferred Stock, the Purchasers set forth on Schedule 4.6(a)(1), as
holders of Series B Preferred Stock, shall be entitled to designate for election
to the Board of Directors two directors (the "Purchasers' Directors") and
---------------------
subject to the Certificate of Designation for the Series C Preferred Stock, the
Purchasers set forth on Schedule 4.6(a)(2), as holders of Series C Preferred
Stock, shall be entitled to designate the one Non-Voting Observer, in each case
as set forth on the applicable schedule. Prior to the Closing, the Company will
take all action necessary for the Purchasers' Directors to be elected to the
Board of Directors. Thereafter, in connection with any annual meeting of
stockholders at which the term of a Purchaser Director is to expire, the Company
will take all necessary action to cause a Purchaser Director to be nominated and
use its reasonable best efforts to cause such Purchaser Director to be elected
to the Board of Directors. In the event a vacancy shall exist in the office of a
Purchaser Director, the Purchasers shall be entitled to designate a successor
and the Board of Directors shall elect such successor and, in connection with
the meeting of stockholders of the Company next following such election,
nominate such successor for election as director by the stockholders and use its
reasonable best efforts to cause the successor to be elected. The Non-Voting
Observer shall have the same access to information concerning the business and
operations of the Company and its Subsidiaries and at the same time as directors
of the Company, and shall be entitled to participate in discussions and consult
with the Board of Directors without voting. Without limiting the generality of
the foregoing, the Purchasers' Directors and the Non-Voting Observer may inspect
all contracts, books, records, personnel, offices and other facilities and
properties of the Company and, to the extent available to the Company after the
Company uses reasonable efforts to obtain them, the accountants' work papers,
and the Purchasers' Directors and the Non-Voting Observer may make such copies
and inspections thereof as the Purchasers' Directors and the Non-Voting Observer
may request. The Company shall furnish the Purchasers' Directors and the Non-
Voting Observer with such financial and operating data and other information
with respect to the business and properties of the Company as the Purchasers'
Directors and the Non-Voting Observer may request. The Company shall permit each
of the Purchasers' Directors and the Non-Voting Observer to discuss the affairs,
finances and accounts of the Company with, and to make proposals and furnish
advice with respect thereto, the principal officers of the Company. The
provision of any such information to the Non-Voting Observer shall be subject to
the receipt by the Company of a confidentiality agreement covering such
information and reasonably acceptable to the Company and the Non-Voting
Observer. Notwithstanding anything contained in this Section 4.6 to the
contrary, the provisions of the Certificates of Designation shall govern the
rights of holders of Preferred Shares to elect directors (including any
Purchasers' Directors).
(b) The rights set forth in Section 4.6(a) are intended to satisfy
the requirement of contractual management rights for purposes of qualifying each
of the Purchaser's ownership interests in the Company as venture capital
investments for purposes of the Department of Labor's "plan assets" regulations,
and in the event such
-13-
rights are not satisfactory for such purpose as to any such Purchaser, the
Company and such Purchaser shall reasonably cooperate in good faith to agree
upon mutually satisfactory management rights which satisfy such regulations.
(c) The Company shall promptly reimburse the Purchasers' Directors
and the Non-Voting Observer for all reasonable expenses incurred by them in
connection with their attendance at meetings and any other activities undertaken
in their capacity as directors or an observer consistent with the policies of
the Company in effect on the date hereof or as such policies may be modified and
generally applied to the Company's Board of Directors.
4.7. Certificates of Designation. The Company shall, prior to or
---------------------------
concurrently with the Closing, cause the Certificates of Designation to be filed
with the Secretary of State of the State of Delaware.
4.8. Cooperation. Each of the Purchasers and the Company agrees to
-----------
use its reasonable best efforts to take, or cause to be taken, all such further
actions as shall be necessary to make effective and consummate the transactions
contemplated by this Agreement.
4.9. Access to Property; Records. Between the date hereof and the
---------------------------
Closing the Company shall afford the Purchasers and their employees, counsel,
accountants, partners, investors, and other authorized representatives
reasonable access upon notice, during normal business hours, to the assets,
properties, offices and other facilities, Commitments and books and records of
the Company and of the Subsidiaries, and to the outside auditors of the Company
and their work papers relating to the Company and the Subsidiaries. The parties
hereto agree that no investigation by the Purchasers or their representatives
shall affect or limit the scope of the representations and warranties of the
Company contained in this Agreement or in any other Transaction Document
delivered pursuant hereto or limit the liability for breach of any such
representation or warranty.
4.10. Reserve Shares. The Company will at all times reserve and keep
--------------
available, solely for issuance and delivery upon conversion of the Preferred
Shares, the number of shares of Class A Common Stock from time to time issuable
upon conversion of all shares of the Preferred Shares at the time outstanding.
All shares of Class A Common Stock issuable upon conversion of the Preferred
Shares shall be duly authorized and, when issued upon such conversion or
exercise, shall be validly issued, fully paid and nonassessable.
4.11. Use of Proceeds. The proceeds received by the Company
---------------
hereunder shall be used by the Company as set forth on Schedule 4.11.
-14-
4.12. Restrictions on Transfer. The Purchasers will not, prior to
------------------------
the earlier of (a) the fifth anniversary of the Closing Date or (b) the
occurrence of a Termination Event (as defined below), sell, transfer, assign,
convey, gift, mortgage, pledge, encumber, hypothecate, or otherwise dispose of,
directly or indirectly, ("Transfer") any of the Preferred Shares or the Shares
--------
except for (i) Transfers between and among the Purchasers and their Affiliates
provided such Transfer is done in accordance with the transfer restrictions
applicable to the Preferred Shares or the Shares under federal and state
securities laws and the Affiliate transferee agrees to be bound by the
restrictions applicable to such Preferred Shares or the Shares, including
without limitation the agreements set forth in this Section 4.12, and
(ii) Transfers (w) required to comply with applicable Law provided that the
general partners of the Purchasers shall not be the party that institutes any
proceeding out of which such Transfer is required by Law, (x) pursuant to a bona
fide tender or exchange offer made pursuant to a merger or other agreement
approved by the Board of Directors to acquire securities of the Company;
provided, that the Purchasers may not tender or exchange in such offer unless at
--------------
least 50% of the outstanding securities of the Company have previously been
tendered or exchanged by other holders of the Company's securities in connection
therewith, (y) following any stock merger or other stock business combination
transaction to which the Company is a party if ▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇ sell any of
the securities beneficially owned and received by them in such transaction
following such transaction and then only in an amount equal to the product of
(A) the percentage that the securities beneficially owned and sold by ▇▇▇▇▇ and
▇▇▇▇ ▇▇▇▇▇▇ represents of the total number of securities beneficially owned by
▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇ and (B) the total number of securities beneficially owned
by such Purchasers (determined in all cases on an as converted basis) and
(z) pursuant to any cash merger, or other business combination transaction to
which the Company is a party or involved in which the Class A Common Stock of
the Company's stockholders is exchanged for cash upon consummation of such
merger or other business combination. Notwithstanding any other provision of
this Section 4.12, no Purchaser shall avoid the provisions of this Section 4.12
by making one or more transfers to one or more Affiliates and then disposing of
all or any portion of such Purchaser's interest in any such Affiliate. For
purposes of this Section 4.12, a "Termination Event" shall occur if at any time
▇▇▇▇▇ ▇▇▇▇▇▇ ceases to act as Chairman of the Board of Directors or ▇▇▇▇▇▇▇ ▇▇▇▇
ceases to act as Chief Operating Officer (or a higher position) of the Company
or neither of them serves as Chief Executive Officer of the Company. Each
Purchaser agrees that it may not exercise any conversion rights with respect to
the Preferred Shares until the fifth anniversary of the Closing; provided that
-------------
nothing contained herein shall be deemed to prevent the Purchasers from
exercising their conversion rights with respect to the Preferred Shares at any
time after the fifth anniversary of the Closing or at any time prior thereto in
connection with a Termination Event or in connection with a Transfer permitted
pursuant to Section 4.12(b)(ii). Nothing contained herein shall be deemed to
limit the ability of the limited partners in the Purchasers from transferring,
directly or indirectly, their limited partnership interests in the Purchasers or
the general partners of
-15-
the Purchasers from transferring, directly or indirectly, up to 15% of the
equity interests in the Purchasers at any time or from time to time.
4.13. Standstill Agreement. (a) During the period commencing on the
--------------------
date hereof and ending on the earlier of (i) the tenth anniversary of the
Closing Date (the "Standstill Period") or (ii) the date these provisions
-----------------
terminate as provided herein, except as (x) specifically permitted by this
Agreement or (y) specifically approved in writing in advance by the Board of
Directors of the Company, the Purchasers shall not, and shall cause any
Affiliates controlled by them to not, in any manner, directly or indirectly:
(i) acquire, or offer or agree to acquire, or become the beneficial
owner of or obtain any rights in respect of any capital stock of the
Company, except, for any shares of Class A Common Stock that may be
issuable upon the conversion of the Preferred Shares or otherwise as
permitted pursuant to this Agreement, provided, that the foregoing
--------
limitation shall not prohibit the acquisition of securities of the Company
or any of its successors issued as dividends or as a result of stock splits
and similar reclassifications or received in a merger or other business
combination of Preferred Shares or Shares held by the Purchasers or any of
their Affiliates at the time of such dividend, split or reclassification or
merger or business combination;
(ii) solicit proxies or consents or become a "participant" in a
"solicitation" (as such terms are defined or used in Regulation 14A under
the Exchange Act) of proxies or consents with respect to any voting
securities of the Company or any of its successors or initiate or become a
participant in any stockholder proposal or "election contest" (as such term
is defined or used in Rule 14a-11 under the Exchange Act) with respect to
the Company or any of its successors or induce others to initiate the same,
or otherwise seek to advise or influence any person with respect to the
voting of any voting securities of the Company or any of its successors
(except for activities undertaken by the Purchasers or the Purchasers'
Directors in connection with solicitations by the Board of Directors);
(iii) publicly or privately propose, encourage, solicit or
participate in the solicitation of any person or entity to acquire, offer
to acquire or agree to acquire, by merger, tender offer, purchase or
otherwise, the Company or a substantial portion of its assets or more than
5% of the outstanding capital stock (except in connection with the
registration of securities pursuant to the Registration Rights Agreement);
and
(iv) directly or indirectly join in or in any way participate in a
pooling agreement, syndicate, voting trust or other arrangement with
respect to the Company's voting securities or otherwise act in concert with
any other Person (other than Affiliates), for the purpose of acquiring,
holding, voting or disposing of the Company's securities.
-16-
(b) Nothing contained in this Section 4.13 shall be deemed to
restrict the manner in which the Purchasers' Directors or the Non-Voting
Observer participate in deliberations or discussions of the Board of Directors.
(c) The standstill provisions set forth herein shall terminate on the
earliest of (i) the last day of the Standstill Period, (ii) the date that ▇▇▇▇▇
▇▇▇▇▇▇ ceases to act as Chairman of the Board of Directors or ▇▇▇▇▇▇▇ ▇▇▇▇
ceases to act as Chief Operating Officer (or a higher position) of the Company
or neither of them serves as Chief Executive Officer of the Company, (iii) upon
any breach by the Company in any material respect of any covenant or agreement
contained in this Agreement or in any Transaction Document, (iv) upon the filing
of a voluntary bankruptcy petition by the Company or on the 60th day following
the filing of an involuntary bankruptcy petition against the Company if such
petition is not discharged with prejudice during such 60-day period or (v) upon
the occurrence of a change in control of the Company if the Purchasers are
permitted to effect a Transfer in accordance with the provisions of
Section 4.12(b)(ii)(x), (y) and (z) hereof.
4.14. Incurrence of Debt and Equity. The Company shall comply with
-----------------------------
the covenants set forth in Schedule 4.14 hereof.
4.15. Dividends. The Company agrees that it shall pay cash dividends
---------
on the Series B Preferred Stock on a current basis so long as it is not
precluded from doing so under its debt instruments, Delaware law or any other
Laws applicable to the Company. In furtherance thereof, the Company agrees to
use its reasonable best efforts to pay such dividends, including, without
limitation, using its reasonable best efforts to refrain from entering into any
agreements which would preclude such payments and to take whatever actions are
reasonably necessary, including revaluing assets, to create surplus for the
purpose of paying such dividends.
ARTICLE V
CONDITIONS
5.1. Conditions to Obligations of the Purchasers and the Company.
-----------------------------------------------------------
The respective obligations of the Purchasers and the Company to consummate the
transactions contemplated hereby are subject to the satisfaction or waiver at or
prior to the Closing of each of the following conditions:
(a) No statute, rule or regulation or order of any court or
administrative agency shall be in effect which prohibits the consummation of the
transactions contemplated hereby;
-17-
(b) Any waiting period (and any extension thereof) under the HSR Act
applicable to this Agreement and the transactions contemplated hereby shall have
expired or been terminated; and
(c) Any material required filings or other consents, if any, of state
regulatory bodies shall have been made or obtained.
5.2. Conditions to Obligations of the Purchasers. The obligations of
-------------------------------------------
the Purchasers to consummate the transactions contemplated hereby shall be
subject to the satisfaction or waiver at or prior to the Closing of each of the
following conditions:
(a) Each of the representations and warranties of the Company
contained in this Agreement shall be true and correct when made and as of the
Closing (except to the extent such representations and warranties are made as of
a particular date, in which case such representations and warranties shall have
been true and correct in all material respects as of such date), except for
failures to be true and correct which individually or in the aggregate would not
reasonably be expected to have a Material Adverse Effect;
(b) The Company shall have performed, satisfied and complied in all
material respects with all of its covenants and agreements set forth in this
Agreement to be performed, satisfied and complied with prior to or at the
Closing;
(c) The Company shall have delivered to the Purchasers an officer's
certificate certifying as to the Company's compliance with the conditions set
forth in clauses (a) and (b) of this Section 5.2;
(d) The Company shall have executed and delivered a Registration
Rights Agreement in the form of Exhibit 5.2(d) hereto (the "Registration Rights
-------------------
Agreement"), and the Registration Rights Agreement shall be in full force and
---------
effect;
(e) The Certificates of Designation shall have been duly filed with
the Secretary of State of the State of Delaware in accordance with the laws of
the State of Delaware and the Certificates of Designation shall be in full force
and effect;
(f) The Shares issuable upon conversion of the Preferred Shares shall
have been duly authorized and reserved for issuance and such Shares shall have
been approved for listing on the NMS, subject to official notice of issuance;
(g) The Purchasers shall have received an opinion reasonably
acceptable to the Purchasers from (i) the General Counsel of the Company, with
respect to good standing, non-contravention and the capitalization of the
Company and (ii) ▇▇▇▇▇ & ▇▇▇▇▇▇▇ L.L.P., outside counsel to the Company, with
respect to the due incorporation, due authorization, validity of the Preferred
Shares, securities act exemption and the valid and binding nature of this
Agreement and the Registration Rights Agreement; and
-18-
(h) There shall not have occurred any event, circumstances,
condition, fact, effect, or other matter which has had or would reasonably be
expected to have a material adverse effect (x) on the business, assets,
financial condition, prospects, or results of operations of the Company and its
Subsidiaries taken as a whole or (y) on the ability of the Company and such
Subsidiaries to perform any material obligation under this Agreement or to
consummate the transactions contemplated hereby.
5.3. Conditions to Obligations of the Company. The obligations of
----------------------------------------
the Company to consummate the transactions contemplated hereby shall be subject
to the satisfaction or waiver at or prior to the Closing of each of the
following conditions:
(a) Each of the representations and warranties of the Purchasers
contained in this Agreement shall be true and correct when made and as of the
Closing (except to the extent such representations and warranties are made as of
a particular date, in which case such representations and warranties shall have
been true and correct in all material respects as of such date), except for
failures to be true and correct which individually or in the aggregate would not
reasonably be expected to have a material adverse effect on the Purchasers'
ability to perform its obligations under this Agreement.
(b) The Purchasers shall have performed, satisfied and complied in
all material respects with all of their covenants and agreements set forth in
this Agreement to be performed, satisfied and complied with prior to or at the
Closing Date;
(c) The Purchasers shall have delivered to the Company an officer's
certificate certifying as to the Purchasers' compliance with the conditions set
forth in clauses (a) and (b) of this Section 5.3; and
(d) The Company shall have received an opinion reasonably acceptable
to the Company from Fried, Frank, Harris, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, outside counsel to
the Purchasers, with respect to non-contravention, due formation, due
authorization, and the valid and binding nature of this Agreement and the
Registration Rights Agreement.
ARTICLE VI
TERMINATION
6.1. Termination. This Agreement may be terminated at any time prior
-----------
to the Closing:
(a) by mutual written agreement of the Company and the Purchasers; or
(b) by either the Purchasers or the Company if the Closing shall not
have been consummated on or before October 31, 1999 (provided that the right to
terminate
-19-
this Agreement under this Section 6.1(b) shall not be available to any party
whose failure to fulfill any obligation under this Agreement has been the cause
of or resulted in the failure of the Closing to occur on or before such date);
or
(c) by either the Purchasers or the Company if a court of competent
jurisdiction or governmental, regulatory or administrative agency or commission
shall have issued a nonappealable final order, decree or ruling or taken any
other action having the effect of permanently restraining, enjoining or
otherwise prohibiting the transactions contemplated by this Agreement.
6.2. Effect of Termination. In the event of the termination of this
---------------------
Agreement pursuant to Section 6.1, this Agreement shall forthwith become void
and there shall be no liability on the part of any party hereto (or any
stockholder, director, officer, partner, employee, agent, consultant or
representative of such party) except as set forth in this Section 6.2, provided
that nothing contained in this Agreement shall relieve any party from liability
for any breach of this Agreement and provided further that this Section 6.2 and
Sections 8.2 (other than the second sentence thereof), 8.3, 8.13, 8.14 and 8.15
shall survive termination of this Agreement.
ARTICLE VII
INDEMNIFICATION
7.1. Survival. The representations and warranties of the parties
--------
hereto contained in this Agreement or in any of the other Transaction Documents
shall expire on the 18-month anniversary of the Closing Date, except that the
representations and warranties set forth in Sections 2.1(a), 2.2, 2.3, 3.5 and
3.6 shall survive until the expiration of the applicable statute of limitations
(including any extensions thereof). After the expiration of such periods, any
claim by a party hereto based upon any such representation or warranty shall be
of no further force and effect, except to the extent a party has asserted a
claim in accordance with this Article VII for breach of any such representation
or warranty prior to the expiration of such period, in which event any
representation or warranty to which such claim relates shall survive with
respect to such claim until such claim is resolved as provided in this Article
VII. The covenants and agreements of the parties hereto contained in this
Agreement or in any of the other Transaction Documents shall survive the Closing
until performed in accordance with their terms.
7.2. Indemnification. (a) The Company shall indemnify, defend and
---------------
hold harmless the Purchasers, their Affiliates, and their respective officers,
directors, partners, members, employees, agents, representatives, successors and
assigns (each a "Purchasers Indemnified Person") from and against all Losses
-----------------------------
incurred or suffered by a Purchaser Indemnified Person arising from (i) the
breach of any of the representations or
-20-
warranties made by the Company in this Agreement or any other Transaction
Document or (ii) the breach of any covenant or agreement made by the Company in
this Agreement or any other Transaction Document. Notwithstanding the foregoing,
(A) no claim may be made against the Company for indemnification pursuant to
Section 7.2(a)(i) unless the aggregate liability of the Company exceeds
$10 million, and the Company shall then only be liable for Losses in excess of
such amount and (B) the Company's maximum liability for indemnification pursuant
to Section 7.2(a)(i) shall not exceed $250,000,000.
(b) The Purchasers shall indemnify, defend and hold harmless the
Company, its Affiliates, and their respective officers, directors, partners,
members, employees, agents, representatives, successors and assigns (each a
"Company Indemnified Person") from and against all Losses incurred or suffered
---------------------------
by a Company Indemnified Person arising from (i) the breach of any of the
representations or warranties made by the Purchasers in this Agreement or any
other Transaction Document or (ii) the breach of any covenant or agreement made
by the Purchasers in this Agreement or any other Transaction Document.
Notwithstanding the foregoing, (A) no claim may be made against the Purchasers
for indemnification pursuant to Section 7.2(b)(i) unless the aggregate liability
of the Purchasers exceeds $10 million, and the Purchasers shall then only be
liable for Losses in excess of such amount and (B) the Purchasers' maximum
liability for indemnification pursuant to Section 7.2(b)(i) shall not exceed
$250,000,000.
(c) A party seeking indemnification under this Section 7.2 shall,
promptly upon becoming aware of the facts indicating that a claim for
indemnification may be warranted, give to the party from whom indemnification is
being sought a notice of claim relating to such Loss (a "Claim Notice"). Each
------------
Claim Notice shall specify the nature of the claim, the applicable provision(s)
of this Agreement or other instrument under which the claim for indemnity
arises, and, if possible, the amount or the estimated amount thereof. No
failure or delay in giving a Claim Notice (so long as the same is given prior to
expiration of the representation or warranty upon which the claim is based) and
no failure to include any specific information relating to the claim (such as
the amount or estimated amount thereof) or any reference to any provision of
this Agreement or other instrument under which the claim arises shall affect the
obligation of the party from whom indemnification is sought.
7.3. Inspections; No Other Representations. The Purchasers are
-------------------------------------
informed and sophisticated purchasers, and have undertaken such investigation
and have been provided with and have evaluated such documents and information as
they deem necessary to enable them to make an informed decision with respect to
the execution, delivery and performance of this Agreement. Each Purchaser will
undertake prior to the Closing such further investigation and request such
additional documents and information as it deems necessary. Each Purchaser
agrees to accept the Preferred Shares based upon its own inspection, examination
and determination with respect thereto as to all matters, and without reliance
upon any express or implied representations or warranties of any
-21-
nature made by or on behalf or imputed to the Company, except as expressly set
forth in this Agreement. Without limiting the generality of the foregoing, each
Purchaser acknowledges that the Company makes no representation or warranty with
respect to any projections, estimates or budgets delivered to or made available
to Purchasers of future revenues, future results of operations (or any component
thereof), future cash flows or future financial condition (or any component
thereof) of the Company and its Subsidiaries or the future business and
operations of the Company and the Subsidiaries except as expressly set forth in
this Agreement.
7.4. Exclusivity. Except as specifically set forth in this Agreement
-----------
and except in the case of fraud, effective as of the Closing, each party hereby
waives any rights and claims such party may have against the other party hereto,
whether in law or in equity, relating to any breach of any representation or
warranty by any party hereunder. After the Closing, Sections 7.1, 7.2(a) and
7.2(b) will provide the exclusive remedy for any misrepresentation or breach of
warranty, except in the case of fraud.
ARTICLE VIII
MISCELLANEOUS
8.1. Defined Terms; Interpretations. The following terms, as used
------------------------------
herein, shall have the following meanings:
"Affiliate" shall have the meaning ascribed to such term in Rule 12b-2
---------
of the General Rules and Regulations under the Exchange Act.
"Agreement" shall have the meaning ascribed thereto in the preamble.
---------
"Board of Directors" shall mean the Board of Directors of the Company.
------------------
"Certificates of Designation" shall have the meaning ascribed thereto
---------------------------
in Section 2.2.
"Claim Notice" shall have the meaning ascribed thereto in
------------
Section 7.2(c).
"Closing" shall have the meaning ascribed thereto in Section 1.2(a).
-------
"Closing Date" shall have the meaning ascribed thereto in
------------
Section 1.2(a).
"Commitments" shall have the meaning ascribed thereto in Section 2.11.
-----------
"Common Stock" shall have the meaning ascribed thereto in Section 2.3.
------------
"Company" shall have the meaning ascribed thereto in the preamble.
-------
-22-
"Company Indemnified Person" shall have the meaning ascribed thereto
--------------------------
in Section 7.2(b).
"Consents" shall have the meaning ascribed thereto in Section 4.4.
--------
"DGCL" shall mean the Delaware General Corporation Law.
----
"Encumbrances" shall have the meaning ascribed thereto in
------------
Section 2.1(b).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended, or any successor federal statute, and the rules and regulations of the
SEC thereunder, all as the same shall be in effect at the time. Reference to a
particular section of the Securities Exchange Act of 1934, as amended, shall
include reference to the comparable section, if any, of any such successor
federal statute.
"GAAP" shall have the meaning ascribed thereto in Section 2.5.
----
"Governmental Entity" shall mean any supernational, national, foreign,
-------------------
federal, state or local judicial, legislative, executive, administrative or
regulatory body or authority.
"HSR Act" shall mean the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act
-------
of 1976, as amended, and the rules and regulations thereunder.
"Knowledge", with respect to the Company, shall mean the knowledge of
---------
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ Rings.
"Laws" shall include all foreign, federal, state, and local laws,
----
statutes, ordinances, rules, regulations, orders, judgments, decrees and bodies
of law.
"Licenses" shall have the meaning ascribed thereto in Section 2.9.
--------
"Litigation" shall have the meaning ascribed thereto in
----------
Section 2.7(a).
"Losses" shall mean each and all of the following items: claims,
------
losses, liabilities, obligations, payments, damages (actual or punitive),
charges, judgments, fines, penalties, amounts paid in settlement, costs and
expenses (including, without limitation, interest which may be imposed in
connection therewith, costs and expenses of investigation, actions, suits,
proceedings, demands, assessments and fees, expenses and disbursements of
counsel, consultants and other experts).
"Material Adverse Effect" shall mean a material adverse effect on the
-----------------------
properties, business, prospects, operations, results of operations, earnings,
assets,
-23-
liabilities or condition (financial or otherwise) of the Company and its
Subsidiaries taken as a whole.
"Person" shall mean any individual, firm, corporation, limited
------
liability company, partnership, company or other entity, and shall include any
successor (by merger or otherwise) of such entity.
"Preferred Shares" shall have the meaning ascribed thereto in the
----------------
recitals.
"Purchase Price" shall have the meaning ascribed thereto in
--------------
Section 1.1.
"Purchasers" shall have the meaning ascribed thereto in the preamble.
----------
"Purchasers Indemnified Person" shall have the meaning ascribed
-----------------------------
thereto in Section 7.2(a).
"Registration Rights Agreement" shall have the meaning ascribed
-----------------------------
thereto in Section 5.2(d).
"SEC" shall mean the Securities and Exchange Commission.
---
"SEC Reports" shall have the meaning ascribed thereto in Section 2.4.
-----------
"Securities Act" shall mean the Securities Act of 1933, as amended, or
--------------
any successor federal statute, and the rules and regulations of the SEC
thereunder, all as the same shall be in effect at the time. Reference to a
particular section of the Securities Act shall include reference to the
comparable section, if any, of such successor federal statute.
"Series A Preferred Stock" shall have the meaning ascribed thereto in
------------------------
Section 2.3.
"Series B Preferred Stock" shall have the meaning ascribed thereto in
------------------------
the recitals.
"Series C Preferred Stock" shall have the meaning ascribed thereto in
------------------------
the recitals.
"Shares" shall mean any shares of Class A Common Stock, par value
------
$0.01 per share, of the Company, now or hereafter authorized to be issued, and
any and all securities of any kind whatsoever of the Company which may be
exchanged for or converted into Class A Common Stock, any and all securities of
any kind whatsoever of the Company which may be issued on or after the date
hereof in respect of, in exchange for, or upon conversion of shares of Class A
Common Stock pursuant to a merger, consolidation, stock split, stock dividend,
recapitalization of the Company or otherwise.
-24-
"Significant Subsidiaries" shall mean the entities listed on
------------------------
Schedule 8.1.
"Subsidiary" shall mean as to the Company, each corporation,
----------
partnership or other entity of which shares of capital stock or other equity
interests having ordinary voting power (other than capital stock or other equity
interests having such power only by reason of the happening of a contingency) to
elect a majority of the board of directors or other managers of such
corporation, partnership or other entity are at the time owned, directly or
indirectly, or the management of which is otherwise controlled, directly or
indirectly, or both, by the Company.
"Transaction Documents" shall mean this Agreement, the Certificates of
---------------------
Designation, the Registration Rights Agreement and all other contracts,
agreements, schedules, certificates and other documents being delivered pursuant
to or in connection with this Agreement or such other documents or the
transactions contemplated hereby or thereby.
8.2. Fees and Expenses. Except as provided in this Section 8.2 all
-----------------
costs and expenses incurred in connection with this Agreement shall be paid by
the party incurring such costs or expense. At the Closing, the Company shall pay
the expenses of the Purchasers listed on Schedule 8.2 in the amounts set forth
therein.
8.3. Public Announcements. The Purchasers and the Company shall
--------------------
consult with each other before issuing any press release with respect to this
Agreement or the transactions contemplated hereby and neither shall issue any
such press release or make any such public statement without the prior consent
of the other, which consent shall not be unreasonably withheld or delayed;
provided, however, that a party may, without the prior consent of the other
party, issue such press release or make such public statement as may upon the
advice of counsel be required by Law, the NMS or any exchange on which the
Company's securities are listed and, to the extent time permits, it has used all
reasonable efforts to consult with the other party prior thereto.
8.4. Restrictive Legends. In addition to the restrictions set forth
-------------------
in Section 4.12, no Preferred Shares or Shares may be transferred without
registration under the Securities Act and applicable state securities laws
unless counsel to the Company shall advise the Company that such transfer may be
effected without such registration. Each certificate representing any of the
foregoing shall bear legends in substantially the following form:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE SHALL BE
REDEEMABLE AS PROVIDED IN THE CERTIFICATE OF DESIGNATION
AND THE COMPANY'S AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION. THE SECURITIES EVIDENCED BY THIS
CERTIFICATE SHALL BE
-25-
CONVERTIBLE INTO THE COMPANY'S CLASS A COMMON STOCK IN
THE MANNER AND ACCORDING TO THE TERMS SET FORTH IN THE
CERTIFICATE OF DESIGNATION.
THE COMPANY IS AUTHORIZED TO ISSUE MORE THAN ONE CLASS
OR SERIES OF STOCK. AS REQUIRED UNDER DELAWARE LAW, THE
COMPANY SHALL FURNISH TO ANY HOLDER UPON REQUEST AND
WITHOUT CHARGE, A FULL SUMMARY STATEMENT OF THE
DESIGNATIONS, VOTING RIGHTS, PREFERENCES, LIMITATIONS AND
SPECIAL RIGHTS OF THE SHARES OF EACH CLASS OR SERIES
AUTHORIZED TO BE ISSUED BY THE COMPANY SO FAR AS THEY
HAVE BEEN FIXED AND DETERMINED AND THE AUTHORITY OF THE
BOARD OF DIRECTORS TO FIX AND DETERMINE THE DESIGNATIONS,
VOTING RIGHTS, PREFERENCES, LIMITATIONS AND SPECIAL
RIGHTS OF THE CLASSES AND SERIES OF SECURITIES OF THE
COMPANY.
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "1933 ACT"), OR UNDER ANY APPLICABLE STATE LAWS.
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED BY THE REGISTERED OWNER HEREOF FOR INVESTMENT
AND NOT WITH A VIEW TO OR FOR SALE IN CONNECTION WITH ANY
DISTRIBUTION THEREOF WITHIN THE MEANING OF THE 1933 ACT.
THE SHARES MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR
ASSIGNED EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER THE
PROVISIONS OF THE 1933 ACT OR ANY APPLICABLE STATE
SECURITIES LAWS, OR PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT OR IN A TRANSACTION OTHERWISE IN COMPLIANCE
WITH APPLICABLE FEDERAL AND STATE SECURITIES LAWS.
THE SALE, PLEDGE, TRANSFER, ASSIGNMENT OR OTHER DISPOSITION
OF THE SHARES REPRESENTED
-26-
BY THIS CERTIFICATE IS RESTRICTED BY AND SUBJECT TO THE
PROVISIONS OF A STOCK PURCHASE AGREEMENT DATED AS OF
AUGUST 30, 1999, A COPY OF WHICH IS AVAILABLE UPON REQUEST
FOR INSPECTION AT THE OFFICE'S OF THE CORPORATION. ANY
SUCH REQUEST SHOULD BE ADDRESSED TO THE SECRETARY OF
THE CORPORATION.
8.5. Further Assurances. At any time or from time to time after the
------------------
Closing, the Company, on the one hand, and the Purchasers, on the other hand,
agree to cooperate with each other, and at the request of the other party, to
execute and deliver any further instruments or documents and to take all such
further action as the other party may reasonably request in order to evidence or
effectuate the consummation of the transactions contemplated hereby or by the
other Transaction Documents and to otherwise carry out the intent of the parties
hereunder or thereunder.
8.6. Successors and Assigns. This Agreement shall bind and inure to
----------------------
the benefit of the Company and the Purchasers and the respective successors,
permitted assigns, heirs and personal representatives of the Company and the
Purchasers, provided that prior to the Closing the Company may not assign its
rights or obligations under this Agreement to any Person without the prior
written consent of the Purchasers, and provided further that the Purchasers may
not assign their rights or obligations under this Agreement to any Person (other
than an Affiliate) without the prior written consent of the Company. In
addition, and whether or not any express assignment has been made, the
provisions of this Agreement which are for the Purchasers' benefit as purchasers
or holders of Preferred Stock or Shares are also for the benefit of, and
enforceable by, any Affiliates of the Purchasers who hold such Preferred Shares
or Shares and received such Preferred Shares or Shares in accordance with the
terms of this Agreement.
8.7. Entire Agreement. This Agreement and the other Transaction
----------------
Documents contain the entire agreement between the parties with respect to the
subject matter hereof and supersede all prior and contemporaneous arrangements
or understandings with respect thereto.
8.8. Notices. All notices, requests, consents and other
-------
communications hereunder to any party shall be deemed to be sufficient if
contained in a written instrument delivered in person or sent by telecopy,
nationally recognized overnight courier or first class registered or certified
mail, return receipt requested, postage prepaid, addressed to such party at the
address set forth below or such other address as may hereafter be designated in
writing by such party to the other parties:
-27-
(i) if to the Company, to:
McLeodUSA Incorporated
McLeodUSA Technology Park
▇▇▇▇ ▇ ▇▇▇▇▇▇ ▇▇
▇▇ ▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ Rings, Esq.
Vice President, General Counsel and Secretary
with a copy to (which shall not constitute notice):
▇▇▇▇▇ & ▇▇▇▇▇▇▇ L.L.P.
Columbia Square
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇.
▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇., Esq.
(ii) if to the Purchasers, to:
c/o Forstmann Little & Co.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇
with a copy to:
Fried, Frank, Harris, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
All such notices, requests, consents and other communications shall be
deemed to have been given or made if and when delivered personally or by
overnight courier to the parties at the above addresses or sent by electronic
transmission, with confirmation received, to the telecopy numbers specified
above (or at such other address or telecopy number for a party as shall be
specified by like notice).
-28-
8.9. Amendments. The terms and provisions of this Agreement may be
----------
modified or amended, or any of the provisions hereof waived, temporarily or
permanently, in a writing executed and delivered by the Company and the
Purchasers. No waiver of any of the provisions of this Agreement shall be deemed
to or shall constitute a waiver of any other provision hereof (whether or not
similar). No delay on the part of any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof.
8.10. Counterparts. This Agreement may be executed in any number of
------------
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
8.11. Headings. The headings of the sections of this Agreement have
--------
been inserted for convenience of reference only and shall not be deemed to be a
part of this Agreement.
8.12. Nouns and Pronouns. Whenever the context may require, any
------------------
pronouns used herein shall include the corresponding masculine, feminine or
neuter forms, and the singular form of names and pronouns shall include the
plural and vice versa.
8.13. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING
EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAW.
8.14. Submission to Jurisdiction. Each of the parties hereto hereby
--------------------------
irrevocably and unconditionally consents to submit to the exclusive jurisdiction
of the courts of the State of New York and of the United States of America, in
each case located in the County of New York, for any Litigation arising out of
or relating to this Agreement or the other Transaction Documents and the
transactions contemplated hereby and thereby (and agrees not to commence any
Litigation relating hereto or thereto except in such courts), and further agrees
that service of any process, summons, notice or document by U.S. registered mail
to its respective address set forth in this Agreement shall be effective service
of process for any Litigation brought against it in any such court. Each of the
parties hereto hereby irrevocably and unconditionally waives any objection to
the laying of venue of any Litigation arising out of this Agreement or the
transactions contemplated hereby in the courts of the State of New York or the
United States of America, in each case located in the County of New York, hereby
further irrevocably and unconditionally waives and agrees not to plead or claim
in any such court that any such Litigation brought in any such court has been
brought in an inconvenient forum.
8.15. WAIVER OF JURY TRIAL. THE COMPANY AND THE PURCHASERS HEREBY
--------------------
WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY
-29-
JURY IN RESPECT OF ANY ACTION, PROCEEDING OR LITIGATION DIRECTLY OR INDIRECTLY
ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTION
DOCUMENTS.
8.16. Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid, but
if any provision of this Agreement is held to be invalid or unenforceable in any
respect, such invalidity or unenforceability shall not render invalid or
unenforceable any other provision of this Agreement.
-30-
IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Agreement as of the date first above written.
Purchasers
----------
FORSTMANN LITTLE & CO. EQUITY PARTNERSHIP V, L.P.
By: /s/ ▇▇▇▇ ▇▇▇▇
-------------------------------------
Numbers of Series B Number of Series C Amount of
Preferred Shares Preferred Shares Purchase Price Closing Dividend
------------------- ------------------ ---------------------- ----------------------
0 125,000 $321,875,000 0
FORSTMANN LITTLE & CO. SUBORDINATED DEBT AND EQUITY MANAGEMENT BUYOUT
PARTNERSHIP VI, L.P.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------------
Numbers of Series B Number of Series C Amount of
Preferred Shares Preferred Shares Purchase Price Closing Dividend
------------------- ------------------ ---------------------- ----------------------
85,752.78 0 $216,135,985 $3,235,287
FORSTMANN LITTLE & CO. SUBORDINATED DEBT AND EQUITY MANAGEMENT BUYOUT
PARTNERSHIP VII, L.P.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------------
Numbers of Series B Number of Series C Amount of
Preferred Shares Preferred Shares Purchase Price Closing Dividend
------------------- ------------------ ---------------------- ----------------------
189,247.22 0 $476,989,015 $7,154,472
MCLEODUSA INCORPORATED
By: /s/ J. ▇▇▇▇ ▇▇▇▇▇▇▇
-------------------------------
Name: J. ▇▇▇▇ ▇▇▇▇▇▇▇
Title: Group Vice President and
Chief Financial Officer
-31-