-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, C+KqGnyA3UgpUhO32Nd2T4DGOHk6PiBv0GSEULL+xqBzekOJw3J/NlI+v1RRuhyp 7Sn+894w/UkFOrLv84bN2g== 0000895345-02-000060.txt : 20020414 0000895345-02-000060.hdr.sgml : 20020414 ACCESSION NUMBER: 0000895345-02-000060 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 20020204 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: MCLEODUSA INC CENTRAL INDEX KEY: 0000919943 STANDARD INDUSTRIAL CLASSIFICATION: RADIO TELEPHONE COMMUNICATIONS [4812] IRS NUMBER: 421407240 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-46203 FILM NUMBER: 02526562 BUSINESS ADDRESS: STREET 1: 6400 C ST SW STREET 2: PO BOX 3177 CITY: CEDAR RAPIDS STATE: IA ZIP: 52406 BUSINESS PHONE: 3193640000 MAIL ADDRESS: STREET 1: 6400 C ST SW STREET 2: PO BOX 3177 CITY: CEDAR RAPIDS STATE: IA ZIP: 52406 FORMER COMPANY: FORMER CONFORMED NAME: MCLEOD INC DATE OF NAME CHANGE: 19960403 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: FORSTMANN LITTLE & CO SUB DEBT & EQ MGMT BUYOUT PAR VII LP CENTRAL INDEX KEY: 0001095466 IRS NUMBER: 134002846 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: WINSTON HUTCHINS STREET 2: 767 FIFTH AVE CITY: NEW YORK STATE: NY ZIP: 10153 BUSINESS PHONE: 2123555656 MAIL ADDRESS: STREET 1: WINSTON HUTCHINS STREET 2: 767 FIFTH AVE CITY: NEW YORK STATE: NY ZIP: 10153 SC 13D/A 1 adsc13da_forstmann.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 13D UNDER THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. 3)* MCLEODUSA INCORPORATED - ----------------------------------------------------------------------------- (Name of Issuer) CLASS A COMMON STOCK, PAR VALUE $0.01 PER SHARE - ----------------------------------------------------------------------------- (Title of Class of Securities) 582266 10 2 - ----------------------------------------------------------------------------- (CUSIP Number) FRIED, FRANK, HARRIS, FORSTMANN LITTLE & CO. SUBORDINATED DEBT SHRIVER & JACOBSON & EQUITY MANAGEMENT BUYOUT ONE NEW YORK PLAZA PARTNERSHIP-VI, L.P. NEW YORK, NY 10004 FORSTMANN LITTLE & CO. SUBORDINATED DEBT ATTN: STEPHEN FRAIDIN, ESQ. & EQUITY MANAGEMENT BUYOUT (212) 859-8000 PARTNERSHIP-VII, L.P. FORSTMANN LITTLE & CO. EQUITY PARTNERSHIP-V, L.P. THEODORE J. FORSTMANN C/O FORSTMANN LITTLE & CO. 767 FIFTH AVENUE NEW YORK, NY 10153 ATTN: WINSTON W. HUTCHINS (212) 355-5656 (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) JANUARY 30, 2002 ------------------------------------------------------------------- (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box. Note. Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule 13d-7 for other parties to whom copies are to be sent. *The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). SCHEDULE 13D CUSIP No. 582266102 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON FORSTMANN LITTLE & CO. SUBORDINATED DEBT AND EQUITY MANAGEMENT BUYOUT PARTNERSHIP - VI, L.P. 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ] (b) [x] 3 SEC USE ONLY 4 SOURCE OF FUNDS* 00 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ] 6 CITIZENSHIP OR PLACE OF ORGANIZATION DELAWARE NUMBER OF 7 SOLE VOTING POWER SHARES 35,144,582* BENEFICIALLY 8 SHARED VOTING POWER OWNED BY EACH 0 REPORTING 9 SOLE DISPOSITIVE POWER PERSON WITH 35,144,582* 10 SHARED DISPOSITIVE POWER 0 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 35,144,582* 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) [ ] EXCLUDES CERTAIN SHARES* 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 5.3% 14 TYPE OF REPORTING PERSON* PN * Section 7(a)(ii) of the Certificate of Designation of the Powers, Preferences and Relative, Participating, Optional and Other Special Rights of Series D Convertible Preferred Stock (the "Series D Preferred") and Qualifications, Limitations and Restrictions Thereof (the "Series D Certificate of Designation") sets forth a formula for determining the number of shares of Class A Common Stock issuable, as at any date, upon conversion of the Series D Preferred. The number of shares referred to in items 7, 9 and 11 above was calculated in accordance with such formula assuming that the Conversion Price and the Net Realizable FMV (each such term as defined in the Series D Certificate of Designation) equal $6.10. SCHEDULE 13D CUSIP No. 582266102 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON FORSTMANN LITTLE & CO. SUBORDINATED DEBT AND EQUITY MANAGEMENT BUYOUT PARTNERSHIP-VII, L.P. 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ] (b) [x] 3 SEC USE ONLY 4 SOURCE OF FUNDS* 00 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ] 6 CITIZENSHIP OR PLACE OF ORGANIZATION DELAWARE NUMBER OF 7 SOLE VOTING POWER SHARES 77,560,336* BENEFICIALLY 8 SHARED VOTING POWER OWNED BY EACH 0 REPORTING 9 SOLE DISPOSITIVE POWER PERSON WITH 77,560,336* 10 SHARED DISPOSITIVE POWER 0 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 77,560,336* 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) [ ] EXCLUDES CERTAIN SHARES* 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 11.0% 14 TYPE OF REPORTING PERSON* PN * Section 7(a)(ii) of the Series D Certificate of Designation sets forth a formula for determining the number of shares of Class A Common Stock issuable, as at any date, upon conversion of the Series D Preferred. The number of shares referred to in items 7, 9 and 11 above was calculated in accordance with such formula assuming that the Conversion Price and the Net Realizable FMV (each such term as defined in the Series D Certificate of Designation) equal $6.10. SCHEDULE 13D CUSIP No. 582266102 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON FORSTMANN LITTLE & CO. EQUITY PARTNERSHIP-V, L.P. 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ] (b) [x] 3 SEC USE ONLY 4 SOURCE OF FUNDS* 00 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ] 6 CITIZENSHIP OR PLACE OF ORGANIZATION DELAWARE NUMBER OF 7 SOLE VOTING POWER SHARES 51,229,508* BENEFICIALLY 8 SHARED VOTING POWER OWNED BY EACH 0 REPORTING 9 SOLE DISPOSITIVE POWER PERSON WITH 51,229,508* 10 SHARED DISPOSITIVE POWER 0 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 51,229,508* 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) [ ] EXCLUDES CERTAIN SHARES* 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 7.5% 14 TYPE OF REPORTING PERSON* PN * Section 7(a)(ii) of the Certificate of Designation of the Powers, Preferences and Relative, Participating, Optional and Other Special Rights of Series E Convertible Preferred Stock (the "Series E Preferred") and Qualifications, Limitations and Restrictions Thereof (the "Series E Certificate of Designation") sets forth a formula for determining the number of shares of Class A Common Stock issuable, as at any date, upon conversion of the Series E Preferred. The number of shares referred to in items 7, 9 and 11 above was calculated in accordance with such formula assuming that the Conversion Price and the Net Realizable FMV (each such term as defined in the Series E Certificate of Designation) equal $6.10. SCHEDULE 13D CUSIP No. 582266102 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON THEODORE J. FORSTMANN 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ] (b) [x] 3 SEC USE ONLY 4 SOURCE OF FUNDS* 00 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ] 6 CITIZENSHIP OR PLACE OF ORGANIZATION UNITED STATES NUMBER OF 7 SOLE VOTING POWER SHARES 23,750 BENEFICIALLY 8 SHARED VOTING POWER OWNED BY EACH 0 REPORTING 9 SOLE DISPOSITIVE POWER PERSON WITH 23,750 10 SHARED DISPOSITIVE POWER 0 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 23,750 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) [ ] EXCLUDES CERTAIN SHARES* 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 0.0% 14 TYPE OF REPORTING PERSON* IN This Amendment No. 3, filed on behalf of Forstmann Little & Co. Subordinated Debt & Equity Management Buyout Partnership-VI, L.P. ("MBO-VI"), Forstmann Little & Co. Subordinated Debt & Equity Management Buyout Partnership-VII, L.P. ("MBO-VII"), Forstmann Little & Co. Equity Partnership-V, L.P. ("Equity-V" and, together with MBO-VI and MBO-VII, the "FL Partnerships") and Theodore J. Forstmann ("Mr. Forstmann" and, collectively with the FL Partnerships, the "Reporting Persons"), amends and supplements the Schedule 13D filed on behalf of the FL Partnerships with the Securities and Exchange Commission on September 22, 1999 (as amended by Amendment No. 1 filed on October 2, 2001 and Amendment No. 2 filed on December 7, 2001, the "Schedule 13D"), relating to the Class A Common Stock, par value $0.01 per share (the "Common Stock"), of McLeodUSA Incorporated, a Delaware corporation ("McLeodUSA"). Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Schedule 13D. ITEM 4. Purpose of Transaction Item 4 is hereby amended and restated in its entirety as follows: On December 3, 2001, the FL Partnerships and McLeodUSA entered into a Lock-Up, Support and Voting Agreement, dated as of December 3, 2001 (the "Original Support Agreement"), in which the FL Partnerships agreed to support a comprehensive recapitalization and financial restructuring plan set forth in the Original Support Agreement. On January 30, 2002, the FL Partnerships and McLeodUSA entered into an Amended and Restated Lock-Up, Support and Voting Agreement, dated as of January 30, 2002 (the "Amended and Restated Support Agreement"), in which the FL Partnerships agreed to support a revised comprehensive recapitalization and financial restructuring plan set forth in the Amended and Restated Support Agreement (the "Restructuring"). The Amended and Restated Support Agreement supersedes the Original Support Agreement. Under the terms of the Restructuring, among other things, (i) the Series D Preferred and Series E Preferred held by the FL Partnerships would be converted into shares of newly issued common stock of McLeodUSA, par value $0.01 per share (the "New Common Stock"), as would the publicly traded Series A Preferred (together with the Series D Preferred and the Series E Preferred, the "Preferred Shares") and the existing Common Stock of McLeodUSA; (ii) McLeodUSA's publicly traded senior notes and senior discount notes (the "Senior Notes") would be exchanged for (a) $670 million in cash (subject to reduction), (b) $175 million of shares of newly issued senior preferred stock of McLeodUSA which are convertible into shares of New Common Stock and (c) warrants to purchase shares of New Common Stock with an aggregate exercise price of $30 million; (iii) McLeodUSA's telephone directory publishing business (the "Publishing Business") would be sold to Yell Group Limited ("Yell") for $600 million in cash (subject to reduction by $200,000 per day for each day following April 30, 2002 that the conditions to the closing of the sale of the Publishing Business to Yell, including the consummation of the Restructuring, have not been satisfied), or to another party who submits a better and higher cash offer, and the proceeds of the sale would be used to finance the exchange of the Senior Notes; and (iv) Forstmann Little & Co. Subordinated Debt and Equity Management Buyout Partnership-VIII, L.P., a Delaware limited partnership ("MBO-VIII"), and Forstmann Little & Co. Equity Partnership-VII, L.P., a Delaware limited partnership ("Equity-VII" and, together with MBO-VIII, the "2001 FL Partnerships"), both of which are affiliates of the FL Partnerships, would purchase $175 million of new equity of McLeodUSA, a portion of which would be used to finance the exchange of the Senior Notes, a portion of which would be used to prepay bank indebtedness of McLeodUSA and the balance of which would be used for general corporate purposes of McLeodUSA. In order to accomplish the Restructuring, on January 31, 2002, McLeodUSA filed a pre-negotiated plan of reorganization through the filing of a voluntary petition for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. Upon consummation of the Restructuring, (i) the FL Partnerships would be entitled to Board observer rights (more fully described below) and the 2001 FL Partnerships would be entitled to at least two representatives on the Board of Directors of the restructured McLeodUSA, (ii) the FL Partnerships and the 2001 FL Partnerships would own common stock and warrants of the restructured McLeodUSA in an aggregate amount representing approximately 58% of the equity ownership of the restructured McLeodUSA, and (iii) Mr. Forstmann would be the chairman of the Executive Committee of the Board of Directors of the restructured McLeodUSA. Pursuant to the Amended and Restated Support Agreement, the FL Partnerships have agreed (i) to vote their shares of Series D Preferred and Series E Preferred in favor of the Restructuring with such modifications in the terms of the Restructuring that do not materially deviate from the terms described above, and against any action that would interfere with or prevent the Restructuring and (ii) not to dispose of their Series D Preferred or Series E Preferred. The FL Partnerships' obligation to support a restructuring of McLeodUSA is subject to the condition that any such restructuring not materially deviate from the terms of the Restructuring described above. Pursuant to the Amended and Restated Support Agreement, a reduction in the equity percentage which the number of shares of New Common Stock to be received by each of the FL Partnerships upon consummation of the Restructuring represents of the fully diluted equity of McLeodUSA (calculated as set forth in the Amended and Restated Support Agreement) from the respective percentages set forth in the Amended and Restated Support Agreement is deemed to be a modification which materially deviates from the terms of the Restructuring. The Amended and Restated Support Agreement may be terminated by any party at any time after August 1, 2002. The foregoing description of the Amended and Restated Support Agreement is not intended to be complete and is qualified in its entirety by the complete text of the Amended and Restated Support Agreement, which is incorporated herein by reference. The Amended and Restated Support Agreement is filed as Exhibit 12 hereto. On December 3, 2001, the FL Partnerships also entered into a Purchase Agreement, dated as of December 3, 2001 (the "Original Purchase Agreement"), with McLeodUSA and the 2001 FL Partnerships, pursuant to which the 2001 FL Partnerships agreed to purchase $100 million of new equity of McLeodUSA. On January 30, 2002, the FL Partnerships entered into an Amended and Restated Purchase Agreement, dated as of January 30, 2002 (the "Amended and Restated Purchase Agreement"), with McLeodUSA and the 2001 FL Partnerships, pursuant to which the 2001 FL Partnerships agreed to purchase $175 million of new equity of McLeodUSA. The Amended and Restated Purchase Agreement supersedes the Original Purchase Agreement. Pursuant to the Amended and Restated Purchase Agreement, McLeodUSA and the FL Partnerships agreed as follows: (i) Following the Restructuring, the FL Partnerships will each be entitled to designate a representative (collectively, the "Representatives") to consult with and advise management of McLeodUSA with respect to McLeodUSA's business and financial matters, and to attend all Board of Directors and committee meetings as a non-voting observer. The Representatives will have the same access to information concerning the business and operations of McLeodUSA as do the directors of McLeodUSA and will be entitled to participate in discussions and consult with the Board of Directors of McLeodUSA without voting. Following the conversion of the Series D Preferred and Series E Preferred into New Common Stock in the Restructuring, the FL Partnerships will no longer be entitled to designate any members of the Board of Directors. (ii) Following the Restructuring, the FL Partnerships will be free to dispose of their shares of New Common Stock, subject only to compliance with applicable securities laws, except that, during the "Standstill Period" (defined as the period from the closing of the Restructuring to the earlier of (x) the third anniversary of the closing of the Restructuring and (y) the date on which Mr. Forstmann is removed, without his consent, as Chairman of the Executive Committee), the FL Partnerships will not dispose of any of their shares to any person or group which is, or which the FL Partnerships believe or should reasonably believe will become, the beneficial owner of more than 50% of the outstanding voting securities of McLeodUSA unless the Board of Directors of McLeodUSA approves such disposition in advance or unless the FL Partnerships comply with certain procedures set forth in the Amended and Restated Purchase Agreement which give McLeodUSA the opportunity to buy such shares itself or to cause its designee to buy such shares ("Disqualified Transaction"). The Amended and Restated Purchase Agreement provides that if McLeodUSA causes a designee to purchase the FL Partnerships' shares and the designee acquires the remaining shares of McLeodUSA within six months thereafter at a blended average price per share that is higher than that paid to the FL Partnerships, then the FL Partnerships will be entitled to receive the difference in purchase price. The foregoing provisions apply equally to the 2001 FL Partnerships with respect to sales by them of any of their equity interest in McLeodUSA. (iii) During the Standstill Period, the FL Partnership may not (a) acquire or become the beneficial owner of or obtain any rights in respect of any capital stock of McLeodUSA (other than the shares of New Common Stock issuable in the Restructuring), (b) solicit proxies or become a "participant" in a "solicitation" (as such terms are defined in Regulation 14A under the Exchange Act) of proxies with respect to any voting securities of McLeodUSA or initiate or become a participant in any stockholder proposal or election contest with respect to McLeodUSA or any of its successors or induce others to initiate the same (except for activities undertaken by the FL Partnerships or the 2001 FL Partnerships in connection with solicitations by the McLeodUSA Board of Directors), or (c) solicit or participate in the solicitation of any person to acquire McLeodUSA or a substantial portion of its assets or more than 50% of its outstanding capital stock. The foregoing, however, (1) does not prohibit the FL Purchasers and their affiliates from complying with Rules 13d-1 through 13d-7, as applicable, of the Act or from making such disclosure to McLeodUSA's stockholders or from taking such action which, in their judgment may be required under applicable law, and (2) does not restrict the manner in which the directors designated by the FL Partnerships participate in the deliberations or discussions of McLeodUSA's Board of Directors. (iv) During the Standstill Period, the FL Partnerships will be present at all shareholders meetings for purposes of determining whether a quorum exists and will vote their shares of New Common Stock so that at least five members of the Board of Directors are qualified as "Independent Directors" and that the Chairman, the Chief Executive Officer and the Chief Financial Officer of McLeodUSA are elected to the Board. The foregoing provisions apply equally to the 2001 FL Partnerships. In the Amended and Restated Purchase Agreement, McLeodUSA and the FL Partnerships also agreed that, at the closing of the Restructuring, the existing restrictions on transfer and standstill provisions applicable to the Series D Preferred and Series E Preferred would terminate, but that the 2001 Registration Rights Agreement entered into by the FL Partnerships in connection with their receipt of the Series D Preferred and Series E Preferred would remain in effect and cover the shares of New Common Stock into which the Series D Preferred and Series E Preferred will be converted. In the Amended and Restated Purchase Agreement, McLeodUSA also agreed with the FL Partnerships and the 2001 FL Partnerships that: (1) for so long as the FL Partnerships and 2001 FL Partnerships own at least 60% of the aggregate amount of securities owned by them immediately following the closing of the Restructuring (the "Initial Securities"), McLeodUSA would not adopt or implement any stockholders rights plan or similar plan or device (a "Rights Plan"); provided, however, that following the time when (i) the FL Partnerships and the 2001 FL Partnerships cease to own at least 60% of the Initial Securities or (ii) the FL Partnerships or the 2001 FL Partnerships sell any of their securities in a Disqualified Transaction, McLeodUSA may adopt a Rights Plan so long as the percentage that would trigger any rights by other stockholders of McLeodUSA is at least one percentage point greater than the aggregate percentage ownership (on an as converted basis) of the FL Partnerships and 2001 FL Partnerships in McLeodUSA immediately prior to the adoption of such Rights Plan; and (2) McLeodUSA would exercise all authority under applicable law to effect an amendment to its certificate of incorporation expressly electing not to be governed by Section 203 of the General Corporation Law of the State of Delaware. In the Amended and Restated Purchase Agreement, the 2001 FL Partnerships agreed with McLeodUSA to purchase, for an aggregate purchase price of $175 million, (i) 74,027,764 shares of New Common Stock, (ii) common stock warrants (the "Warrants"), with an aggregate exercise price of $30 million, to purchase 22,159,091 shares of New Common Stock and (iii) 10 shares of a series of preferred stock of McLeodUSA, par value $.01, designated as the Series B Convertible Preferred Stock (the "Series B Preferred"). The foregoing description of the Amended and Restated Purchase Agreement is not intended to be complete and is qualified in its entirety by the complete text of the Amended and Restated Purchase Agreement, which is incorporated herein by reference. The Amended and Restated Purchase Agreement is filed as Exhibit 13 hereto. The Series B Preferred has no liquidation preference and is not entitled to the payment of dividends. The holders of record of shares of Series B Preferred are entitled to vote with the New Common Stock as a single class on all matters presented to the holders of New Common Stock for a vote. Pursuant to the Series B Certificate of Designation, for so long as the 2001 FL Partnerships beneficially own at least 40% of the shares of New Common Stock beneficially owned by them on the original date of issuance of the Series B Preferred (the "Issue Date"), the 2001 FL Partnerships are entitled to collectively elect two directors to the Board of Directors; for so long as the 2001 FL Partnerships beneficially own more than 20% but less than 40% of the shares of New Common Stock beneficially owned by them on the Issue Date, the 2001 FL Partnerships are entitled to collectively elect one director to the Board and to designate a person as a non-voting observer (a "Board Observer") to attend all meetings of the Board of Directors; for so long as the 2001 FL Partnerships beneficially own 20% or less (but at least 10%) of the shares of New Common Stock beneficially owned by them on the Issue Date, the 2001 FL Partnerships are entitled to designate two Board observers; and if the 2001 FL Partnerships beneficially own less than 10% of the shares of New Common Stock beneficially owned by them on the Issue Date, the 2001 FL Partnerships are no longer entitled to designate any Board observers and the rights of such Board observers cease. The Series B Preferred are canceled upon the earlier of (a) the 2001 FL Partnerships beneficially owning less than 10% of the shares of New Common Stock beneficially owned by them on the Issue Date or (b) upon a Change of Control (as defined in the Form of Series B Certificate of Designation). The foregoing description of the Series B Preferred is not intended to be complete and is qualified in its entirety by the complete text of the Form of Certificate of Designation of the Powers, Preferences and Relative Participating, Optional and Other Special Rights of Series B Convertible Preferred Stock and Qualifications, Limitations and Restrictions Thereof ("Form of Series B Certificate of Designation"), which is incorporated herein by reference. The Form of Series B Certificate of Designation is filed as Exhibit 14 hereto. The Warrants are exercisable until the fifth anniversary of their issuance for an aggregate purchase price of $30 million in cash and are subject to customary anti-dilution provisions. The foregoing description of the Warrants is not intended to be complete and is qualified in its entirety by the complete text of the Form of Common Stock Purchase Warrant, which is incorporated herein by reference. The Form of Common Stock Purchase Warrant is filed as Exhibit 15 hereto. Depending on various factors, including, without limitation, the FL Partnerships' financial position and investment strategy, the price levels of the McLeodUSA common stock, conditions in the securities markets and general economic and industry conditions, each of the Reporting Persons and the 2001 FL Partnerships may in the future take such actions with respect to its investment in McLeodUSA as it deems appropriate, including, without limitation, purchasing additional shares of McLeodUSA common stock or selling some or all of its McLeodUSA common stock or taking any actions that might result in any of the matters set forth in subparagraphs (a)-(j) of Item 4, in each case consistent with their obligations under their agreements with McLeodUSA. ITEM 7. Material to be Filed as Exhibits Item 7 is hereby amended as follows: 1. Stock Purchase Agreement, dated August 30, 1999, among McLeodUSA and the FL Partnerships.* 2. Registration Rights Agreement, dated as of September 15, 1999, among McLeodUSA and the FL Partnerships.* 3. Certificate of Designation of the Powers, Preferences and Relative, Participating, Optional and Other Special Rights of Series B Cumulative Convertible Preferred Stock and Qualifications, Limitations and Restrictions Thereof.* 4. Certificate of Designation of the Powers, Preferences and Relative, Participating, Optional and Other Special Rights of Series C Convertible Preferred Stock and Qualifications, Limitations and Restrictions Thereof.* 5. Joint Filing Agreement, dated September 22, 1999.* 6. Exchange Agreement, dated as of September 30, 2001, by and between McLeodUSA and the FL Partnerships.* 7. Termination Agreement, dated as of September 30, 2001, by and between McLeodUSA and the FL Partnerships.* 8. Registration Rights Agreement, dated as of September 30, 2001, by and between McLeodUSA and the FL Partnerships.* 9. Certificate of Designation of the Powers, Preferences and Relative, Participating, Optional and Other Special Rights of Series D Convertible Preferred Stock and Qualifications, Limitations and Restrictions Thereof.* 10. Certificate of Designation of the Powers, Preferences and Relative, Participating, Optional and Other Special Rights of Series E Convertible Preferred Stock and Qualifications, Limitations and Restrictions Thereof.* 11. Joint Filing Agreement, dated December 6, 2001.* 12. Amended and Restated Lock-Up, Support and Voting Agreement, dated as of January 30, 2002, by and among McLeodUSA and the FL Partnerships. 13. Amended and Restated Preferred Stock Purchase Agreement, dated as of January 30, 2002, by and among McLeodUSA, the 2001 FL Partnerships and the FL Partnerships. 14. Form of Certificate of Designation of the Powers, Preferences and Relative, Participating, Optional and Other Special Rights of Series B Convertible Preferred Stock and Qualifications, Limitations and Restrictions Thereof. 15. Form of Common Stock Purchase Warrant. - -------- * Previously filed. SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Dated: February 1, 2002 FORSTMANN LITTLE & CO. SUBORDINATED DEBT AND EQUITY MANAGEMENT BUYOUT PARTNERSHIP-VI, L.P. By: FLC XXIX Partnership, L.P. its general partner By: /s/ Winston W. Hutchins -------------------------------- Winston W. Hutchins, a general partner FORSTMANN LITTLE & CO. SUBORDINATED DEBT AND EQUITY MANAGEMENT BUYOUT PARTNERSHIP-VII, L.P. By: FLC XXXIII Partnership, L.P. its general partner By: /s/ Winston W. Hutchins -------------------------------- Winston W. Hutchins, a general partner FORSTMANN LITTLE & CO. EQUITY PARTNERSHIP- V, L.P. By: FLC XXX Partnership, L.P. its general partner By: /s/ Winston W. Hutchins -------------------------------- Winston W. Hutchins, a general partner /s/ Theodore J. Forstmann ------------------------------------ Theodore J. Forstmann EX-99.12 3 ex99_12.txt Exhibit 12 AMENDED AND RESTATED LOCK-UP, SUPPORT, AND VOTING AGREEMENT This Amended and Restated Lock-Up, Support, and Voting Agreement (this "Agreement") is made and entered into as of January 30, 2002, by and among McLeodUSA Incorporated, a Delaware corporation (the "Company") and the entities listed on the signature page hereto under the caption "Investors" (collectively, "Investor"). The Company and Investor are collectively referred to herein as the "Parties" and individually as a "Party." RECITALS WHEREAS, the Parties are party to that certain Lock-Up, Support, and Voting Agreement, dated as of December 3, 2001 (the "Original Agreement"); WHEREAS, since the date of the Original Agreement, the Company and Investor have engaged in good faith negotiations among themselves and with the Company's creditors regarding a restructuring of the Company's obligations and the recapitalization of the Company; WHEREAS, the Company now intends to file a case (the "Chapter 11 Proceedings") under Chapter 11 of Title 11 of the United States Code, 11 U.S.C. ss.ss. 101, et seq. (the "Bankruptcy Code") in the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court") to implement a Plan of Reorganization on the terms described in Exhibit A (the "Plan"); WHEREAS, Investor owns or controls the right to vote 100% of (i) that certain Series D Convertible Preferred Stock issued by the Company and (ii) that certain Series E Convertible Preferred Stock issued by the Company (together, the "Series D and E Preferred Stock"); and WHEREAS, in order to facilitate the implementation of the Plan, the Parties hereto desire to amend and restate the Original Agreement in its entirety. AGREEMENT NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows: 1. Voting in Favor of the Plan. (a) Agreement to Vote. Investor hereby irrevocably agrees, during the period commencing on the date of this Agreement and continuing until the termination of this Agreement as provided for in Section 6 hereof, to vote timely its Series D and E Preferred Stock in favor of the Plan with such modifications in the terms of the Plan that do not materially deviate from the terms set forth on Exhibit A, by executing ballots in favor of the Plan and agrees not to revoke or withdraw such vote. Investor's agreement to support the Plan is expressly conditioned upon the terms of the Plan being as set forth on Exhibit A and the Plan and all related documents being consistent with the terms set forth on Exhibit A with, in each case, such modifications that do not materially deviate from the terms of Exhibit A. Investor agrees that all solicitation materials and ballots prepared in connection with the Plan may indicate its support of the Plan. Solely for purposes of this Agreement, a reduction in the equity percentage which the number of shares of New Common Stock (as defined in Exhibit A) to be received by each of the Investors upon consummation of the Plan represents of the fully diluted equity (calculated as set forth on Exhibit A) from the respective percentages set forth on Exhibit A shall be deemed to be a modification in the terms of the Plan or restructuring that materially deviates from the terms set forth on Exhibit A. (b) Modifications. Notwithstanding any other provision of this Agreement, the Company may make such changes and modifications to the Plan as the Company deems are necessary and appropriate in order to have the Plan approved or implemented; provided, however, that Investor will not be required to support any such restructuring that materially deviates from the terms set forth on Exhibit A unless any such material deviations have been approved by Investor. 2. Restrictions on Transfer. Investor hereby agrees, so long as this Agreement remains in effect, not to (i) sell, transfer, assign, pledge, or otherwise dispose of any of the Series D and E Preferred Stock, in whole or in part, or any interest therein, or (ii), without limiting the generality of the Section 2 of this Agreement, grant any proxies, deposit any of the Series D and E Preferred Stock into a voting trust, or enter into a voting agreement with respect to any of the Stock. 3. Support of the Plan. As long as this Agreement remains in effect, the Company will (i) use its reasonable best efforts to obtain confirmation of the Plan in accordance with the Bankruptcy Code as expeditiously as possible and (ii) use its reasonable best efforts to achieve confirmation including, upon approval of the disclosure statement, recommending to the holders of impaired claims and interests that they vote to approve the Plan. As long as this Agreement remains in effect, neither Party shall (a) object to confirmation of the Plan or otherwise commence any proceeding to oppose or alter the Plan or any other reorganization related documents or agreements (all such documents and agreements, the "Plan Documents"), so long as such documents conform to the terms hereof and set forth in Exhibit A, (b) vote for, consent to, support or participate in the formulation of any other plan of reorganization or liquidation proposed or filed or to be proposed or filed in any Chapter 11 or Chapter 7 case commenced in respect of the Company, (c) directly or indirectly seek, solicit, support or encourage any other plan, sale, proposal or offer of dissolution, winding up, liquidation, reorganization, merger or restructuring of the Company or any of its subsidiaries that could reasonably be expected to prevent, delay or impede the successful restructuring of the Company as contemplated by the Plan or the Plan Documents, (d) object to the disclosure statement or the solicitation of consents to the Plan, or (e) take any other action that is inconsistent with, or that would delay confirmation of, the Plan; provided, however, the Investors' obligations pursuant to this Section 3 shall be conditioned upon (i) the Company's filing of the Plan, (ii) the Company's not withdrawing the Plan or modifying the Plan in a manner that materially deviates from the terms set forth on Exhibit A and (iii) the Bankruptcy Court's not rejecting or denying confirmation of the Plan, in each case with such modifications to the Plan that do not materially deviate from the term of Exhibit A. 4. Acknowledgment. This Agreement is not and shall not be deemed to be a solicitation for consents to the Plan. The acceptances of Investor will not be solicited until it has received the applicable solicitation materials and/or disclosure statement and related ballots. 5. Termination of Agreement. At any time after August 1, 2002, the Company and Investor may terminate their obligations hereunder and Investor may rescind its vote on the Plan (which vote shall be null and void and have no further force and effect), by giving prior written notice thereof to the other party. 6. Representations and Warranties. Each Investor represents and warrants that the following statements are true, correct and complete as of the date hereof: (a) Corporate Power and Authority. It is duly organized, validly existing, and in good standing under the laws of the state of its organization, and has all requisite corporate, partnership or LLC power and authority to enter into this Agreement and to carry out the transactions contemplated by, and perform its respective obligations under, this Agreement. (b) Authorization. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by all required actions on the part of Investor and no other proceedings on the part of such Investor are necessary to authorize this Agreement or to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by such Investor and, assuming this Agreement has been duly authorized, executed and delivered by the Company, constitutes a valid and binding agreement of such Investor. (c) No Conflicts. Neither the execution and delivery of this Agreement by such Investor nor the consummation by such Investor of the transactions contemplated hereby nor compliance by such Investor with any of the provisions hereof will (a) conflict with or result in any breach of any provision of the charter or by-laws or similar organization documents of such Investor, (b) result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, cancellation or acceleration) under, any of the terms, conditions or provisions of any material note, bond, mortgage, indenture, license, contract, agreement or other instrument or obligation to which such Investor or any of its subsidiaries is a party or by which any of them or any of their properties or assets may be bound or (c) violate any order, writ, injunction, decree, statute, rule or regulation applicable to such Investor, any of its subsidiaries or any of their properties or assets. (d) Governmental Consents. The execution, delivery and performance by it of this Agreement do not and shall not require any registration or filing with consent or approval of, or notice to, or other action to, with or by, any federal, state or other governmental authority or regulatory body, other than the approval of the Bankruptcy Court with respect to the Plan. (e) Owner of Stock. It is the beneficial owner of, or holder of investment authority over, the Series D and E Preferred Stock that it has agreed to vote in favor of the Plan, and beneficially owns, or has investment authority over, no other interests in the Company. 7. Further Acquisition of Interests. This Agreement shall in no way be construed to preclude Investor from acquiring additional interests in the Company. However, any such additional interests so acquired shall automatically be deemed to be subject to the terms of this Agreement. 8. Amendments. This Agreement may not be modified, amended or supplemented without the prior written consent of the Company and Investor. 9. Governing Law; Jurisdiction. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Delaware, without regard to any conflicts of law provision which would require the application of the law of any other jurisdiction. By its execution and delivery of this Agreement, each of the Parties hereto hereby irrevocably and unconditionally agrees for itself that any legal action, suit or proceeding against it with respect to any matter under or arising out of or in connection with this Agreement or for recognition or enforcement of any judgment rendered in any such action, suit or proceeding, may be brought in the United States District Court for the District of Delaware. By execution and delivery of this Agreement, each of the Parties hereto irrevocably accepts and submits itself to the nonexclusive jurisdiction of such court, generally and unconditionally, with respect to any such action, suit or proceeding. Notwithstanding the foregoing consent to jurisdiction, upon the commencement of any Chapter 11 Proceedings, each of the Parties hereto hereby agrees that the Bankruptcy Court shall have exclusive jurisdiction of all matters arising out of or in connection with this Agreement. 10. Specific Performance. It is understood and agreed by each of the Parties hereto that money damages would not be a sufficient remedy for any breach of this Agreement by any Party and each non-breaching Party shall be entitled to specific performance and injunctive or other equitable relief as a remedy of any such breach. 11. Headings. The headings of the sections, paragraphs and subsections of this Agreement are inserted for convenience only and shall not affect the interpretation hereof. 12. Successors and Assigns. This Agreement is intended to bind and inure to the benefit of the Parties and their respective successors, assigns, heirs, executors, administrators and representatives. 13. Prior Negotiations. This Agreement and Exhibit A supersede all prior negotiations with respect to the subject matter hereof. Without limiting the generality of the foregoing, this Agreement supercedes the Original Agreement. 14. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which shall constitute one and the same Agreement. 15. No Third-Party Beneficiaries. Unless expressly stated herein, this Agreement shall be solely for the benefit of the Parties hereto and no other person or entity shall be a third-party beneficiary hereof. 16. Consideration. It is hereby acknowledged by the Parties hereto that no consideration shall be due or paid to Investor for its agreement to vote to accept the Plan in accordance with the terms and conditions of this Agreement other than the Company's agreement to use its reasonable best efforts to obtain approval of any disclosure statement and reasonable best efforts to confirm the Plan in accordance with the terms and conditions of this Agreement. IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed and delivered by its duly authorized officer as of the date first above written. McLEODUSA INCORPORATED By: /s/ Chris Davis ------------------------------------------- Name: Chris Davis Title: Chief Operating and Financial Officer INVESTORS: FORSTMANN LITTLE & CO. EQUITY PARTNERSHIP-V, L.P. By: FLC XXX Partnership, L.P. its general partner By: /s/ Thomas H. Lister ------------------------------------------- Thomas H. Lister, a general partner FORSTMANN LITTLE & CO. SUBORDINATED DEBT AND EQUITY MANAGEMENT BUYOUT PARTNERSHIP-VI, L.P. By: FLC XXIX Partnership, L.P. its general partner By: /s/ Thomas H. Lister ------------------------------------------- Thomas H. Lister, a general partner FORSTMANN LITTLE & CO. SUBORDINATED DEBT AND EQUITY MANAGEMENT BUYOUT PARTNERSHIP-VII, L.P. By: FLC XXXIII Partnership, L.P. its general partner By: /s/ Thomas H. Lister ------------------------------------------- Thomas H. Lister, a general partner MCLEODUSA INCORPORATED EXHIBIT A - ---------------------------------------------------------------------------- SUMMARY TERM SHEET Company McLeodUSA Incorporated (the "Company"). Parties Subject to Restructure The Company; Forstmann Little & Company, its affiliates and its co-investors, if any, (collectively, "FL" or the "Sponsor"); the banks participating in the senior credit agreement (the "Bank Group"); holders ("Noteholders") of the Company's unsecured notes including (a) 11.375% Senior Notes due 2009; (b) 10.500% Senior Discount Notes due 2007; (c) 9.250% Senior Notes due 2007; (d) 8.375% Senior Notes due 2008; (e) 9.500% Senior Notes due 2008; (f) 8.125% Senior Notes due 2009; (g) 11.500% Senior Notes due 2009; and (h) 12.000% Senior Notes due 2008 (collectively, the "Notes"); preferred equity holders ("Preferred Holders") of the Company's class A, D, and E preferred stock (collectively, the "Old Preferred Stock"); and the holders of the Company's current common stock ("Old Equity"). Overview The Company will restructure its balance sheet (the "Transaction" or the "Recapitalization") through, among other things, exchange of the Notes for (i) cash, (ii) a senior convertible preferred stock (the "New Convertible Preferred Stock"), and (iii) five-year warrants (the "New Noteholder Warrants") to purchase newly issued new common stock ("New Common Stock"); the exchange of the Existing Preferred Stock and the Existing Common Stock for New Common Stock; and new investment by FL for New Common Stock and warrants identical to the New Noteholder Warrants (the "New FL Warrants," and together with the New Noteholder Warrants, the "Warrants"), through a pre-negotiated Chapter 11 Plan. Pursuant to the Transaction: o The Noteholders will receive the following: - $670 million, subject to adjustment described below, from: (a) Pubco Proceeds: $570 million from the Pubco sale, unless the sale of Pubco closes after April 30, 2002 in which case the proceeds from the Pubco sale (and the amount payable to the Noteholders) shall be reduced $200,000 per day from May 1, 2002 through the earlier of (i) the date of closing or (ii) August 1, 2002; and (b) FL Investment: $100 million from the FL investment, described below. - $175 million of New Convertible Preferred Stock, convertible into 15.0000% of the New Common Stock on a fully diluted basis at closing (after giving effect to the Recapitalization, but prior to the exercise of the Warrants and management options), the terms set on the term sheet attached hereto as Exhibit A (the "Preferred Term Sheet"). It being understood that as of the closing of the Recapitalization, the conversion price of the New Convertible Preferred Stock will be calculated as follows: where: X = the aggregate number of shares of New Common Stock issuable upon conversion of the New Convertible Preferred Stock; CS = the actual number of shares of New Common Stock outstanding (excluding New Common Stock underlying New Convertible Preferred Stock, Warrants and management options); and LP = the aggregate liquidation preference of the New Convertible Preferred Stock (i.e., $175 million) the number of shares of New Common Stock issuable upon conversion of the New Convertible Preferred Stock is determined as follows: X = 15% x ( X + CS) and the conversion price on a per share basis of the New Convertible Preferred Stock (CP) is determined as follows: X = LP / CP and therefore: CP = LP / X As an example, where the Company has 850,000 shares of New Common Stock actually outstanding (excluding New Common Stock underlying New Convertible Preferred Stock, Warrants and management options), the New Convertible Preferred Stock will convert into 150,000 shares of New Common Stock (150,000 = 15% x (150,000 + 850,000)) and the conversion price will be $1,166.667 ($1,166.667 = $175 million / 150,000). - New Noteholder Warrants to purchase an aggregate of 6.0000% of the shares of New Common Stock on a fully diluted basis at closing (after giving effect to the Recapitalization and the exercise of the Warrants, but prior to the exercise of any management options) exercisable for five years for aggregate consideration payable to the Company of $30 million. o FL Investment: FL will invest $175 million for (i) 22.7778% of the New Common Stock on a fully diluted basis at closing (after giving effect to the Recapitalization and the shares of New Common Stock underlying the New Convertible Preferred Stock, but prior to the exercise of the Warrants and management options) and (ii) New FL Warrants, in an amount and with terms identical to the New Noteholder Warrants. o Series A preferred stock will receive 10.3682% of the New Common Stock on a fully diluted basis at closing (after giving effect to the Recapitalization and the shares of New Common Stock underlying the New Convertible Preferred Stock, but prior to the exercise of the Warrants and management options). o Series D preferred stock will receive 24.0625% of the New Common Stock on a fully diluted basis at closing (after giving effect to the Recapitalization and the shares of New Common Stock underlying the New Convertible Preferred Stock, but prior to the exercise of the Warrants and management options). o Series E preferred stock will receive 10.9375% of the New Common Stock on a fully diluted basis at closing (after giving effect to the Recapitalization and the shares of New Common Stock underlying the New Convertible Preferred Stock, but prior to the exercise of the Warrants and management options). o Existing Common Stock will receive 16.8540% of the New Common Stock on a fully diluted basis at closing (after giving effect to the Recapitalization and the shares of New Common Stock underlying the New Convertible Preferred Stock, but prior to the exercise of the Warrants and management options). Additional Noteholder Rights The Company shall agree to list the New Common Stock and New Convertible Preferred Stock on a national securities exchange or the Nasdaq Stock Market and shall make periodic filings under the Exchange Act. Corporate Governance The new Board of Directors will initially consist of 15 members and will include 1 member nominated by the Noteholders. In connection with the Transaction, the Company shall cause to be appointed or shall nominate for election the designee of the Noteholders. The Noteholders' initial representative on the Board of Directors shall be reasonably acceptable to the Company. Thereafter, the holders of the New Convertible Preferred Stock shall be entitled to select a member of the Board of Directors to the extent provided under "Special Voting Rights" on Exhibit A. Management Incentive Plan The new Board of Directors will develop and implement the McLeodUSA 2001 Omnibus Equity Plan (the "Management Incentive Plan") as described in the Offering Memorandum dated December 7, 2001. Other Conditions The Company agrees to pay for all reasonable costs and expenses of the Noteholders (including fees and expenses for one counsel and one financial advisor, which shall not be duplicative of the fees and expenses to be paid to the advisors for the unsecured creditors committee). The Company will provide cooperation to the financial advisor and counsel in due diligence inquiries. The Company shall use reasonable efforts to cause FL to execute any and all documents necessary or appropriate to allow the Company to perform all of its obligations provided in this Term Sheet and otherwise in connection with the Company's restructuring. Other Provisions The Plan of Reorganization shall be substantially similar to the terms and provisions of the Plan of Reorganization included in the Offering Memorandum dated December 7, 2001 with such modifications necessary (a) to incorporate the terms hereof, and (b) to add the members and advisors of the ad hoc bondholder committee and any official creditors committee as beneficiaries of the Plan of Reorganization's release provisions. EXHIBIT A NEW CONVERTIBLE PREFERRED TERM SHEET Note: Capitalized terms not defined herein have the meanings ascribed to them in the term sheet to which this Preferred Term Sheet is an exhibit. Issuer McLeodUSA Incorporated. Liquidation Preference $175 million in the aggregate, plus accrued and unpaid dividends. Dividend Rate Cumulative dividends at the rate of 2.5% per annum. Dividends cumulate whether or not declared by the Board (the senior credit agreement prohibits payment of cash dividends). Conversion Convertible at the option of the holder at any time into a number of shares of New Common Stock equal to (a) the Liquidation Preference of the shares of New Convertible Preferred Stock being converted divided by (b) the conversion price of the New Convertible Preferred Stock as calculated in accordance with the above example under "Overview" at the time of the closing of the Recapitalization. Mandatory Conversion Upon a Mandatory Conversion Event (defined below), then, at the option of the Company, the New Convertible Preferred Stock shall be converted in whole or in part on a pro rata basis at the then-effective Conversion Price into shares of New Common Stock. "Mandatory Conversion Event" means any such time following the fourth anniversary of the issuance of the New Convertible Preferred Stock that the closing price of New Common Stock has equaled or exceeded 135% of the conversion price of the New Convertible Preferred Stock for at least 20 out of any 30 consecutive trading days. Mandatory Redemption On the ten-year anniversary of the Closing Date. Merger, Consolidation Upon the merger, consolidation or other sale of the Company, the Preferred Stock shall be converted into the same consideration such preferred stock would have received had such preferred stock been converted into New Common Stock immediately prior to such merger, consolidation or other sale of the Company. Voting Rights The New Convertible Preferred Stock would be entitled to vote with New Common Stock as a single class on an "as converted" basis. Special Voting Rights The holders of the New Convertible Preferred Stock will have the right to elect one member to the Company's Board of Directors so long as not less than 33% of the New Convertible Preferred Stock issued on the closing of the Transaction remains outstanding. Ranking Junior to all existing and future debt obligations; senior to all classes of common stock and each other class of capital stock or series of preferred stock of the Company. Anti-Dilution (i) Customary anti-dilution protection for stock splits, reverse splits, and extraordinary dividends and (ii) customary weighted average anti-dilution protection for other issuances below the then market value of the New Common Stock. Registration and Other Rights The Company will grant to the holders of the New Convertible Preferred Stock customary information and inspection rights and, if required, limited, shelf registration rights to facilitate resales by any holder of the New Convertible Preferred Stock who may be deemed to be an affiliate of the Company upon the consummation of the Transaction or as a result of a holder having a representative on the Board of Directors of the Company. The Company will further grant the holders of the New Convertible Preferred Stock the right, for the period beginning on the closing of the Recapitalization until the eighteen month anniversary of such closing, to participate, on a pro rata basis, in any purchase by FL, any affiliate of FL or any person or entity acting in concert with FL in one or more series of related transactions of greater than either (x) an aggregate of $50,000,000 of equity securities of the Company or (y) 10% of the New Common Stock of the Company on a fully-diluted basis. The Company may provide this co-investment right to holders of the New Convertible Preferred Stock either simultaneously with FL's investment or as soon as practicable following the closing of such investment as determined by the Company. EX-99.13 4 ex99_13.txt Exhibit 13 AMENDED AND RESTATED PURCHASE AGREEMENT AMENDED AND RESTATED PURCHASE AGREEMENT (this "Agreement"), dated as of January 30, 2002, by and among McLeodUSA Incorporated, a Delaware corporation (the "Company"), the entities listed on the signature page hereto under the caption "Purchasers" (each such entity, a "Purchaser" and, collectively, the "Purchasers"), and solely for the purposes of Sections 4.5, 4.9, 4.10, 4.18, 7.3, 7.15 and 7.16 the entities listed on the signature page hereto under the caption "Original FL Purchasers" (each such entity, an "Original FL Purchaser" and, collectively with the Purchasers, the "FL Purchasers"). W I T N E S S E T H : WHEREAS, the Company and the FL Purchasers are parties to that certain Purchase Agreement, dated as of December 3, 2001 (the "Original Purchase Agreement"); and WHEREAS, the parties hereto desire to amend and restate the Original Purchase Agreement in its entirety to, among other things, provide for the sale by the Company to the Purchasers of (i) an aggregate of 74,027,764 shares of the Company's Class A Common Stock, par value $.01 per share (the "Common Stock"); (ii) an aggregate of 10 shares of the Company's Series B Preferred Stock, par value $.001 per share (the "Preferred Stock") and (iii) a warrant or warrants to purchase an aggregate of 22,159,091 shares of the Company's Class A Common Stock par value $.01 per share (the "Warrants" and together with the Common Stock and the Preferred Stock, the "Securities"). 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 PURCHASE AND SALE 1.1. Issuance, Purchase and Sale. Upon the terms and subject to the 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 the Securities for $175,000,000 (the "Purchase Price"). The number of shares of Common Stock, Preferred Stock and Warrants being acquired by each Purchaser, and the portion of the Purchase Price payable therefor is set forth opposite such Purchaser's name on Schedule 1.1; provided, that (i) the Purchasers shall have the right to reallocate among the Purchasers the Securities 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 Securities being acquired hereunder or the Purchase Price and (ii) the Company shall have the right to increase or decrease the number of shares of Common Stock and the number of shares of Class A Common Stock subject to the Warrants by delivering written notice of such change to the Purchasers not less than 10 days prior to the Closing so long as (A) the number of shares of Common Stock and the number of shares of Class A Common Stock subject to the Warrants are determined in accordance with Exhibit A attached hereto and (B) such change in the number of shares does not change the Purchase Price. 1.2. The Closing; Deliveries. (a) The closing of the purchase and sale of the Securities (the "Closing") shall take place at the offices of Skadden, Arps, Slate, Meagher & Flom, LLP, Four Time Square, New York, New York 10036, at 9:30 a.m. on the business day following the date on which all of the conditions to each party's obligations hereunder (other than Section 5.1(d)) have been satisfied or waived and on the same date and at the same time that the Restructuring is occurring, or at such other place or time as the parties may agree (the date of the Closing, the "Closing Date"). (b) At the Closing, the Company shall deliver to each Purchaser (i) certificates representing the Common Stock and Preferred Stock and (ii) the Warrants 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 and Warrants shall be made against receipt by the Company of the portion of the Purchase Price payable therefor, which shall be paid by wire transfer of immediately available funds to an account designated by the Company. 1.3. Capitalized Terms. Capitalized terms not otherwise defined herein shall have the meanings ascribed to such terms in Section 7.1. Article II REPRESENTATIONS AND WARRANTIES OF THE COMPANY Except as set forth in the Schedules to that certain Exchange Agreement, dated as of September 30, 2001, by and among the Company and the Original FL Purchasers or in Schedule I attached hereto, the Company hereby represents and warrants to each Purchaser, as of the date hereof and as of the Closing, as follows: 2.1. Organization. The Company is a corporation 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. 2.2. Due Authorization. The Company has the corporate power 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 and delivery of the Securities 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 Conversion Shares 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. Prior to the Closing, the Conversion Shares will be 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 Preferred Stock will be as set forth in the Certificate of Designation for the Series B Preferred Stock (the "Certificate of Designation"), the form of which is attached to this Agreement as Exhibit 2.2A. The terms of the Warrants will be set forth in a Warrant, the form of which is attached to this Agreement as Exhibit 2.2B. The Securities issued to the Purchasers in accordance with the terms of this Agreement, the Certificate of Designation or Warrant, as applicable, 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, except as provided in Section 4.9 hereof, clear of any Encumbrances and not subject to the preemptive or other similar rights of the stockholders of the Company. 2.3. Consents, No Violations. 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 its subsidiaries including, without limitation, any of the provisions of the Certificate of Designation for the Series A Preferred Stock of the Company; (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 its 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 clauses (i) and (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 result in a Material Adverse Effect or (c) except for the filings of the Certificate 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, filings and orders required under the Bankruptcy Code in connection with the Restructuring 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 its subsidiaries. 2.4. SEC Reports. The Company has timely filed all proxy statements, reports and other documents required to be filed by it under the Exchange Act and made 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"). 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 consolidated financial statements of the Company (including any related schedules and/or notes) included in the SEC Reports filed prior to the date hereof have been prepared in accordance with United States generally accepted accounting principles ("GAAP") consistently followed throughout the periods 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 disclosed in the SEC Reports filed prior to the date hereof, neither the Company nor any of its subsidiaries 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 unaudited consolidated balance sheet of the Company and its subsidiaries as of September 30, 2001, (ii) liabilities and obligations incurred in the ordinary course of business since September 30, 2001 or (iii) liabilities and obligations which individually or in the aggregate would not have a Material Adverse Effect. 2.6. Absence of Certain Changes. Except as disclosed in the SEC Reports filed prior to the date hereof, since September 30, 2001 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 would have a Material Adverse Effect. 2.7. Litigation. (a) Except as disclosed in the SEC Reports filed prior to the date hereof, there is no claim, action, suit, investigation or proceeding ("Litigation") pending or, to the knowledge of the Company, threatened against the Company or any of its Subsidiaries or involving any of their respective properties or assets by or before any court, arbitrator or other Governmental Entity which (i) in any 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 any of its subsidiaries would individually or in the aggregate have a Material Adverse Effect. (b) Except as disclosed in the SEC Reports filed prior to the date hereof, neither the Company nor any of its 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 have a Material Adverse Effect. 2.8. Compliance with Laws. Except as disclosed in the SEC Reports filed prior to the date hereof, the Company and its subsidiaries are in compliance with all Laws and the Company and its 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 where the failure to possess such Licenses individually or in the aggregate would not have a Material Adverse Effect. The Company and its subsidiaries have all Licenses, and all of such Licenses are valid and in full force and effect, and the Company and its subsidiaries have duly performed and are in compliance with all of their obligations under such Licenses except where the failure to be so valid, in full force and effect or performed or in compliance individually or in the aggregate would not have a Material Adverse Effect. 2.9. Brokers or Finders. Except for Houlihan Lokey Howard & Zukin and Credit Suisse First Boston, advisors to the special committee, 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 its subsidiaries in connection with any of the transactions contemplated by this Agreement or the other Transaction Documents. 2.10. Section 203 of the DGCL; Takeover Statute. The Board of 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 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. 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 Securites, 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. 3.2. Restricted Securities. Such Purchaser understands that (i) except as provided in the Registration Rights Agreement, the Securities and any Conversion Shares that may be issued 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 Securities and any Conversion Shares that may be issued 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. 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" (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 Securities and is capable of bearing the economic risks of such investment. 3.5. Organization. Such Purchaser is a limited partnership duly 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 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. 3.7. Consents, No Violations. Neither the execution, delivery or 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, 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. Sufficient Funds. As of the date hereof, the Purchaser has binding commitments for, and as of the Closing, the Purchaser will have, sufficient funds available (through immediately available cash or existing credit facilities) to enable it to consummate the transactions contemplated hereby. Article IV COVENANTS 4.1. Conduct of Business by the Company Pending the Closing. Except as expressly contemplated by this Agreement or as required in connection with the Restructuring (including in any proceedings required under the Bankruptcy Code in connection with the Restructuring) or as set forth on Schedule 4.1, during the period between the date of this Agreement and the Closing, the Company shall, and shall cause each of its Subsidiaries to, (i) conduct its business only in the ordinary course and consistent with past practice, (ii) use reasonable 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 efforts to maintain all of the material assets it owns or uses in the ordinary course of business consistent with past practice, (iv) use reasonable 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. 4.2. Press Releases; Interim Public Filings. The Company shall, to the extent any such press releases and public filings refer in any way to the Purchasers and/or their Affiliates, 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 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 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. Listing. The Company shall use its reasonable 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 Securities or any shares of Class A Common Stock are outstanding. Prior to the Closing, the Company shall prepare and submit to the NMS a listing application, if applicable, covering the Common Stock and the Conversion Shares and shall obtain approval for the listing of such shares, subject to, in the case of the Conversion Shares, official notice of issuance. 4.5. Board Representation; VCOC. (a) Section 3 of the Certificate of Designation for the Preferred Stock provides that the holders of Preferred Stock shall be entitled to elect two directors to the Board of Directors subject to the terms set forth therein. Accordingly, subject to the Certificate of Designation for the Preferred Stock, the Purchasers as holders of Preferred Stock, shall be entitled to designate for election to the Board of Directors two directors (the "Purchasers' Directors"). Theodore J. Forstmann and Thomas H. Lister, each of whom currently serves on the Board of Directors as a director designee of the Series D Preferred Stock, shall serve as the initial Purchasers' Directors for purposes of the Preferred Stock. Thereafter, in connection with any annual meeting of stockholders at which the term of a Purchasers' Director is to expire, the Company will take all necessary action to cause a Purchasers' Director to be nominated and use its reasonable efforts to cause such Purchasers' Director to be elected to the Board of Directors. In the event a vacancy shall exist in the office of a Purchasers' 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 efforts to cause the successor to be elected. Without limiting the generality of the foregoing, the Purchasers' Directors 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 records of its accountants, including the accountants' work papers, and the Purchasers' Directors may make such copies and inspections thereof as the Purchasers' Directors may request. The Company shall furnish the Purchasers' Directors with such financial and operating data and other information with respect to the business and properties of the Company as the Purchasers' Directors may request. The Company shall permit each of the Purchasers' Directors 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. Notwithstanding anything contained in this Section 4.5 to the contrary, the provisions of the Certificate of Designation shall govern the rights of holders of the Preferred Stock to elect directors (including any Purchasers' Directors). In the event that the holders of the Preferred Stock shall cease to be entitled to elect any Purchasers' Director and shall become entitled to designate a "Board Observer" pursuant to, and as defined in, Section 3(b) thereof, such Board Observer shall the rights set forth in Sections (d) through (f) of this Section 4.5. (b) The rights set forth in Section 4.5(a) are intended to satisfy the requirement of contractual management rights for purposes of qualifying each of the Purchasers' 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 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 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. (d) In addition, each Original FL Purchaser shall be entitled to routinely consult with and advise management of the Company with respect to the Company's business and financial matters, including management's proposed annual operating plans, and management will meet regularly during each year with representatives of each Original FL Purchaser (the "Representatives") at the Company's facilities at mutually agreeable times for such consultation and advice, including to review progress in achieving said plans. The Company shall give each Original FL Purchaser reasonable advance written notice of any significant new initiatives or material changes to existing operating plans and shall afford each Original FL Purchaser adequate time to meet with management to consult on such initiatives or changes prior to implementation. The Company agrees to give due consideration to the advice given and any proposals made by each Original FL Purchaser. (e) Each Original FL Purchaser 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 records of its accountants, including the accountants' work papers, and each Original FL Purchaser may make such copies and inspections thereof as each Original FL Purchaser may reasonably request. The Company shall furnish each Original FL Purchaser with such financial and operating data and other information with respect to the business and properties of the Company as each Original FL Purchaser may reasonably request. The Company shall permit the Representatives 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. (f) The Company shall, after receiving notice from each Original FL Purchaser as to the identity of any Representative, (i) permit a Representative to attend all Board meetings and all committees thereof as an observer, (ii) provide the Representative advance notice of each such meeting, including such meeting's time and place, at the same time and in the same manner as such notice is provided to the members of the Board (or such committee thereof), (iii) provide the Representative with copies of all materials, including notices, minutes and consents, distributed to the members of the Board (or such committee thereof) at the same time as such materials are distributed to such Board (or such committee thereof) and shall permit the Representative to have the same access to information concerning the business and operations of the Company and (iv) permit the Representative to discuss the affairs, finances and accounts of the Company with, and to make proposals and furnish advice with respect thereto to, the Board, without voting, and the Board and the Company's officers shall take such proposals or advice seriously and give due consideration thereto. Reasonable costs and expenses incurred by the Representative for the purposes of attending Board (or committee) meetings and conducting other Company business will be paid by the Company. (g) The rights set forth in Sections 4.5(d), 4.5(e) and 4.5(f) are intended to satisfy the requirement of contractual management rights for purposes of qualifying each of the Original FL Purchasers' 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 rights are not satisfactory for such purpose as to any such Original FL Purchaser, the Company and such Original FL Purchaser shall reasonably cooperate in good faith to agree upon mutually satisfactory management rights which satisfy such regulations. 4.6. Certificate of Designation. The Company shall cause the Certificate of Designation to be filed with the Secretary of State of the State of Delaware prior to the Closing. 4.7. Cooperation. Each of the Purchasers and the Company agrees to use its reasonable 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. 4.8. Reserve Shares. After the Closing, the Company will at all times reserve and keep available, solely for issuance and delivery upon the exercise of the Warrants, the number of shares of Class A Common Stock from time to time issuable upon the exercise of the Warrants at the time outstanding. All shares of Class A Common Stock issuable upon the exercise of the Warrants shall be duly authorized and, when issued upon such conversion or exercise, shall be validly issued, fully paid and nonassessable. 4.9. Restrictions on Transfer. (a) Subject to compliance with applicable securities laws, from and after the Closing, the FL Purchasers may sell, transfer, assign, convey, gift, mortgage, pledge, encumber, hypothecate or otherwise dispose of, directly or indirectly ("Transfer"), any of the Preferred Stock, Warrants, Conversion Shares or Class A Common Stock owned by them (individually and collectively, "FL Securities"); provided, that, prior to the Standstill Termination Date (as defined below), the FL Purchasers shall not make any Transfer of any of their FL Securities (other than Transfers between FL Purchasers and their Affiliates who agree in writing to be bound by the terms of this Agreement) to any Person or group which is, or which Purchaser believes or should reasonably believe will seek to become, the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of more than 50% of the outstanding voting securities of the Company (such Person or group, a "Disqualified Person," and such sale to a Disqualified Person, a "Disqualified Transaction"), unless such Transfer is specifically approved in advance in writing by the Board of Directors or unless the procedures set forth in this Section 4.9 have been complied with. (b) At any time prior to the Standstill Termination Date, any FL Purchaser may give written notice to the Company (the "Offer Notice") (which may be joined in by one or more of the other FL Purchasers, in which event all references hereafter to FL Purchaser shall be to all of such FL Purchasers who join in the Offer Notice) that it desires to sell some or all of its FL Securities in a transaction that may constitute a Disqualified Transaction, and setting forth the minimum price in cash at which it is prepared to sell such FL Securities. Such notice may but need not identify a specific purchaser for such FL Securities. (c) The Company shall have 45 days from the date of the Offer Notice to enter into or cause a designee of the Company to enter into a definitive purchase agreement (the "Purchase Agreement") for the FL Securities which are the subject of the Offer Notice or to advise the FL Purchaser that the Board of Directors has approved or has no objection to such transaction. If the Company or its designee enters into a Purchase Agreement for the purchase of the FL Securities which are the subject of the Offer Notice, then the Company or its designee shall be obligated to purchase such FL Securities within 90 days following the execution of the Purchase Agreement. The Purchase Agreement must provide that it is unconditional (except for receipt of regulatory approvals), that the purchase price for the FL Securities being purchased shall be paid in cash (unless the FL Purchaser otherwise agrees in writing), and (in the case where the purchaser is a designee of the Company) that, in the event the designee (or an affiliate thereof) acquires all or substantially all of the remaining shares of the Company within 6 months of the date of the closing under the Purchase Agreement for a blended average price per share (which, if in the form of marketable securities, shall be determined based on a 10-trading day average at the time of the purchase) that is greater than the price per share received by the FL Purchaser under the Purchase Agreement, the FL Purchaser shall be entitled to receive from such Person the amount by which the blended average per share price paid by such Person for the balance of the outstanding shares of Class A Common Stock exceeds the per share purchase price paid under the Purchase Agreement multiplied by the number of FL Securities sold under the Purchase Agreement. (d) If no definitive agreement is entered into within 45 days of the Offer Notice, the FL Purchasers shall have the right for 180 days following the end of such 45 day period to enter into a definitive agreement for the sale of their FL Securities with any Person, including a Disqualified Transferee, at a per share price no less than that specified in the Offer Notice. (e) If the FL Purchaser and the Company or its designee enter into a Purchase Agreement and the Company or its designee, as applicable, fails to timely consummate the purchase of the FL Securities thereunder in accordance with the terms thereof for any reason other than the breach by the FL Purchaser of the Purchase Agreement, then, in addition to all other remedies the FL Purchaser may have by reason of such non-consummation, this Section 4.9 shall be of no further force or effect. (f) Notwithstanding any other provision of this Section 4.9, no FL Purchaser shall avoid the provisions of this Section 4.9 by making one or more Transfers to one or more Affiliates and then disposing of all or any portion of such FL Purchaser's interest in any such Affiliate. The FL Purchasers shall give the Company notice promptly of any Transfer. Transfers in violation of the provisions of this Agreement shall be null and void, and the securities subject to such Transfer shall remain subject to this Agreement. (g) Any FL Purchaser, by subsequent written notice, may, following the giving of an Offer Notice, revoke such notice, in which event any subsequent sale of FL Securities by the FL Purchaser shall continue to be subject to this Section 4.9 as if no Offer Notice had been sent, or change the minimum price or number of FL Securities set forth in the Offer Notice, in which event the 45-day time period shall recommence from the date of the giving of the subsequent notice. (h) For purposes hereof, the term "Standstill Termination Date" shall mean the close of business on the day preceding the third anniversary of the Closing Date, or, if earlier, the date Theodore J. Forstmann is removed, without his consent, as the Chairman of the Executive Committee of the Board. 4.10. Standstill Agreement. (a) During the period commencing on the Closing Date and ending on the Standstill Termination Date (the "Standstill Period") except as (x) specifically permitted by this Agreement (including sales made in compliance with the provisions of Section 4.9) 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: (1) acquire, or offer or agree to acquire, or become the "beneficial owner" (as defined above) 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 or reclassification of the 2001 Preferred, the Common Stock, the Preferred Stock, the Warrants 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 involving the 2001 Preferred, the Preferred Stock, the Warrants or shares of Class A Common Stock (including any Conversion Shares) held by the FL Purchasers or any of their Affiliates at the time of such dividend, split or reclassification or merger or business combination; (2) 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" 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 FL Purchasers or the FL Purchasers' Directors in connection with solicitations by the Board of Directors); or (3) 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 50% of the outstanding capital stock; provided, that, no action taken by the FL Purchasers or their Affiliates or representatives in connection with the sale of any of their FL Securities shall constitute a violation of this clause (3). (b) Nothing contained in this Section 4.10 (1) shall prohibit any of the FL Purchasers or their Affiliates from complying with Rules 13d-1 through 13d-7, as applicable, promulgated under the Exchange Act or from making such disclosure to the Company's stockholders or from taking such action which, in their judgment may be required under applicable law, or (2) shall be deemed to restrict the manner in which the directors designated by the FL Purchasers pursuant to the Certificate of Designations participate in deliberations or discussions of the Board of Directors. (c) During the Standstill Period, the FL Purchasers and their Affiliates shall be present, in person or by proxy, and without further action hereby agree that they shall be deemed to be present, at all meetings of stockholders of the Company so that all voting securities (including Class A Common Stock) beneficially owned by the FL Purchasers and their Affiliates shall be counted for purposes of determining the presence of a quorum at such meetings. During the Standstill Period, all voting securities (including Class A Common Stock) beneficially owned by the FL Purchasers and their Affiliates shall be voted by the FL Purchasers and their Affiliates, in all elections of directors of the Company in accordance with the bylaws of the Company, such that (i) at least five members of the Board of Directors are qualified as "Independent Directors" as defined in the bylaws and (ii) the Chairman, the Chief Executive Officer, and the Chief Financial Officer of the Company are elected as members to the Board of Directors as required by the bylaws. The bylaws of the Company shall be amended to reflect the foregoing arrangements relating to the directors of the Company. The FL Purchasers agree to vote their FL Securities for the approval of a bylaw amendment adopting the board composition described above. 4.11. Consents; Approvals. The Company shall use its reasonable 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 reasonable 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. 4.12. 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 and books and records of the Company and its subsidiaries, and to the outside auditors of the Company and their work papers. 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. 4.13. Capitalization Certificate. At the Closing, the Company shall deliver a certificate of its Chief Operating and Financial Officer setting forth the capitalization of the Company and containing the other representations and warranties set forth on Exhibit 4.13. 4.14. Registration Rights. At the Closing, the Company shall enter into a registration rights agreement with the Purchasers substantially identical to the registration rights agreement among the Original FL Purchasers and the Company (the "Original Registration Rights Agreement"), except that the registration rights shall be assignable with the Company's prior written consent (such consent not to be unreasonably withheld) to a purchaser or purchasers or other transferees of any of the Securities. 4.15. Shareholder Rights Plan. For so long as the FL Purchasers shall own FL Securities representing at least 60% of the aggregate amount of FL Securities (each amount calculated on an as converted basis) owned by them immediately after the Closing (the "Initial Securities"), the Company shall not adopt or implement any stockholders rights plan or similar plan or device (collectively, a "Rights Plan"). From and after the earlier of (i) the time that the FL Purchasers shall cease to own FL Securities representing at least 60% of the amount of Initial Securities or (ii) the time the FL Purchasers shall complete a sale of FL Securities in a Disqualified Transaction, the Company may adopt a Rights Plan, provided, that the percentage that would trigger any rights by the other stockholders of the Company must be at least one percentage point greater than the aggregate percentage ownership (on an as converted basis) of the FL Purchasers in the Company immediately prior to the adoption of the Rights Plan. 4.16. Section 203 Opt-Out. Prior to the Closing, the Company shall exercise all authority under applicable law to effect an amendment to its certificate of incorporation expressly electing not to be governed by Section 203 of the DGCL. 4.17. Executive Committee Composition. The Company agrees that the executive committee of the Board of Directors (the "Executive Committee") shall consist of no more than seven members, including (i) for so long as the Purchasers are entitled to designate members to the Board of Directors, the Purchasers' Directors, (ii) the Chairman of the Board of Directors, (iii) the Chief Executive Officer of the Company and (iv) the Chief Operating Officer of the Company. The bylaws of the Company shall be amended to reflect the composition of the executive committee. The FL Purchasers agree to vote their FL Securities for the approval of a bylaw amendment adopting the provisions of this Section. 4.18. Termination Agreement. At the Closing, the Company shall enter into an agreement with the Original FL Purchasers terminating the Exchange Agreement, dated as of September 30, 2001, among the Original FL Purchasers and the Company and confirming that the Original Registration Rights Agreement shall continue in full force and effect with respect to the Class A Common Stock to be issued in exchange for the 2001 Preferred in the Restructuring, except that the registration rights shall be assignable with the Company's prior written consent (such consent not to be unreasonably withheld) to a purchaser or purchasers or other transferees of such Class A Common Stock. 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, regulation, executive order, decree, or injunction shall have been enacted, entered, promulgated or enforced by any court or Governmental Entity which prohibits or restricts the consummation of the transactions contemplated hereby; (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; (c) any material required filings or other consents, if any, of state regulatory bodies shall have been made or obtained; and (d) all conditions precedent to the consummation of the Restructuring shall have been satisfied and the Restructuring shall be occurring simultaneously with the Closing with such modifications in the terms of the Restructuring that do not materially deviate from the terms set forth on Exhibit A. Solely for purposes of this Agreement, a reduction in the equity percentage which the number of shares of Common Stock being purchased hereunder at the Closing represents of the fully diluted equity (calculated as set forth on Exhibit A) or a reduction in the equity percentage which the number of Conversion Shares represents of the fully diluted equity (calculated as set forth on Exhibit A) from the respective percentages set forth on Exhibit A shall be deemed to be a modification in the terms of the Restructuring that materially deviates from the terms set forth on Exhibit A. 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 as of such date), except for failures to be true and correct which individually or in the aggregate would not 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 executed and delivered the Registration Rights Agreement and the Termination Agreement referred to in Sections 4.14 and 4.18, respectively, and each such agreement shall be in full force and effect; (d) The Certificate 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 Certificate of Designation shall be in full force and effect; (e) The Conversion Shares shall have been duly authorized and reserved for issuance; (f) The Company's Certificate of Incorporation shall have been amended to expressly elect not to be governed by Section 203 of the DGCL; and (g) The Company shall have delivered the Capitalization Certificate referred to in Section 4.13. 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 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; and (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. Article VI TERMINATION 6.1. Termination. This Agreement may be terminated at any time prior to the Closing: (a) by mutual written consent of the Company and the Purchasers; (b) by the Company or the Purchasers at any time after August 1, 2002 if the Closing shall not have occurred by such date; provided, however, that the failure of the transactions contemplated hereby to occur on or before such date is not the result of the breach of any covenants or agreements contained herein by the party seeking to terminate this Agreement; or (c) by the Company or by the Purchasers, if any governmental entity of competent jurisdiction shall have issued an order, decree or ruling or taken other action restraining, enjoining or otherwise prohibiting the transactions contemplated hereby and such order, decree, ruling or other action shall have become final and nonappealable. 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 willful breach of this Agreement and provided further that this Section 6.2 and Sections 7.3, 7.14, 7.15 and 7.16 shall survive termination of this Agreement. Article VII MISCELLANEOUS 7.1. Defined Terms; Interpretations. The following terms, as used herein, shall have the following meanings: "2001 Preferred" shall mean the Company's Series D and Series E Convertible Preferred Stock. "Affiliate" shall have the meaning ascribed to such term in Rule 12b-2 of the General Rules and Regulations under the Exchange Act. "Bankruptcy Code" shall mean Title 11 of the United States Code. "Board of Directors" shall mean the Board of Directors of the Company. "Class A Common Stock" shall have the meaning the Company's Class A Common Stock, par value $.01 per share, which meaning shall include any and all securities of any kind whatsoever of the Company which may be exchanged for or converted into such Class A Common Stock, and 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. "Conversion Shares" shall mean any shares of Class A Common Stock issued upon exercise of the Warrants, any and all securities of any kind whatsoever of the Company which may be exchanged for or converted into such Class A Common Stock, and 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. "DGCL" shall mean the Delaware General Corporation Law. "Encumbrances" shall mean liens, charges, claims, security interests, restrictions, options, proxies, voting trusts or other encumbrances. "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. "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 Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations thereunder. "Laws" shall include all foreign, federal, state and local laws, statutes, ordinances, rules, regulations, orders, judgments, decrees and bodies of law. "Material Adverse Effect" shall mean a material adverse effect on the business, operations, results of operations, assets, or condition (financial or otherwise) of the Company and its Subsidiaries, taken as whole (a "Company Material Adverse Effect"); provided, that any adverse effects on or changes in the Company or any of its Subsidiaries resulting from or relating to (i) the execution of this Agreement and the announcement of this Agreement and the transactions contemplated hereby or (ii) the announcement of, and subsequent disclosures related to, the Restructuring or the commencement or pendency of proceedings under the Bankruptcy Code by or against Parent and/or its Subsidiaries shall be excluded from the determination of a Company Material Adverse Effect. "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. "Restructuring" shall mean the capital restructuring of the Company on the terms described in Exhibit A. "SEC" shall mean the Securities and Exchange Commission. "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. "Transaction Documents" shall mean this Agreement, the Certificate of Designation, the Warrants, the Registration Rights Agreement and the Termination Agreement and all other contracts, agreements, schedules, certificates and other documents being delivered pursuant to this Agreement or the transactions contemplated hereby. 7.2. Survival of Representations and Warranties. The representations and warranties made herein shall not survive beyond the earlier of (i) termination of this Agreement or (ii) the Closing Date. This Section 7.2 shall not limit any covenant or agreement of the parties hereto which by its terms contemplates performance after the Closing Date. 7.3. Fees and Expenses. All costs and expenses incurred in connection with this Agreement shall be paid by the party incurring such costs or expense; provided that the Company will reimburse the FL Purchasers at Closing for reasonable out-of-pocket fees and expenses paid to third parties solely in connection with the transactions contemplated hereby. 7.4. Public Announcements. The Purchasers and the Company have consulted with each other and issued a press release with respect to this Agreement and the transactions contemplated hereby and neither shall issue any further press release or make any further 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. 7.5. Restrictive Legends. In addition to the restrictions set forth in Section 4.11, no Common Stock, Preferred Stock, Warrant or Conversion 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. (a) Each certificate representing the Common Stock shall bear legends in substantially the following form: 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 BY THIS CERTIFICATE IS RESTRICTED BY AND SUBJECT TO THE PROVISIONS OF A STOCK PURCHASE AGREEMENT DATED AS OF JANUARY 30, 2002, A COPY OF WHICH IS AVAILABLE UPON REQUEST FOR INSPECTION AT THE OFFICES OF THE COMPANY. ANY SUCH REQUEST SHOULD BE ADDRESSED TO THE SECRETARY OF THE COMPANY. THE SECURITIES EVIDENCED BY THIS CERTIFICATE SHALL BE REDEEMABLE AS PROVIDED IN THE COMPANY'S AMENDED AND RESTATED CERTIFICATE OF INCORPORATION. (b) Each certificate representing the Preferred Stock shall bear legends in substantially the following form: 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 BY THIS CERTIFICATE IS RESTRICTED BY AND SUBJECT TO THE PROVISIONS OF A STOCK PURCHASE AGREEMENT DATED AS OF JANUARY 30, 2002, A COPY OF WHICH IS AVAILABLE UPON REQUEST FOR INSPECTION AT THE OFFICES OF THE COMPANY. ANY SUCH REQUEST SHOULD BE ADDRESSED TO THE SECRETARY OF THE COMPANY. 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. (c) Each Warrant shall bear a legend in substantially the following form: THIS WARRANT AND ANY SHARES OF COMMON STOCK ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER ANY APPLICABLE STATE LAWS. THIS WARRANT HAS 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. THIS WARRANT AND ANY SHARES OF COMMON STOCK ACQUIRED UPON THE EXERCISE OF THIS WARRANT 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 THIS WARRANT AND ANY SHARES OF COMMON STOCK ACQUIRED UPON THE EXERCISE OF THIS WARRANT IS RESTRICTED BY AND SUBJECT TO THE PROVISIONS OF A PURCHASE AGREEMENT DATED AS OF JANUARY 30, 2002, A COPY OF WHICH IS AVAILABLE UPON REQUEST FOR INSPECTION AT THE OFFICES OF THE COMPANY. ANY SUCH REQUEST SHOULD BE ADDRESSED TO THE SECRETARY OF THE COMPANY. (d) Each certificate representing Conversion Shares shall bear a legend in substantially the following form: 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 BY THIS CERTIFICATE IS RESTRICTED BY AND SUBJECT TO THE PROVISIONS OF A STOCK PURCHASE AGREEMENT DATED AS OF JANUARY 30, 2002, A COPY OF WHICH IS AVAILABLE UPON REQUEST FOR INSPECTION AT THE OFFICES OF THE COMPANY. ANY SUCH REQUEST SHOULD BE ADDRESSED TO THE SECRETARY OF THE COMPANY. THE SECURITIES EVIDENCED BY THIS CERTIFICATE SHALL BE REDEEMABLE AS PROVIDED IN THE COMPANY'S AMENDED AND RESTATED CERTIFICATE OF INCORPORATION. 7.6. 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. 7.7. 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 the Common Stock, Preferred Stock, Warrants or Conversion Shares are also for the benefit of, and enforceable by, any Affiliates of the Purchasers who hold such Common Stock, Preferred Stock or Conversion Shares and received such Common Stock, Preferred Stock or Conversion Shares in accordance with the terms of this Agreement. 7.8. 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. Without limiting the generality of the foregoing, this Agreement supercedes the Original Purchase Agreement. 7.9. 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: (i) if to the Company, to: McLeodUSA Incorporated McLeodUSA Technology Park 6400 C Street SW PO Box 3177 Cedar Rapids, Iowa 52406-3177 Telecopy No.: (319) 790-7901 Attention: Randall Rings, Esq. Group Vice President and Chief Legal Officer with a copy to (which shall not constitute notice): Skadden, Arps, Slate, Meagher & Flom (Illinois) 333 West Wacker Drive Chicago, Illinois 60606 Telecopy No.: (312) 407-0411 Attention: Peter C. Krupp, Esq. (ii) if to the Purchasers, to: c/o Forstmann Little & Co. 767 Fifth Avenue New York, NY 10153 Telecopy No.: (212) 759-9059 Attention: Thomas H. Lister with a copy to: Fried, Frank, Harris, Shriver & Jacobson One New York Plaza New York, NY 10004 Telecopy No.: (212) 859-4000 Attention: Aviva Diamant, 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). 7.10. 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. 7.11. 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. 7.12. 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. 7.13. 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. 7.14. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAW. 7.15. Submission to Jurisdiction. This Agreement shall be governed by, enforced under and construed in accordance with the laws of the State of Delaware, without giving effect to any choice or conflict of law provision or rule thereof. Each of the parties hereto hereby irrevocably and unconditionally consents to submit to the exclusive jurisdiction of the courts of the State of Delaware and of the United States of America in each case located in the County of Delaware for any litigation arising out of or relating to this Agreement and the transactions contemplated hereby (and agrees not to commence any litigation relating 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 Section 7.9 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 Delaware or of the United States of America in each case located in the County of Delaware and 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. Notwithstanding the foregoing, in the event that the Company and/or any of its Subsidiaries commence proceedings under the Bankruptcy Code, the parties hereto irrevocably and unconditionally consent to submit to the jurisdiction of the bankruptcy court in which such proceeding is commenced for any litigation arising out of or relating to this Agreement and the transactions contemplated thereby (and agree not to commence any litigation relating thereto except in such bankruptcy court). 7.16. WAIVER OF JURY TRIAL. THE COMPANY AND THE PURCHASERS HEREBY WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY 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. 7.17. 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. 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-VII, L.P. By: FLC XXXII Partnership, L.P. its general partner By:/s/ Thomas H. Lister --------------------------------------------- Thomas H. Lister, a general partner FORSTMANN LITTLE & CO. SUBORDINATED DEBT AND EQUITY MANAGEMENT BUYOUT PARTNERSHIP-VIII, L.P. By: FLC XXXIII Partnership, L.P. its general partner By:/s/ Thomas H. Lister --------------------------------------------- Thomas H. Lister, a general partner ORIGINAL FL PURCHASERS FORSTMANN LITTLE & CO. EQUITY PARTNERSHIP-V, L.P. By: FLC XXX Partnership, L.P. its general partner By:/s/ Thomas H. Lister --------------------------------------------- Thomas H. Lister, a general partner FORSTMANN LITTLE & CO. SUBORDINATED DEBT AND EQUITY MANAGEMENT BUYOUT PARTNERSHIP-VI, L.P. By: FLC XXIX Partnership, L.P. its general partner By:/s/ Thomas H. Lister --------------------------------------------- Thomas H. Lister, a general partner FORSTMANN LITTLE & CO. SUBORDINATED DEBT AND EQUITY MANAGEMENT BUYOUT PARTNERSHIP-VII, L.P. By: FLC XXXIII Partnership, L.P. its general partner By:/s/ Thomas H. Lister --------------------------------------------- Thomas H. Lister, a general partner MCLEODUSA INCORPORATED By: /s/ Chris Davis ----------------------------------------------- Name: Chris Davis Title: Chief Operating and Financial Officer Exhibit 4.13 ------------ As of the date hereof, the authorized capital stock of the Company consists of (i) [_________] shares of the Company's Class A Common Stock, par value $.01 per share ("Class A Common Stock"), of which, as of the Closing Date [_________] shares were issued and outstanding; (ii) [_________] shares of Class B Common Stock, par value $0.01 per share (the "Class B Common Stock" and, together with the Class A Common Stock, the "Common Stock"), of which, as of the date hereof, no shares are issued and outstanding; [(iii) [_________] shares of serial preferred stock, par value $0.01 per share, of which as of the date hereof [_________] shares are issued and outstanding as Series ___ Participating Convertible Preferred Stock (the "Series ___ Preferred Stock")]**; and (iv) 10,000,000 shares of Class II serial preferred stock, par value $.001 per share, of which, as of the date hereof, 10 shares are issued and outstanding as Series B Preferred Stock (the "Series B Preferred Stock"). All of the issued and outstanding shares of Class A Common Stock, Series __Preferred Stock and the Series B Preferred Stock have been duly authorized and are validly issued, fully paid and nonassessable. Except as set forth on Schedule I to this Exhibit, no shares of capital stock of the Company are entitled to preemptive rights. Except as set forth on Schedule II to this Exhibit or otherwise contemplated by this Agreement, there are no other 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, contracts, agreements, understandings or arrangements 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 III to this Exhibit or as otherwise contemplated by 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 ___ Preferred Stock or the Series B Preferred Stock. To the extent that any options, warrants or any of the other rights described above are outstanding, the issuance of the Preferred Stock and any future issuance of Conversion Shares will not 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. ** To be modified to reflect the terms of the New Convertible Preferred Stock as defined on Exhibit A. MCLEODUSA INCORPORATED EXHIBIT A - ---------------------------------------------------------------------------- SUMMARY TERM SHEET Company McLeodUSA Incorporated (the "Company"). Parties Subject to Restructure The Company; Forstmann Little & Company, its affiliates and its co-investors, if any, (collectively, "FL" or the "Sponsor"); the banks participating in the senior credit agreement (the "Bank Group"); holders ("Noteholders") of the Company's unsecured notes including (a) 11.375% Senior Notes due 2009; (b) 10.500% Senior Discount Notes due 2007; (c) 9.250% Senior Notes due 2007; (d) 8.375% Senior Notes due 2008; (e) 9.500% Senior Notes due 2008; (f) 8.125% Senior Notes due 2009; (g) 11.500% Senior Notes due 2009; and (h) 12.000% Senior Notes due 2008 (collectively, the "Notes"); preferred equity holders ("Preferred Holders") of the Company's class A, D, and E preferred stock (collectively, the "Old Preferred Stock"); and the holders of the Company's current common stock ("Old Equity"). Overview The Company will restructure its balance sheet (the "Transaction" or the "Recapitalization") through, among other things, exchange of the Notes for (i) cash, (ii) a senior convertible preferred stock (the "New Convertible Preferred Stock"), and (iii) five-year warrants (the "New Noteholder Warrants") to purchase newly issued new common stock ("New Common Stock"); the exchange of the Existing Preferred Stock and the Existing Common Stock for New Common Stock; and new investment by FL for New Common Stock and warrants identical to the New Noteholder Warrants (the "New FL Warrants," and together with the New Noteholder Warrants, the "Warrants"), through a pre-negotiated Chapter 11 Plan. Pursuant to the Transaction: o The Noteholders will receive the following: - $670 million, subject to adjustment described below, from: (a) Pubco Proceeds: $570 million from the Pubco sale, unless the sale of Pubco closes after April 30, 2002 in which case the proceeds from the Pubco sale (and the amount payable to the Noteholders) shall be reduced $200,000 per day from May 1, 2002 through the earlier of (i) the date of closing or (ii) August 1, 2002; and (b) FL Investment: $100 million from the FL investment, described below. - $175 million of New Convertible Preferred Stock, convertible into 15.0000% of the New Common Stock on a fully diluted basis at closing (after giving effect to the Recapitalization, but prior to the exercise of the Warrants and management options), the terms set on the term sheet attached hereto as Exhibit A (the "Preferred Term Sheet"). It being understood that as of the closing of the Recapitalization, the conversion price of the New Convertible Preferred Stock will be calculated as follows: where: X = the aggregate number of shares of New Common Stock issuable upon conversion of the New Convertible Preferred Stock; CS = the actual number of shares of New Common Stock outstanding (excluding New Common Stock underlying New Convertible Preferred Stock, Warrants and management options); and LP = the aggregate liquidation preference of the New Convertible Preferred Stock (i.e., $175 million) the number of shares of New Common Stock issuable upon conversion of the New Convertible Preferred Stock is determined as follows: X = 15% x ( X + CS) and the conversion price on a per share basis of the New Convertible Preferred Stock (CP) is determined as follows: X = LP / CP and therefore: CP = LP / X As an example, where the Company has 850,000 shares of New Common Stock actually outstanding (excluding New Common Stock underlying New Convertible Preferred Stock, Warrants and management options), the New Convertible Preferred Stock will convert into 150,000 shares of New Common Stock (150,000 = 15% x (150,000 + 850,000)) and the conversion price will be $1,166.667 ($1,166.667 = $175 million / 150,000). - New Noteholder Warrants to purchase an aggregate of 6.0000% of the shares of New Common Stock on a fully diluted basis at closing (after giving effect to the Recapitalization and the exercise of the Warrants, but prior to the exercise of any management options) exercisable for five years for aggregate consideration payable to the Company of $30 million. o FL Investment: FL will invest $175 million for (i) 22.7778% of the New Common Stock on a fully diluted basis at closing (after giving effect to the Recapitalization and the shares of New Common Stock underlying the New Convertible Preferred Stock, but prior to the exercise of the Warrants and management options) and (ii) New FL Warrants, in an amount and with terms identical to the New Noteholder Warrants. o Series A preferred stock will receive 10.3682% of the New Common Stock on a fully diluted basis at closing (after giving effect to the Recapitalization and the shares of New Common Stock underlying the New Convertible Preferred Stock, but prior to the exercise of the Warrants and management options). o Series D preferred stock will receive 24.0625% of the New Common Stock on a fully diluted basis at closing (after giving effect to the Recapitalization and the shares of New Common Stock underlying the New Convertible Preferred Stock, but prior to the exercise of the Warrants and management options). o Series E preferred stock will receive 10.9375% of the New Common Stock on a fully diluted basis at closing (after giving effect to the Recapitalization and the shares of New Common Stock underlying the New Convertible Preferred Stock, but prior to the exercise of the Warrants and management options). o Existing Common Stock will receive 16.8540% of the New Common Stock on a fully diluted basis at closing (after giving effect to the Recapitalization and the shares of New Common Stock underlying the New Convertible Preferred Stock, but prior to the exercise of the Warrants and management options). Additional Noteholder Rights The Company shall agree to list the New Common Stock and New Convertible Preferred Stock on a national securities exchange or the Nasdaq Stock Market and shall make periodic filings under the Exchange Act. Corporate Governance The new Board of Directors will initially consist of 15 members and will include 1 member nominated by the Noteholders. In connection with the Transaction, the Company shall cause to be appointed or shall nominate for election the designee of the Noteholders. The Noteholders' initial representative on the Board of Directors shall be reasonably acceptable to the Company. Thereafter, the holders of the New Convertible Preferred Stock shall be entitled to select a member of the Board of Directors to the extent provided under "Special Voting Rights" on Exhibit A. Management Incentive Plan The new Board of Directors will develop and implement the McLeodUSA 2001 Omnibus Equity Plan (the "Management Incentive Plan") as described in the Offering Memorandum dated December 7, 2001. Other Conditions The Company agrees to pay for all reasonable costs and expenses of the Noteholders (including fees and expenses for one counsel and one financial advisor, which shall not be duplicative of the fees and expenses to be paid to the advisors for the unsecured creditors committee). The Company will provide cooperation to the financial advisor and counsel in due diligence inquiries. The Company shall use reasonable efforts to cause FL to execute any and all documents necessary or appropriate to allow the Company to perform all of its obligations provided in this Term Sheet and otherwise in connection with the Company's restructuring. Other Provisions The Plan of Reorganization shall be substantially similar to the terms and provisions of the Plan of Reorganization included in the Offering Memorandum dated December 7, 2001 with such modifications necessary (a) to incorporate the terms hereof, and (b) to add the members and advisors of the ad hoc bondholder committee and any official creditors committee as beneficiaries of the Plan of Reorganization's release provisions. EXHIBIT A NEW CONVERTIBLE PREFERRED TERM SHEET Note: Capitalized terms not defined herein have the meanings ascribed to them in the term sheet to which this Preferred Term Sheet is an exhibit. Issuer McLeodUSA Incorporated. Liquidation Preference $175 million in the aggregate, plus accrued and unpaid dividends. Dividend Rate Cumulative dividends at the rate of 2.5% per annum. Dividends cumulate whether or not declared by the Board (the senior credit agreement prohibits payment of cash dividends). Conversion Convertible at the option of the holder at any time into a number of shares of New Common Stock equal to (a) the Liquidation Preference of the shares of New Convertible Preferred Stock being converted divided by (b) the conversion price of the New Convertible Preferred Stock as calculated in accordance with the above example under "Overview" at the time of the closing of the Recapitalization. Mandatory Conversion Upon a Mandatory Conversion Event (defined below), then, at the option of the Company, the New Convertible Preferred Stock shall be converted in whole or in part on a pro rata basis at the then-effective Conversion Price into shares of New Common Stock. "Mandatory Conversion Event" means any such time following the fourth anniversary of the issuance of the New Convertible Preferred Stock that the closing price of New Common Stock has equaled or exceeded 135% of the conversion price of the New Convertible Preferred Stock for at least 20 out of any 30 consecutive trading days. Mandatory Redemption On the ten-year anniversary of the Closing Date. Merger, Consolidation Upon the merger, consolidation or other sale of the Company, the Preferred Stock shall be converted into the same consideration such preferred stock would have received had such preferred stock been converted into New Common Stock immediately prior to such merger, consolidation or other sale of the Company. Voting Rights The New Convertible Preferred Stock would be entitled to vote with New Common Stock as a single class on an "as converted" basis. Special Voting Rights The holders of the New Convertible Preferred Stock will have the right to elect one member to the Company's Board of Directors so long as not less than 33% of the New Convertible Preferred Stock issued on the closing of the Transaction remains outstanding. Ranking Junior to all existing and future debt obligations; senior to all classes of common stock and each other class of capital stock or series of preferred stock of the Company. Anti-Dilution (i) Customary anti-dilution protection for stock splits, reverse splits, and extraordinary dividends and (ii) customary weighted average anti-dilution protection for other issuances below the then market value of the New Common Stock. Registration and Other Rights The Company will grant to the holders of the New Convertible Preferred Stock customary information and inspection rights and, if required, limited, shelf registration rights to facilitate resales by any holder of the New Convertible Preferred Stock who may be deemed to be an affiliate of the Company upon the consummation of the Transaction or as a result of a holder having a representative on the Board of Directors of the Company. The Company will further grant the holders of the New Convertible Preferred Stock the right, for the period beginning on the closing of the Recapitalization until the eighteen month anniversary of such closing, to participate, on a pro rata basis, in any purchase by FL, any affiliate of FL or any person or entity acting in concert with FL in one or more series of related transactions of greater than either (x) an aggregate of $50,000,000 of equity securities of the Company or (y) 10% of the New Common Stock of the Company on a fully-diluted basis. The Company may provide this co-investment right to holders of the New Convertible Preferred Stock either simultaneously with FL's investment or as soon as practicable following the closing of such investment as determined by the Company. EX-99.14 5 ex99_14.txt Exhibit 14 Exhibit 2.2A MCLEODUSA INCORPORATED CERTIFICATE OF DESIGNATION OF THE POWERS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL AND OTHER SPECIAL RIGHTS OF SERIES B CONVERTIBLE PREFERRED STOCK AND QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS THEREOF -------------------------------------------------- Pursuant to Section 151 of the General Corporation Law of the State of Delaware -------------------------------------------------- McLeodUSA Incorporated (the "Corporation"), a corporation organized and existing under the General Corporation Law of the State of Delaware, does hereby certify that, pursuant to authority conferred upon the board of directors of the Corporation (the "Board of Directors") by the Corporation's Amended and Restated Certificate of Incorporation, as amended (the "Restated Certificate of Incorporation"), and the authority delegated by the Board of Directors to a Special Committee of the Board of Directors in accordance with the provisions of Section 141(c) of the General Corporation Law of the State of Delaware and Section 3.7 of the Amended and Restated Bylaws of the Corporation and pursuant to the provisions of Section 151 of the General Corporation Law of the State of Delaware, said Special Committee of the Board of Directors is authorized to issue Preferred Stock of the Corporation in one or more series and the Special Committee of the Board of Directors has approved and adopted the following resolution on _________________, 2001 (the "Resolution"): RESOLVED that, the Special Committee of the Board of Directors hereby creates, authorizes and provides for the issuance of a series of the preferred stock of the Corporation, par value $.001 per share, designated as the "Series B Convertible Preferred Stock," consisting of 10 shares and having the powers, designation, preferences and relative, participating, optional and other special rights and the qualifications, limitations and restrictions thereof that are set forth in the Restated Certificate of Incorporation and in this Resolution as follows: 1. Number and Designation. 10 shares of the Preferred Stock of the Corporation shall constitute a series designated as "Series B Convertible Preferred Stock" (the "Series B Preferred Stock"). 2. Definitions. Unless the context otherwise requires, when used herein the following terms shall have the meaning indicated. "Board of Directors" means the Board of Directors of the Corporation. "Change of Control" shall be deemed to have occurred if (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Corporation or a corporation owned directly or indirectly by the stockholders of the Corporation in substantially the same proportions as their ownership of stock of the Corporation, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Corporation representing 50% or more of the total voting power represented by the Corporation's then outstanding Voting Securities, or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Corporation and any new director whose election by the Board of Directors or nomination for election by the Corporation's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the stockholders of the Corporation approve a merger or consolidation of the Corporation with any other corporation, other than a merger or consolidation which would result in the Voting Securities of the Corporation outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least 80% of the total voting power represented by the Voting Securities of the Corporation or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Corporation approve a plan of complete liquidation of the Corporation or an agreement for the sale or disposition by the Corporation of (in one transaction or a series of transactions) all or substantially all the Corporation's assets. "Class A Common Stock" means any shares of the Corporation's Class A common stock, par value $.01 per share, now or hereafter authorized to be issued, any and all securities of any kind whatsoever of the Corporation which may be exchanged for or converted into Class A Common Stock, and any and all securities of any kind whatsoever of the Corporation 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 Corporation or otherwise. "Common Stock" means the Corporation's Class A Common Stock, and any other common stock of the Corporation. "Initial Holders" means the recipients of the original issuance of the Series B Preferred Stock on the Issue Date as shown in the stock record book of the Corporation. "Issue Date" means the original date of issuance of shares of Series B Preferred Stock. "Voting Securities" means any securities of the Company which vote generally in the election of directors. 3. Voting Rights. (a) The Initial Holders shall not be entitled to any voting rights except as hereinafter provided in this Section 3 or as otherwise provided by law. (b) From and after the Issue Date, the Initial Holders shall be entitled to designate two directors (the "Two Designees," who shall be designated specifically as the "First Designee" and the "Second Designee," respectively) for election to the Board of Directors of the Corporation and, voting separately as a series, shall have the exclusive right to vote for the election of such designees to the Board of Directors; provided that, notwithstanding the foregoing, (A) the Initial Holders shall continue to be entitled to designate two directors for election to the Board of Directors and, voting separately as a series, shall continue to have the exclusive right to vote for the election of such designees to the Board of Directors, for as long as, and only for as long as, the Initial Holders beneficially own at least 40% of the shares of Common Stock beneficially owned by the Initial Holders on the Issue Date; (B) the entitlement of the Initial Holders to designate two directors for election to the Board of Directors, and the exclusive right of the Initial Holders to vote, separately as a series, for the election of such designees to the Board of Directors, shall cease immediately upon the Initial Holders beneficially owning less than 40% of the shares of Common Stock beneficially owned by the Initial Holders on the Issue Date, and the Initial Holders shall be entitled to designate one director (the "Single Designee," who initially shall be the Second Designee continuing as a director) for election to the Board of Directors and, voting separately as a series, shall have the exclusive right to vote for the election of such designee to the Board of Directors, and to designate one Board Observer (as hereinafter defined), for as long as, and only for so long as, the Initial Holders beneficially own less than 40% but more than 20% of the shares of Common Stock beneficially owned by the Initial Holders on the Issue Date; (C) the entitlement of the Initial Holders to designate one director for election to the Board of Directors, and the exclusive right of the Initial Holders to vote, separately as a series, for the election of such designee to the Board of Directors, and the exclusive right of the Initial Holders to designate one Board Observer, and the rights of such Board Observer, shall cease immediately upon the Initial Holders beneficially owning less than 40% of the shares of Common Stock beneficially owned by the Initial Holders on the Issue Date, and the Initial Holders shall be entitled to designate two Board Observers for as long as, and only for as long as, the Initial Holders beneficially own 20% or less (but at least 10%) of the shares of Common Stock beneficially owned by the Initial Holders on the Issue Date; (D) immediately upon the Initial Holders beneficially owning less than 10% of the shares of Common Stock beneficially owned by the Initial Holders on the Issue Date, the entitlement of the Initial Holders to designate two Board Observers, and the rights of such Board Observers, shall cease; (E) immediately upon the Initial Holders beneficially owning less than 40% but more than 20% of the shares of Common Stock beneficially owned by the Initial Holders on the Issue Date, the Board of Directors shall cause the total number of directors then constituting the whole Board of Directors to be decreased by one, and the term of office of the First Designee shall terminate; and (F) immediately upon the Initial Holders beneficially owning 20% or less of the shares of Common Stock beneficially owned by the Initial Holders on the Issue Date, the Board of Directors shall cause the total number of directors then constituting the whole Board of Directors to be decreased by one, and the term of office of the Single Designee shall terminate. Any or all of the Two Designees and the Single Designee may be removed with or without cause by the Initial Holders. "Board Observer" means a person who shall not be a member of the Board of Directors and who shall have the rights as agreed to with the Corporation. (c) Without the written consent of the Initial Holders, the Corporation will not amend, alter or repeal any provision of the Restated Certificate of Incorporation or this Certificate of Designation so as to adversely affect the preferences, rights or powers of the Series B Preferred Stock or to authorize the issuance of, or to issue any, additional shares of Series B Preferred Stock; provided that any such amendment that changes any dividend or other amount payable on or the Liquidation Preference of the Series B Preferred Stock shall require the written consent of the Initial Holders. (d) Each share of Series B Preferred Stock shall vote with Common Stock on all matters submitted to a vote of stockholders of the Corporation. Except as otherwise provided herein or by law, the holders of Series B Preferred Stock and the holders of Common Stock shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation. (e) In exercising the voting rights set forth in this Section 3, each share of Series B Preferred Stock shall have one vote per share. 4. Cancellation. All then outstanding shares of Series B Preferred Stock shall be deemed to be and shall be cancelled in full and shall no longer be issued or outstanding and shall no longer constitute an obligation of the Corporation in any way upon the occurrence of the earlier of (a) the Initial Holders beneficially owning less than 10% of the shares of Common Stock beneficially owned by the Initial Holders on the Issue Date or (b) upon a Change of Control. 5. Other Rights and Powers. Except as set forth herein, the shares of Series B Preferred Stock shall not have any relative, participating, optional or other special rights and powers and the consent of the holders thereof shall not be required for the taking of any corporate action. 6. Restrictions on Transfer. Notwithstanding anything to the contrary contained herein or in the Restated Certificate of Incorporation, any share(s) of Series B Preferred Stock not beneficially owned by the Initial Holders shall, immediately upon the occurrence of the event which effected the transfer or other disposition of such share(s), be deemed to be and shall be cancelled in full and shall no longer be issued or outstanding and shall no longer constitute an obligation of the Corporation in any way. 7. General Provisions. (a) The term "person" as used herein means any corporation, limited liability company, partnership, trust, organization, association, other entity or individual. (b) The headings of the sections, paragraphs, subparagraphs, clauses and subclauses of this Certificate of Designation are for convenience of reference only and shall not define, limit or affect any of the provisions hereof. IN WITNESS WHEREOF, said McLeodUSA Incorporated has caused this Certificate of Designations to be signed by ______________, its ______________ this __ day of ________, 2002. McLEODUSA INCORPORATED By: ---------------------------------------- Name: Title: EX-99.15 6 ex99_15.txt Exhibit 15 Exhibit 2.2B THIS WARRANT AND ANY SHARES OF COMMON STOCK ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER ANY APPLICABLE STATE LAWS. THIS WARRANT HAS 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. THIS WARRANT AND ANY SHARES OF COMMON STOCK ACQUIRED UPON THE EXERCISE OF THIS WARRANT 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 THIS WARRANT AND ANY SHARES OF COMMON STOCK ACQUIRED UPON THE EXERCISE OF THIS WARRANT IS RESTRICTED BY AND SUBJECT TO THE PROVISIONS OF A PURCHASE AGREEMENT DATED AS OF JANUARY 30, 2002, A COPY OF WHICH IS AVAILABLE UPON REQUEST FOR INSPECTION AT THE OFFICES OF THE COMPANY. ANY SUCH REQUEST SHOULD BE ADDRESSED TO THE SECRETARY OF THE COMPANY. ____, 2002 Void After __, 200__ McLEODUSA INCORPORATED Common Stock Purchase Warrant McLeodUSA Incorporated, a Delaware corporation (the "Corporation"), hereby certifies that for value received [ ] ("[ ]"), or its assigns, is entitled to purchase, subject to the terms and conditions hereinafter set forth, an aggregate of ____________ ( ) shares (subject to adjustment as hereinafter provided) of Class A Common Stock, par value $.01 per share (the "Common Stock"), of the Corporation at a purchase price per share equal to $[$30 million divided by the number of shares subject to warrant upon the closing of the Restructuring] (subject to adjustment as set forth herein, the "Exercise Price"), payable as hereinafter provided. SECTION 1. Warrant Expiration Date. As used herein, the term "Warrant Expiration Date" shall mean 5:00 p.m., Eastern Time, on ____________ ___, 200__[insert date which is 5 years from date of issuance]; provided that if such date shall not be a Business Day (as defined below), then 5:00 p.m., Eastern Time, on the next following day which is a Business Day. As used herein, the term "Business Day" shall mean a day which is not a Saturday or Sunday and which is not, in the State of New York, a holiday or a day on which banks are authorized to close. SECTION 2. Notice. In case at any time: (a) the Corporation shall pay any dividend or make any distribution (other than regular cash dividends from earnings or earned surplus paid at an established rate) to the holders of its Common Stock; (b) the Corporation shall offer for subscription pro rata to the holders of its Common Stock any additional shares of stock of any class or other rights; (c) there shall be any capital reorganization or reclassification of the capital stock of the Corporation or consolidation or merger of the Corporation with or sale of all or substantially all of its assets to another corporation; (d) there shall be a voluntary, involuntary or deemed dissolution, liquidation or winding-up of the Corporation; or (e) the Corporation (or any subsidiary thereof) shall commence a tender offer for all or a portion of the Corporation's outstanding shares of Common Stock; then, in any one or more of such cases, the Corporation shall give written notice, by first class mail, postage prepaid, addressed to the registered holder of this Warrant at the address of such registered holder as shown on the books of the Corporation of the date on which (i) the books of the Corporation shall close or a record date shall be fixed for determining the stockholders entitled to such dividend, distribution or subscription rights, or (ii) such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, winding-up, conversion, redemption or other event shall take place, as the case may be. Such notice shall also provide reasonable details of the proposed transaction and specify the date as of which the holders of Common Stock of record shall participate in such dividend, distribution or subscription rights, or shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, winding-up, conversion, redemption, tender offer or other event, as the case may be. Such written notice shall be given at least 10 Business Days prior to the action in question and not less than 10 Business Days prior to the record date or the date on which the Corporation's transfer books are closed in respect thereto. SECTION 3. Exercise. (a) Manner of Exercise. This Warrant may be exercised at any time or from time to time on any Business Day, for all or any part of the number of shares of Common Stock purchasable upon its exercise; provided, however, that this Warrant shall be void and all rights represented hereby shall cease unless exercised before the Warrant Expiration Date. In order to exercise this Warrant, in whole or in part, the holder hereof shall (i) deliver to the Corporation at its principal place of business, or at such other office as the Corporation may designate by notice in writing, (A) this Warrant and (B) a written notice of such holder's election to exercise this Warrant substantially in the form of Exhibit A attached hereto and (ii) pay to the Corporation, by cashier's check made payable to the order of the Corporation or wire transfer of funds to an account designated by the Corporation, an amount equal to the aggregate purchase price for all shares of Common Stock as to which this Warrant is exercised. (b) Issuance of Common Stock. Upon receipt of the documents and payments or shares described in Section 3(a), the Corporation shall, as promptly as practicable, and in any event within 10 Business Days thereafter, execute or cause to be executed, and deliver to such holder a certificate or certificates representing the aggregate number of full shares of Common Stock issuable upon such exercise, together with an amount in cash in lieu of any fraction of a share, as hereinafter provided. The stock certificate or certificates so delivered shall be in the denomination specified in said notice and shall be registered in the name of the holder hereof. This Warrant shall be deemed to have been exercised and a certificate or certificates for shares of Common Stock shall be deemed to have been issued, and the holder hereof or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes as of the date said notice, together with this Warrant and the documents and payments or shares described in Section 3(a), is received by the Corporation as aforesaid. If this Warrant shall have been exercised in part, the Corporation shall, at the time of delivery of said certificate or certificates, deliver to the holder hereof a new Warrant evidencing the rights of such holder to purchase the unpurchased shares of Common Stock called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant. The Corporation shall pay all expenses and any and all United States federal, state and local taxes and other charges that may be payable in connection with the preparation, issue and delivery of stock certificates under this Section 3, except that the Corporation shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of the shares of Common Stock issuable upon exercise in a name other than that of the holder who shall have surrendered the same in exercise of the subscription right evidenced thereby. The Corporation covenants that all shares of Common Stock issued upon exercise of this Warrant will, upon payment of the Exercise Price, be duly authorized and validly issued, fully paid and nonassessable, free of preemptive rights and, except for any tax payable by the holder pursuant to the preceding sentence, free from all taxes, liens, charges and security interests with respect to the issue thereof. The Corporation shall from time to time use its reasonable best efforts to take all action which may be necessary to obtain and keep effective any and all permits, consents and approvals of governmental agencies and authorities and securities act filings under federal and state laws which may be or become required in connection with the issuance, sale, transfer and delivery of this Warrant, the exercise of this Warrant, and the issuance, sale, transfer and delivery of the shares of Common Stock issued upon exercise of this Warrant. SECTION 4. Reservation of Shares. The Corporation covenants that it will at all times until the Warrant Expiration Date reserve and keep available, free of pre-emptive rights, out of its authorized and unissued Common Stock, solely for the purpose of issue upon exercise of this Warrant, such number of shares of Common Stock as shall then be issuable upon the exercise of this Warrant. SECTION 5. Negotiability. This Warrant is issued upon the following terms, to all of which each holder or owner hereof by the taking hereof consents and agrees: (a) Subject to compliance with federal and applicable state securities laws and the terms of this Warrant, title to this Warrant may be transferred by endorsement (by the holder hereof executing the form of assignment attached hereto as Exhibit B) and delivery in the same manner as in the case of a negotiable instrument transferable by endorsement and delivery; (b) Subject to compliance with federal and applicable state securities laws and the terms of this Warrant, any person in possession of this Warrant properly endorsed is authorized to represent himself as absolute owner hereof and is empowered to transfer absolute title hereto by endorsement and delivery hereof to a bona fide purchaser hereof for value; each prior taker or owner waives and renounces all of his equities or rights in this Warrant in favor of each such bona fide purchaser, and each such bona fide purchaser shall acquire absolute title hereto and to all rights represented hereby; and (c) Until this Warrant is transferred on the books of the Corporation, the Corporation may treat the registered holder hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary, and any transfer in violation of the terms hereof shall be void and of no effect. SECTION 6. Loss or Mutilation. Upon receipt of evidence satisfactory to the Corporation of the loss, theft, destruction or mutilation of this Warrant (including a reasonably detailed affidavit with respect to the circumstances of any loss, theft or destruction of such Warrant) and, if requested in the case of any such loss, theft or destruction, upon delivery of an indemnity bond or other agreement or security reasonably satisfactory to the Corporation, or, in the case of any such mutilation, upon surrender and cancellation of this Warrant, the Corporation at its expense will execute and deliver, in lieu hereof, a new Warrant of like tenor. SECTION 7. Consolidation, Merger, etc. If any consolidation or merger of the Corporation with another corporation or other entity or the sale of all or substantially all of its assets to another corporation or other entity (each an "Extraordinary Event") shall be effected, then, as a condition of such Extraordinary Event, the Corporation shall cause lawful and adequate provision to be made whereby the registered holder of this Warrant shall thereafter have the right to receive, upon exercise hereof and the payment of the Exercise Price, in lieu of the shares of Common Stock of the Corporation immediately theretofore receivable upon the exercise of this Warrant, such shares of stock, securities or property (including cash) as may be issued or payable with respect to or in exchange for a number of shares of Common Stock of the Corporation immediately theretofore receivable upon the exercise of this Warrant had such Extraordinary Event not taken place, and in any such case appropriate provision shall be made with respect to the rights and interests of the holder of this Warrant to the end that the provisions hereof (including, without limitation, provisions for adjustments of the number of shares purchasable upon the exercise of this Warrant) shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or property thereafter deliverable upon the exercise hereof. The foregoing provisions shall similarly apply to successive Extraordinary Events. The Corporation shall not effect any such consolidation, merger or sale of all or substantially all of its assets unless, prior to the consummation thereof, the successor corporation or other entity (if other than the Corporation) resulting from such consolidation or merger or the corporation or other entity purchasing such assets shall assume by written instrument executed and mailed to the registered holder of this Warrant, at the last address of such registered holder appearing on the books of the Corporation, the obligation to deliver to such registered holder such shares of stock, securities or property as, in accordance with the foregoing provisions, such registered holder may be entitled to purchase or receive. SECTION 8. Antidilution Protection. (a) If at any time or from time to time after the date hereof, the Corporation issues or sells, or is deemed by the express provisions of this subsection (a) to have issued or sold, any Additional Shares of Common Stock (as defined in subsection (g) below), other than as a dividend or other distribution on any class of stock as provided in clause (d) below and other than a subdivision or combination of shares of Common Stock as provided in clause (e) below, without consideration or for an Effective Price (as defined in subsection (g) below) less than the Fair Market Value per share of Common Stock immediately prior to the time of such issue or sale, the then effective Exercise Price shall be reduced, as of the opening of business on the date of such issue or sale, to the price equal to the quotient obtained by dividing: (A) the product of (x) such Exercise Price multiplied by (y) the sum of (i) the total number of shares of Common Stock outstanding (including any shares of Common Stock deemed to have been issued pursuant to Section 7 or this Section 8) immediately prior to such issuance, and (ii) a number of shares of Common Stock calculated by dividing the consideration received by the Corporation from such issuance by the Fair Market Value per Share of the Common Stock; by (B) the total number of shares of Common Stock outstanding (including any shares of Common Stock deemed to have been issued pursuant to Section 7 and this Section 8) immediately after such issuance of the Additional Shares of Common Stock. No adjustment of the Exercise Price, however, shall be made in an amount less than $0.01 per share, and any such lesser adjustment shall be carried forward and shall be made at the time and together with the next subsequent adjustment which together with any adjustments so carried forward shall amount to $0.01 per share or more. Upon any such reduction in the Exercise Price, the total number of shares issuable upon exercise of this Warrant shall be proportionately increased so that the total amount payable upon exercise in whole of this Warrant shall not be modified. (b) For the purpose of making any adjustment required under this Section 8, the consideration received by the Corporation for any issue or sale of securities shall (i) to the extent it consists of cash, be computed at the gross amount of cash received by the Corporation before deduction of any underwriting or similar commissions, compensation or concessions paid or allowed by the Corporation in connection with such issue or sale and without deduction of any expenses payable by the Corporation, (ii) to the extent it consists of property other than cash, be computed at the fair market value of that property as determined in good faith by the Board of Directors of the Corporation, and (iii) if Additional Shares of Common Stock, Convertible Securities (as defined in subsection (c) below) or Options (as defined in subsection (c) below) to purchase either Additional Shares of Common Stock or Convertible Securities are issued or sold together with other stock or securities or other assets of the Corporation for a consideration which covers both, be computed as the portion of the consideration so received that may be reasonably determined in good faith by the Board of Directors to be allocable to such Additional Shares of Common Stock, Convertible Securities or Options. (c) For the purpose of the adjustment required under this Section 8, if the Corporation issues or sells any (i) stock or other securities convertible into or exercisable or exchangeable for Additional Shares of Common Stock (such convertible, exercisable or exchangeable stock or securities being herein referred to as "Convertible Securities") or (ii) rights, options or warrants for the purchase of Additional Shares of Common Stock or Convertible Securities (such rights, options or warrants being referred to herein as "Options"), and if the Effective Price of such Additional Shares of Common Stock is less than the Fair Market Value of a share of Common Stock immediately prior to the time of the granting of such Convertible Securities or Options, the Corporation shall be deemed to have issued at the time of the issuance of such Options or Convertible Securities the maximum number of Additional Shares of Common Stock issuable upon exercise, conversion or exchange thereof and to have received as consideration for the issuance of such shares an amount equal to the total amount of the consideration, if any, received by the Corporation for the issuance of such Options or Convertible Securities, plus, in the case of such Options, the minimum amounts of consideration, if any, payable to the Corporation upon the exercise of such Options, plus, in the case of Convertible Securities, the minimum amounts of consideration, if any, payable to the Corporation (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities) upon the conversion, exercise or exchange thereof; provided that if in the case of Convertible Securities the minimum amounts of such consideration cannot be ascertained, but are a function of antidilution or similar protective clauses, the Corporation shall be deemed to have received the minimum amounts of consideration without reference to such clauses; provided further that if the minimum amount of consideration payable to the Corporation upon the exercise, conversion or exchange of Options or Convertible Securities is reduced over time or on the occurrence or non-occurrence of specified events other than by reason of antidilution adjustments, the Effective Price shall be recalculated using the figure to which such minimum amount of consideration is reduced; provided further that if the minimum amount of consideration payable to the Corporation upon the exercise, conversion or exchange of such Options or Convertible Securities is subsequently increased, the Effective Price shall be again recalculated using the increased minimum amount of consideration payable to the Corporation upon the exercise, conversion or exchange of such Options or Convertible Securities. No further adjustment of the Exercise Price, as adjusted upon the issuance of such Options or Convertible Securities, shall be made as a result of the actual issuance of Additional Shares of Common Stock on the exercise of any such Options or the conversion, exercise or exchange of any such Convertible Securities. If any such Options or the conversion privilege represented by any such Convertible Securities shall expire without having been exercised, the Exercise Price, as adjusted upon the issuance of such Options or Convertible Securities, shall be readjusted at the time of such expiration to the Exercise Price which would have been in effect had an adjustment been made on the basis that the only Additional Shares of Common Stock so issued were the Additional Shares of Common Stock, if any, actually issued or sold on the exercise of such Options or rights of conversion of such Convertible Securities, and such Additional Shares of Common Stock, if any, were issued or sold for the consideration actually received by the Corporation upon such exercise, plus the consideration, if any, actually received by the Corporation for the granting of all such Options, whether or not exercised, plus the consideration received for issuing or selling the Convertible Securities actually converted, exercised or exchanged, plus the consideration, if any, actually received by the Corporation (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities) on the conversion, exercise or exchange of such Convertible Securities. (d) In case the Corporation shall declare a dividend or make any other distribution upon any stock of the Corporation payable in Common Stock, Options or Convertible Securities (other than rights or warrants distributed to all holders of such stock, which shall be treated in accordance with Section 8(c)), any Common Stock, Options or Convertible Securities, as the case may be, issuable in payment of such dividend or distribution shall be deemed to have been issued or sold without consideration, and the Exercise Price then in effect immediately prior to such dividend declaration or distribution shall be reduced as if the Corporation had subdivided its outstanding shares of Common Stock into a greater number of shares as provided in clause (e) of this Section 8. (e) If the Corporation at any time subdivides (by any stock split, stock dividend, recapitalization or otherwise) its outstanding shares of Common Stock into a greater number of shares, the number of shares issuable upon exercise of this Warrant will be proportionately increased and the Exercise Price will be proportionately decreased, and if the Corporation at any time combines (by reverse stock split, recapitalization or otherwise) its outstanding shares of Common Stock into a smaller number of shares, the number of shares issuable upon exercise of this Warrant will be proportionately decreased and the Exercise Price will be proportionately increased. (f) Other Distributions. Other than ordinary cash dividends or distributions paid out of the Corporation's current earnings in amounts consistent with the Corporation's ordinary practice as in effect from time to time, which are specifically excluded from the provisions of this clause (f), in the event the Corporation shall fix a record date for the making of a dividend or distribution on its Common Stock payable in cash, Common Stock of the Corporation, securities of other persons, evidences of indebtedness issued by the Corporation or other persons, assets or warrants or rights not referred to in clauses (d) or (e) of this Section 8 (the "Other Distribution"), then, in each such case, at the election of the Corporation, either (i) the number of shares of Common Stock issuable after such record date upon exercise of this Warrant shall be adjusted by multiplying the number of shares of Common Stock issuable upon the exercise of this Warrant immediately prior to such record date by a fraction, the numerator of which shall be the then Fair Market Value per share of Common Stock on the record date for such distribution and the denominator of which shall be the then Fair Market Value per share of Common Stock on the record date for such distribution less an amount equal to the then fair market value (as determined in good faith by the Board of Directors of the Corporation) of the Other Distribution applicable to one share of Common Stock, or (ii) adequate provision shall be made so that the holder of this Warrant shall have the right to receive, in addition to shares of Common Stock upon the exercise of this Warrant, at the election of the Corporation, either (A) the Other Distribution to which such holder would have been entitled as a holder of Common Stock if such holder had exercised this Warrant immediately prior to the record date for such distribution or (B) the cash equivalent of such Other Distribution. If the Corporation elects to adjust the number of shares of Common Stock issuable upon the exercise of this Warrant pursuant to clause (i) above, such adjustment shall be made whenever any such distribution is made and shall become effective on the date of distribution retroactive to the record date for the determination of stockholders of the Corporation entitled to receive such distribution; provided however, that the Corporation shall deliver to the holder who exercises this Warrant after any such record date, but prior to the related distribution, a due bill or other appropriate instrument evidencing such holder's right to receive such distribution upon its occurrence. Notwithstanding the foregoing, the Corporation shall not elect the adjustment provided for in clause (i) above if the then fair market value (as determined in good faith by the Board of Directors of the Corporation) of the Other Distribution applicable to one share of Common Stock is equal to or greater than the then Fair Market Value per share of Common Stock on the record date of such distribution. (g) "Additional Shares of Common Stock" shall mean all shares of Common Stock issued by the Corporation or deemed to be issued pursuant to this Section 8 (whether or not subsequently reacquired or retired by the Corporation), other than Excluded Stock. "Excluded Stock" shall mean (i) Common Stock and/or options, warrants or other Common Stock purchase rights and the Common Stock issued pursuant to such options, warrants or other rights to employees, officers or directors of, or consultants or advisors to, the Corporation or any subsidiary pursuant to stock purchase or stock option plans or other arrangements that are approved by the Board of Directors; (ii) Common Stock issued pursuant to the exercise of options, warrants or convertible securities outstanding as of the date hereof, including, without limitation, the Series F Preferred Stock of the Corporation; (iii) Common Stock issued in connection with the acquisition of any person or entity whether by merger or otherwise; (iv) Common Stock issued pursuant to a transaction for which an adjustment is made pursuant to Section 7 or clause (d) or (e) of this Section 8 hereof; and (v) shares of Common Stock issued for cash in a registered underwritten offering bona fide offered and sold to the public. The "Effective Price" of Additional Shares of Common Stock shall mean the quotient determined by dividing the total number of Additional Shares of Common Stock issued or sold, or deemed to have been issued or sold by the Corporation under this Section 8, into the aggregate consideration received, or deemed to have been received by the Corporation for such issue under this Section 8, for such Additional Shares of Common Stock. (h) No adjustment pursuant to this Section 8 need be made for the adoption of a plan commonly referred to as a "Stockholders' Rights Plan" which provides for the issuance of rights to acquire shares of capital stock upon the occurrence of some event that is not within the control of the rights holders, or the issuance of rights under such plan; provided that the issuance of capital stock pursuant to such rights shall require adjustment to the Exercise Price and number of shares of Common Stock purchasable upon the exercise hereof. SECTION 9. No Dilution or Impairment. If any event shall occur as to which the provisions of Section 7 or 8 hereof are not strictly applicable but the failure to make any adjustment would adversely affect the purchase rights represented by this Warrant in a way that is contrary to the manifest and essential intent and principles of Sections 7 and 8 hereof, then, in each such case, the Board of Directors of the Corporation shall provide for an adjustment, if applicable, on a basis consistent with the manifest and essential intent and principles established in Sections 7 and 8 hereof, necessary to preserve, without dilution, the purchase rights represented by this Warrant. SECTION 10. Notice of Adjustment. Upon any adjustment or other change relating to the Exercise Price or the securities purchasable upon the exercise of this Warrant, then, and in each such case, the Corporation shall (a) cause to be issued to the Corporation a certificate of a firm of independent public accountants (who may be the regular accountants employed by the Corporation) setting forth the Exercise Price and number of shares of Common Stock issuable upon exercise of the Warrant after such adjustment and setting forth a statement of the facts requiring such adjustment and showing in reasonable detail the manner of computing the same and (b) promptly give written notice thereof, by first class mail, postage prepaid, addressed to the registered holder of this Warrant at the address of such registered holder as shown on the books of the Corporation, which notice shall state the increase or decrease in the number or other denominations of securities purchasable upon the exercise of this Warrant and a copy of the certificate referred to in clause (a) above. SECTION 11. Fractional Shares. If the number of shares of Common Stock purchasable upon the exercise of this Warrant is adjusted pursuant to provisions hereof, the Corporation shall nevertheless not be required to issue fractions of shares, upon exercise of this Warrant or otherwise, or to distribute certificates that evidence fractional shares. Whether or not fractional shares are issuable upon exercise of this Warrant shall be determined on the basis of the total number of shares of Common Stock the holder is at the time acquiring and the number of shares of Common Stock issuable upon such aggregate exercise. With respect to any fraction of a share called for upon any exercise hereof, the Corporation shall pay to the holder hereof an amount in cash equal to such fraction multiplied by the current Fair Market Value of one share of Common Stock. SECTION 12. Information. Each holder of this Warrant, and each holder of shares of Common Stock acquired upon the exercise of this Warrant, by acceptance hereof and thereof, agrees to furnish to the Corporation such information concerning such holder as may be requested by the Corporation which is necessary in connection with any registration or qualification of shares of Common Stock purchasable hereunder. SECTION 13. Warrant Holder Not Deemed Stockholder. The holder of this Warrant shall not, as such, be entitled to any rights as a stockholder of the Corporation, except for those conferred pursuant to this Warrant, nor shall the holder of this Warrant have any liabilities to purchase any securities hereunder or as a stockholder of the Corporation whether such liabilities are asserted by the Corporation or by creditors or stockholders of the Corporation or otherwise. SECTION 14. Transfer Restrictions. Each Warrant (including each Warrant issued upon the transfer of any Warrant) shall be stamped or otherwise imprinted with a legend in substantially the following form: THIS WARRANT AND ANY SHARES OF COMMON STOCK ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR UNDER ANY APPLICABLE STATE LAWS. THIS WARRANT HAS 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. THIS WARRANT AND ANY SHARES OF COMMON STOCK ACQUIRED UPON THE EXERCISE OF THIS WARRANT 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 THIS WARRANT AND ANY SHARES OF COMMON STOCK ACQUIRED UPON THE EXERCISE OF THIS WARRANT IS RESTRICTED BY AND SUBJECT TO THE PROVISIONS OF A PURCHASE AGREEMENT DATED AS OF JANUARY 30, 2002, A COPY OF WHICH IS AVAILABLE UPON REQUEST FOR INSPECTION AT THE OFFICES OF THE COMPANY. ANY SUCH REQUEST SHOULD BE ADDRESSED TO THE SECRETARY OF THE COMPANY. Each certificate for Common Stock issued upon the exercise of any Warrant, and each certificate issued upon the transfer of any such Common Stock, shall be stamped or otherwise imprinted with a legend in substantially the following form: 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 BY THIS CERTIFICATE IS RESTRICTED BY AND SUBJECT TO THE PROVISIONS OF A STOCK PURCHASE AGREEMENT DATED AS OF JANUARY 30, 2002, A COPY OF WHICH IS AVAILABLE UPON REQUEST FOR INSPECTION AT THE OFFICES OF THE COMPANY. ANY SUCH REQUEST SHOULD BE ADDRESSED TO THE SECRETARY OF THE COMPANY. THE SECURITIES EVIDENCED BY THIS CERTIFICATE SHALL BE REDEEMABLE AS PROVIDED IN THE COMPANY'S AMENDED AND RESTATED CERTIFICATE OF INCORPORATION. Subject to the foregoing, the shares of Common Stock issuable upon exercise of this Warrant are freely transferable at any time. SECTION 15. Rights of Action; Remedies. All rights of action with respect to this Warrant are vested in the holder of this Warrant, and the holder may enforce against the Corporation its right to exercise this Warrant for the purchase of shares of Common Stock in the manner provided in this Warrant. The Corporation stipulates that the remedies at law of the holder of this Warrant in the event of any default or threatened default by the Corporation in the performance of or compliance with any of the terms of this Warrant are not and will not be adequate, and that such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise. SECTION 16. Modification of Warrant. This Warrant shall not be modified, supplemented or altered in any respect except with the consent in writing of the holder hereof and the Corporation; and no change in the number or nature of the securities purchasable upon the exercise of this Warrant, or the exercise price therefor, or the acceleration of the Warrant Expiration Date, shall be made without the consent in writing of the holder hereof, other than such changes as are specifically prescribed by this Warrant as originally executed. SECTION 17. Miscellaneous. This Warrant shall be governed by, and construed and enforced in accordance with, the laws of State of Delaware, without regard to its principles of conflicts of laws. The headings in this Warrant are for purposes of reference only and shall not limit or otherwise affect any of the terms hereof. This Warrant is being executed as an instrument under seal. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision. This Warrant [and list other applicable agreements if any] embody the entire agreement and understanding between the parties hereto and supersedes all prior agreements and understandings relating to the subject matter hereof. SECTION 18. Descriptive Headings. The headings in this Warrant are for purposes of reference only and shall not limit or otherwise affect the meaning hereof. SECTION 19. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAW. SECTION 20. 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 Delaware and of the United States of America, located in Delaware, for any Litigation arising out of or relating to this Warrant and the transactions contemplated hereby and thereby (and agrees not to commence any proceeding 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 sent to (i) the holder of the Warrant, at its last known address appearing on the books of the Corporation maintained for such purpose or (ii) the Corporation, at the address listed in its current Securities and Exchange Commission filings shall be effective service of process for any proceeding 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 proceeding arising out of this Warrant or the transactions contemplated hereby in the courts of the State of Delaware or the United States of America, located in Delaware, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such proceeding brought in any such court has been brought in an inconvenient forum. SECTION 21. WAIVER OF JURY TRIAL. THE COMPANY AND THE PURCHASERS HEREBY WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY ACTION, PROCEEDING OR LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS WARRANT. SECTION 22. Successors. All the covenants and provisions of this Warrant shall bind and inure to the benefit of the successors and permitted transferees of the holder and the successors of the Corporation. SECTION 23. Exchange Listing. The Corporation will from time to time take all action that may be necessary so that the shares of Common Stock issuable upon exercise of this Warrant, as soon as reasonably practicable following their issuance upon the exercise of this Warrant, will be listed on the principal securities exchanges, automated quotation systems or other markets within the United States of America, if any, on which the shares of Common Stock are then listed (but, in any event, such listing shall be effected by the Corporation within the time frame required by any such exchanges, quotation systems or other markets). SECTION 24. Definitions. For purposes of this Warrant, the following terms have the following respective meanings: "Average Price" means, with respect to any shares of stock or securities, including the Common Stock, on any date of determination, (i) if the relevant stock or security is listed or admitted for trading on the New York Stock Exchange or any other national securities exchange, the average for the five (5) Trading Days preceding and including such date of determination of the last reported sale prices per share on such national securities exchange or (ii) if the relevant stock or security is (x) admitted to unlisted trading privileges on any exchange or (y) quoted on the Nasdaq National Market or any other system of automated dissemination of quotations of securities prices, the average for the five (5) Trading Days preceding and including the date of determination of the average of the last reported bid and asked prices per share or security reported by the National Quotation Bureau or such other system then in use. "Fair Market Value" means, with respect to any shares of stock or other securities, (i) if such stock or securities are listed or admitted to trading on a national securities exchange or admitted to unlisted trading privileges on such exchange or quoted in the Nasdaq System, the Average Price per share or security, as the case may be, at the close of trading on the Trading Day on which the relevant determination is to be made (the date of exercise of the Warrant, in the case of any such determination to be made with respect to such exercise) or, if such day is not a Trading Day, the Trading Day immediately preceding such day and (ii) if such stock or security is not so listed or admitted to unlisted trading privileges, the current fair market value of such stock or security as determined in good faith by the Board of Directors of the Corporation. "Trading Day" means (i) if the relevant stock or security is listed or admitted for trading on the New York Stock Exchange or any other national securities exchange, a day on which such exchange is open for business; or (ii) if the relevant stock or security is quoted on the Nasdaq National Market or any other system of automated dissemination of quotations of securities prices, a day on which trades may be effected through such system. IN WITNESS WHEREOF, the Corporation has caused this Warrant to be duly executed as of the date first written above. McLEODUSA INCORPORATED By: Name: Title: EXHIBIT A --------- EXERCISE FORM (To be signed only on exercise of Warrant) McLeodUSA Incorporated - ---------------------- - ---------------------- - ---------------------- The undersigned hereby irrevocably elects to exercise the right to purchase represented by the within Warrant for, and to purchase thereunder, _______ shares of the stock provided for therein, and requests that certificates for the shares to be issued upon such exercise to be issued in the name of: - --------------------------------------------------------------------------- - --------------------------------------------------------------------------- - --------------------------------------------------------------------------- (Please print name, address and social security number) and, if said number of shares shall not be all the shares purchasable thereunder, that a new Warrant for the balance remaining of the shares purchasable under the within Warrant be registered in the name of the undersigned holder of the within Warrant or his Assignee as below indicated and delivered to the address stated below. NAME OF HOLDER OR ASSIGNEE: -------------------------------------------------- (Please print) ADDRESS OF HOLDER OR ASSIGNEE: ----------------------------------------------------------------- SIGNATURE OF HOLDER: --------------------------------------------------------- DATED: ----------------- Note: The above signature must correspond with the name exactly as written upon the face of the within Warrant in every particular, without alteration or enlargement or any change whatever, unless the within Warrant has been assigned. EXHIBIT B --------- FORM OF ASSIGNMENT (To be signed only on transfer of Warrant) For value received, the undersigned hereby sells, assigns and transfers unto _____________________________ the right represented by the within Warrant to purchase __________________ shares of Common Stock of McLeodUSA Incorporated to which the within Warrant relates, and appoints ______________________ attorney to transfer such rights on the books of McLeodUSA Incorporated with full power of substitution in the premises. NAME OF HOLDER: ---------------------------------------------------------- (Please print) ADDRESS: ----------------------------------------------------------------- SIGNATURE OF HOLDER: ----------------------------------------------------- DATED: ------------------ Note: The above signature must correspond with the name exactly as written upon the face of the within Warrant in every particular, without alteration or enlargement or any change whatever, unless the within Warrant has been assigned. SIGNED IN THE PRESENCE OF: - ------------------------------- -----END PRIVACY-ENHANCED MESSAGE-----