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STOCK PURCHASE AGREEMENT
By and Among
McLEODUSA HOLDINGS, INC.,
PUBCO ACQUISITION CORP.,
and
McLEODUSA INCORPORATED,
Dated as of December 3, 2001
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TABLE OF CONTENTS
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ARTICLE I SALE OF STOCK
1.1. The Sale.................................................................1
1.2. Time and Place of Closing................................................1
1.3. Deliveries by the Seller.................................................2
1.4. Deliveries by the Buyer..................................................2
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE SELLER
2.1. Organization; Etc........................................................2
2.2. Capitalization...........................................................3
2.3. Authority Relative to this Agreement.....................................4
2.4. Consents and Approvals; No Violations....................................4
2.5. Financial Statements.....................................................5
2.6. No Undisclosed Liabilities...............................................5
2.7. Absence of Certain Changes...............................................6
2.8. No Default...............................................................6
2.9. Litigation...............................................................6
2.10. Compliance with Law......................................................6
2.11. Employee Benefit Plans...................................................6
2.12. Intellectual Property....................................................8
2.13. Material Contracts.......................................................9
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2.14. Transactions with Affiliates............................................10
2.15. Business and Properties.................................................10
2.16. Environmental Matters...................................................11
2.17. Labor Relations.........................................................11
2.18. Title to Assets.........................................................11
2.19. Brokers and Finders.....................................................12
2.20. Insurance...............................................................12
2.21. Taxes...................................................................12
2.22. List of Publications....................................................13
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE BUYER
3.1. Corporate Organization; Etc.............................................13
3.2. Authority Relative to this Agreement....................................13
3.3. Consents and Approvals; No Violations...................................14
3.4. Acquisition of Shares for Investment; Investigation.....................14
3.5. Sufficient Funds........................................................14
3.6. Brokers and Finders.....................................................15
ARTICLE IV COVENANTS OF THE PARTIES
4.1. Conduct of Business of the Company......................................15
4.2. Access to Information...................................................17
4.3. Reasonable Efforts......................................................17
4.4. Public Announcements....................................................18
4.5. Employee Matters........................................................18
4.6. Tax Matters.............................................................19
4.7. Pre-Closing Insurance...................................................24
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4.8. Acquisition Proposals...................................................25
4.9. Related Agreements......................................................25
4.10. Right of First Offer....................................................25
4.11. Subsequent Sale.........................................................27
4.12. Headquarters............................................................27
4.13. Intercompany Indebtedness; Net Working Capital..........................28
4.14. Bankruptcy Matters......................................................29
4.15. Leases and Other Obligations............................................29
4.16. Real Property...........................................................30
ARTICLE V CONDITIONS TO CONSUMMATION OF THE STOCK
PURCHASE
5.1. Conditions to Each Party's Obligations to Consummate the Stock
Purchase................................................................30
5.2. Further Conditions to the Seller's Obligations..........................30
5.3. Further Conditions to the Buyer's Obligations...........................31
ARTICLE VI TERMINATION AND ABANDONMENT
6.1. Termination.............................................................32
6.2. Effect of Termination...................................................32
ARTICLE VI SURVIVAL AND INDEMNIFICATION
7.1. Survival Periods........................................................33
7.2. Indemnification.........................................................33
7.3. Indemnification Amounts.................................................34
7.4. Claims..................................................................34
7.5. Exclusive Remedy........................................................35
7.6. Insurance...............................................................35
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7.7. Duplication.............................................................35
ARTICLE VIII MISCELLANEOUS PROVISIONS
8.1. Amendment and Modification..............................................35
8.2. Extension; Waiver.......................................................35
8.3. Entire Agreement; Assignment............................................36
8.4. Validity................................................................36
8.5. Notices.................................................................36
8.6. Governing Law and Jurisdiction..........................................37
8.7. Descriptive Headings....................................................37
8.8. Counterparts............................................................37
8.9. Expenses................................................................38
8.10. Parties in Interest.....................................................38
8.11. No Waivers..............................................................38
8.12. Specific Performance....................................................38
8.13. Construction............................................................38
8.14. Guarantees..............................................................38
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of December 3, 2001
(this "Agreement"), by and among McLeodUSA Holdings, Inc., a Delaware
corporation (the "Seller"), and Pubco Acquisition Corp., a Delaware
corporation (the "Buyer"), and McLeodUSA Incorporated, a Delaware
corporation ("Parent") (solely for purposes of Section 8.14.)
WHEREAS, the Seller owns all of the outstanding shares of
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capital stock (the "Shares") of McLeodUSA Media Group, Inc., an Iowa
corporation (the "Company"), and the Seller is a wholly-owned subsidiary of
Parent;
WHEREAS, Parent is considering a capital restructuring
substantially on the terms described in Exhibit A (the "Restructuring");
and
WHEREAS, the Seller desires to sell to the Buyer, and the
Buyer desires to purchase from the Seller, the Shares, upon the terms and
subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing and the
mutual representations, warranties, covenants and agreements contained
herein, the parties hereto agree as follows:
ARTICLE I
SALE OF STOCK
1.1. The Sale. Upon the terms and subject to the
conditions of this Agreement, at the Closing (as hereinafter defined), the
Seller will sell, convey, assign, transfer and deliver to the Buyer, and
the Buyer will purchase, acquire and accept from the Seller the Shares, in
consideration for which, at the Closing, the Buyer will pay to the Seller
for the Shares an amount equal to $535 million by wire transfer of
immediately available funds to an account or accounts designated by the
Seller prior to the Closing (the "Purchase Price"). The transactions
contemplated by this Section 1.1 are sometimes herein referred to as the
"Stock Purchase."
1.2. Time and Place of Closing. Upon the terms and
subject to the conditions of this Agreement, the closing of the
transactions contemplated by this Agreement (the "Closing") will take place
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at the offices of Skadden, Arps, Slate, Meagher & Flom, LLP, Four Times
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(c)) 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 on which the
Closing occurs and the transactions contemplated hereby become effective is
referred to herein as the "Closing Date."
1.3. Deliveries by the Seller. Subject to the terms and
conditions hereof, at the Closing, the Seller will deliver or cause to be
delivered the following to the Buyer:
(a) certificates representing the Shares, accompanied by
stock powers duly endorsed in blank or accompanied by duly executed
instruments of transfer and with any and all required documentary stamps
attached;
(b) a non-foreign Person Affidavit as provided by Section
1445 of the Internal Revenue Code of 1986, as amended (the "Code"), and the
regulations promulgated thereunder;
(c) the Operating Agreement, the Transition Services
Agreement and the Telecom Agreement (in each case as defined in Section
4.9); and
(d) all other documents, instruments and writings
required to be delivered by the Seller at or prior to the Closing Date
pursuant to this Agreement.
1.4. Deliveries by the Buyer. Subject to the terms and
conditions hereof, at the Closing, the Buyer will deliver or cause to be
delivered the following to the Seller:
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(a) the Purchase Price, in immediately available funds,
as set forth in Section 1.1 hereof;
(b) the Operating Agreement, the Transition Services
Agreement and the Telecom Agreement; and
(c) all other documents, instruments and writings
required to be delivered by the Buyer at or prior to the Closing Date
pursuant to this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller hereby represents and warrants to the Buyer as
follows:
2.1. Organization; Etc. Each of the Company and its
Subsidiaries is duly organized, validly existing and in good standing under
the laws of its jurisdiction of incorporation or organization, and has all
requisite power and authority to own, lease and operate its properties and
to carry on its business as now being conducted or currently proposed to be
conducted. Except as set forth in Section 2.1 of a disclosure schedule
document being delivered by the Seller to the Buyer concurrently herewith
(the "Disclosure Schedule"), the Company and each of its Subsidiaries is
duly qualified or licensed and in good standing to do business in each
jurisdiction in which the property owned, leased or operated by it or the
nature of the business conducted by it makes such qualification or
licensing necessary, except in such jurisdictions where the failure to be
so duly qualified or licensed and in good standing would not in the
aggregate have 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, however, that any adverse effects on or changes in
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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 Title 11 of the United States Code (the "Bankruptcy Code")
by or against Parent and/or its Subsidiaries (including the Company and its
Subsidiaries) shall be excluded from the determination of a Company Material
Adverse Effect. The Seller has heretofore delivered to the Buyer an accurate
and complete copy of the certificate of incorporation of the Company, as
amended to the date of this Agreement. As used in this Agreement, the word
"Subsidiary" means, with respect to any party, any corporation, partnership
or other entity or organization, whether incorporated or unincorporated, of
which (i) such party or any other Subsidiary of such party is a general
partner (excluding such partnerships where such party or any Subsidiary of
such party does not have a majority of the voting interest in such
partnership) or (ii) at least a majority of the securities or other Shares
having by their terms ordinary voting power to elect a majority of the Board
of Directors or others performing similar functions with respect to such
corporation or other organization is directly or indirectly owned or
controlled by such party or by any one or more of its Subsidiaries, or by
such party and one or more of its Subsidiaries.
2.2. Capitalization. (a) Section 2.2 of the Disclosure
Schedule sets forth the number of issued and outstanding shares of capital
stock of the Company and each of its Subsidiaries. Except as set forth in
Section 2.2 of the Disclosure Schedule, there are not, and at the Closing
there will not be, any capital stock or other equity interests in the
Company or any of its Subsidiaries issued or outstanding or any
subscriptions, options, warrants, calls, rights, convertible securities
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or other agreements or commitments of any character obligating the Company or
any of its Subsidiaries to offer, issue, transfer or sell, or to acquire or
retire any of its own capital stock or other equity interests or the capital
stock or other equity interests of any of its Subsidiaries, or any
agreements, arrangements, or understandings granting any Person any rights in
the Company or any of its Subsidiaries similar to capital stock or other
equity interests. Except as set forth in Section 2.2 of the Disclosure
Schedule, all of the Shares are owned by the Seller, and all of the
outstanding shares of capital stock of the Company's Subsidiaries are owned
by the Company or the wholly owned direct or indirect Subsidiary of the
Company specified in Section 2.2. of the Disclosure Schedule, in each case,
free and clear of all liens, pledges, charges, claims, security interests or
other encumbrances, whether consensual, statutory or otherwise (collectively,
"Liens"). There are not now, and at the Closing there will not be, any voting
trusts or other agreements or understandings to which the Seller or the
Company is a party or is bound with respect to the voting of the Shares. All
of the Shares were issued by the Company in compliance with all applicable
securities laws. Other than the Subsidiaries listed on Schedule 2.2 of the
Disclosure Schedule, neither the Company nor any of its Subsidiaries owns any
equity or other ownership interest in any Person and neither the Company nor
any of its Subsidiaries is a party to any Contract to purchase or provide
funds to or make any investment (in the form of a loan, capital contribution
or otherwise) in any Person. As used in this Agreement, the word "Person"
means any natural person, firm, partnership, joint-venture, association,
corporation, company, trust, entity or organization, including a governmental
authority.
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(b) The consummation of the Stock Purchase will convey to
the Buyer good title to the Shares, free and clear of all Liens, except for
those created by the Buyer.
2.3. Authority Relative to this Agreement. The Seller has
full power and authority to execute and deliver this Agreement and each of
the agreements, documents and instruments to be executed and delivered in
connection with the transactions contemplated hereby (the "Ancillary
Agreements") to which it is a party and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this
Agreement and the applicable Ancillary Agreements and the consummation of
the transactions contemplated hereby and thereby have been duly and validly
authorized by all requisite action and no other proceedings on the part of
the Seller are necessary to authorize this Agreement or the applicable
Ancillary Agreements or to consummate the transactions contemplated hereby
or thereby. This Agreement has been, and the applicable Ancillary
Agreements will be as of the Closing, duly and validly executed and
delivered by the Seller and, assuming such agreements have been duly
authorized, executed and delivered by the other parties thereto, constitute
a valid and binding agreement of the Seller, enforceable against the Seller
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.
2.4. Consents and Approvals; No Violations. Except for
applicable requirements of the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended (the "HSR Act") or as required under the Bankruptcy
Code in connection with the Restructuring, no filing with, and no permit,
authorization, consent or approval of, any public body or governmental
authority, domestic or foreign, is necessary for the consummation by the
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Seller of the transactions contemplated by this Agreement or the Ancillary
Agreements to which the Seller is a party; provided, that no representation
or warranty is made as to any such approval that may be required by reason
of the effect of the transactions contemplated hereby on any permit,
authorization, consent or approval presently held by the Buyer. Neither the
execution and delivery of this Agreement or the Ancillary Agreements by the
Seller nor the consummation by the Seller of the transactions contemplated
hereby or thereby nor compliance by the Seller with any of the provisions
hereof or thereof will (a) conflict with or result in any breach of any
provision of the certificate of incorporation of the Company, any of its
Subsidiaries or the Seller, (b) except as set forth in Section 2.4 of the
Disclosure Schedule, 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, or
require any consent under, any of the terms, conditions or provisions of
any indenture, license, contract, agreement or other instrument or
obligation to which the Company, any of its Subsidiaries or the Seller is a
party or by which any of them or any of their respective properties or
assets may be bound or (c) assuming that the filings under the HSR Act
referred to in the first sentence of this Section 2.4 are duly and timely
made, violate any order, writ, injunction or decree, or any provision of
any federal, state, local or foreign law, statute, treaty, rule, regulation
or ordinance (collectively, "Laws", and individually, a "Law") applicable
to the Company, any of its Subsidiaries or the Seller or any of their
respective properties or assets, except in the case of (b) or (c) for
violations, breaches or defaults which, in the aggregate, would not have a
Company Material Adverse Effect or prevent or materially delay the
consummation of the transactions contemplated hereby.
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2.5. Financial Statements. Section 2.5 of the Disclosure
Schedule contains (a) the unaudited consolidated balance sheet of the
Company as of December 31, 1999 and 2000 (the "December Balance Sheets")
and the related unaudited consolidated statements of income and cash flows
for the years then ended and (b) the unaudited consolidated balance sheet
of the Company as of September 30, 2001 (the "September 30 Balance Sheet"
with September 30, 2001 being hereinafter referred to as the "Balance Sheet
Date") and the related unaudited consolidated statements of income and cash
flows for the nine months then ended (individually and collectively, the
"Financial Statements"). Except as disclosed in Section 2.5 of the
Disclosure Schedule, the Financial Statements were prepared in accordance
with United States generally accepted accounting principles ("GAAP"),
consistently applied (except that the financial statements as of the
Balance Sheet Date are subject to normal year-end adjustments, which would
not, in the aggregate, be material except as disclosed in Section 2.5 of
the Disclosure Schedule), and present fairly in all material respects the
financial position, results of operations, and cash flows of the Company
and its Subsidiaries as of the respective dates and for the respective
periods indicated therein. Except as disclosed in Section 2.5 of the
Disclosure Schedule, all related party transactions have been accounted for
by use of consistent accounting policies and methodologies during the
periods involved except as otherwise disclosed in the notes to the
Financial Statements and except for changes in such accounting policies and
methodologies which would not affect the comparability of such financial
information in any material way. The Financial Statements have been derived
from the books and records of the Company, which have been maintained in
accordance with good business practice and all applicable Laws.
2.6. No Undisclosed Liabilities. (a) Except as set forth
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in Section 2.6 of the Disclosure Schedule, neither the Company nor any of
its Subsidiaries has any liabilities or obligations of any nature (whether
absolute, accrued, contingent, unasserted, determined, determinable or
otherwise) except (i) liabilities and obligations in the respective amounts
reflected or reserved against in the September 30 Balance Sheet, (ii)
liabilities or obligations which were incurred since the Balance Sheet Date
in the ordinary course of business of the Company and its Subsidiaries
consistent with past practice, (iii) performance obligations under any
Contract which is listed in Section 2.13 of the Disclosure Schedule or
which is not required by the terms of Section 2.13 of this Agreement to be
scheduled, (iv) liabilities with respect to Taxes or Tax Returns (which
liabilities are the subject matter of the representations and warranties
set forth in Section 2.21) and (v) liabilities and obligations that would
not, in the aggregate, have a Company Material Adverse Effect.
(b) Except as set forth in Section 2.6(b) of the
Disclosure Schedule, neither the Company nor any of its Subsidiaries is the
borrower, obligor or guarantor under any notes, bonds, mortgages or other
debt obligations or obligations for borrowed money.
2.7. Absence of Certain Changes. Except as set forth in
Section 2.7 of the Disclosure Schedule, since the Balance Sheet Date, (a)
neither the Company nor any of its Subsidiaries has suffered any adverse
change in its business, operations, results of operations, assets, or
condition (financial or otherwise), except such changes which, in the
aggregate, would not have a Company Material Adverse Effect and (b) neither
the Company nor any of its Subsidiaries has taken any actions which would,
if taken after the date hereof, violate Section 4.1 hereof.
2.8. No Default. Except as set forth in Section 2.8 of
the Disclosure Schedule, the Company is not in default, violation or breach
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(and no event has occurred which with notice or the lapse of time or both
would constitute a default, violation or breach by the Company or any of
its Subsidiaries or give rise to any right of termination, cancellation or
acceleration) of any term, condition or provision of (a) its certificate of
incorporation, (b) any Contract or other instrument or obligation to which
the Company or any of its Subsidiaries is a party or by which it or any of
its properties or assets may be bound, or (c) any order, writ, injunction
or decree, or any Laws, applicable to the Company or any of its
Subsidiaries or any of their properties or assets, which defaults,
violations, breaches or rights would, in the aggregate, have a Company
Material Adverse Effect or prevent or materially delay the consummation of
the transactions contemplated hereby.
2.9. Litigation. Except as set forth in Section 2.9 of
the Disclosure Schedule, there is no action, suit, proceeding or, to the
knowledge of the Seller, investigation pending or, to the knowledge of the
Seller, threatened involving the Company or any of its Subsidiaries or
their assets, at law or in equity, or by or before any governmental entity,
which in the aggregate would have a Company Material Adverse Effect or
involves the transactions contemplated by this Agreement.
2.10. Compliance with Law. (a) Except as set forth in
Section 2.10 of the Disclosure Schedule, the business of the Company and
its Subsidiaries is not being and has not been conducted in violation of
any applicable Law or any order, writ, injunction or decree of any domestic
or foreign court or governmental entity, except for violations which in the
aggregate would not have a Company Material Adverse Effect.
(b) Each of the Company and its Subsidiaries has and has
had at all relevant times, all governmental permits, licenses and
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authorizations (collectively, "Permits") which are necessary to own its
assets and to operate its business as conducted under all applicable Laws,
except for Permits the failure to have, in the aggregate, would not have a
Company Material Adverse Effect. Each of the Company and its Subsidiaries
has complied with and is in compliance with the terms of its Permits,
except where the failure to comply, in the aggregate, would not have a
Company Material Adverse Effect.
2.11. Employee Benefit Plans. (a) Section 2.11(a) of the
Disclosure Schedule sets forth (i) each material written and unwritten
plan, program, policy or other arrangement (other than Affected Employee
Agreements as defined in (ii) below) providing for severance, termination
pay, equity-based awards, fringe benefits or other employee benefits
whether formal or informal, and whether funded or unfunded, including
without limitation, each "employee benefit plan" within the
meaning of Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), sponsored, maintained, contributed to, or
required to be contributed to, for the benefit of, or with respect to any
current or former employee, consultant, independent contractor, agent or
principal of the Company or any of its Subsidiaries (each an "Affected
Employee" and each such plan, program, policy or arrangement other than any
multiemployer plan an "Affected Employee Plan") and (ii) each material
employment, severance, termination, consulting or similar agreement (except
consulting agreements which can be terminated with 60 days or less notice
without liability) between the Company or any of its Subsidiaries and any
Affected Employee or with respect to which the Company or any of its
Subsidiaries has any liabilities or obligations (each an "Affected Employee
Agreement"). The Seller has delivered to the Buyer current, accurate and
complete copies of all documents embodying each material Affected Employee
Plan and each Affected Employee Agreement.
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(b) Except as set forth in Section 2.11(b) of the
Disclosure Schedule, at no time has the Company or any member of the
Controlled Group (as hereinafter defined) contributed to or been required
to contribute to, or incurred any withdrawal liability (within the meaning
of Section 4201 of ERISA) to any "multiemployer plan" (within the meaning
of Section 3(37) of ERISA) and neither the Company nor any of its
Subsidiaries has any liability, contingent or otherwise, with respect to
any multiemployer plan. Except as set forth in Section 2.11(b) of the
Disclosure Schedule, neither the Company nor any member of the Controlled
Group presently sponsors, maintains, contributes to or is required to
contribute to, or has since January 1, 1996, sponsored, maintained,
contributed to or been required to contribute to, a "defined benefit plan"
(within the meaning of Section 3(35) of ERISA), whether domestic or foreign
(other than a plan mandated by the law of a foreign jurisdiction) (each
such plan (other than any multiemployer plan) a "Controlled Group Plan").
There is no accumulated funding deficiency, whether or not waived, within
the meaning of Section 302 of ERISA and Section 412 of the Code, with
respect to any Controlled Group Plan, and the present value of all accrued
benefits under each Controlled Group Plan, determined on a plan termination
basis using the actuarial assumptions established by the Pension Benefit
Guaranty Corporation (the "PBGC") as in effect on the date of
determination, does not exceed the fair market value of the assets (which
shall not include any accrued but unpaid contributions) of such Controlled
Group Plan. Each Affected Employee Plan is and has been operated in
material compliance with the terms of such plan and with all applicable
Laws, including, without limitation, ERISA and the Code, and the Company
and its Subsidiaries have performed all obligations required to be
performed by them under each Affected Employee Plan. Neither the Company
nor any member of its Controlled Group has incurred any liability under
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Title IV of ERISA to the PBGC in connection with any Controlled Group Plan
which liability has not been fully paid prior to the date hereof, other
than liability for premiums due the PBGC, which premiums have been or will
be paid when due, and no steps have been taken by the plan sponsor or by
the PBGC to terminate any Controlled Group Plan and no reportable event
(within the meaning of Section 4043 of ERISA) and no event described in
Section 4062 or 4063 of ERISA has occurred with respect to any Controlled
Group Plan. Each Affected Employee Plan intended to be tax qualified under
Sections 401(a) and 501(a) of the Code is so qualified. Except as disclosed
in Section 2.11(a) of the Disclosure Schedule, the Company does not have
any plan or commitment, whether legally binding or not, to establish any
material new employee benefit or compensation plan, program, policy,
practice or arrangement or to modify or terminate any existing Affected
Employee Plan (and has not communicated to any Affected Employee any
intention to do so). Neither the Company nor any member of the Controlled
Group nor any "party-in-interest" or "disqualified person" with respect to
any Affected Employee Plan has engaged in any transaction with respect to
any Affected Employee Plan which has resulted or could result in the
imposition of any tax under Section 4971, 4972, 4975, 4976, 4977, 4979,
4980 or 4980B of the Code that is or could be liabilities of the Company.
There are no actions, proceedings, arbitrations, suits or claims pending,
or to the knowledge of the Seller threatened, against any Affected Employee
Plan, the Company or any plan official with respect to any Affected
Employee Plan (other than routine benefit claims) and no Affected Employee
Plan is under audit or investigation by the Internal Revenue Service, the
Department of Labor or the PBGC and to the knowledge of the Seller no such
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audit or investigation is pending. Except as disclosed in Section 2.11(b)
of the Disclosure Schedule, the retiree life insurance, medical and dental
benefits described therein may be modified or terminated by the Company,
subject only to the payment of claims incurred (whether or not reported)
prior to such modification or termination. Except as disclosed in Section
2.11(b) of the Disclosure Schedule, neither the Company nor any member of
the Controlled Group maintains or contributes to any Affected Employee Plan
which provides, or has any liability to provide, life insurance, medical or
dental benefits to any Affected Employee upon his retirement or termination
of employment (except as may be required under Section 601 of ERISA and
Section 4980B of the Code). Except as disclosed in Section 2.11(a) of the
Disclosure Schedule, the execution of, and the performance of transactions
contemplated by, this Agreement will not (either alone or upon the
occurrence of any additional or subsequent events) constitute an event
under any Affected Employee Plan, Affected Employee Agreement, trust or
loan that will or may result in any payment (whether of incentive pay,
severance pay or otherwise), acceleration, vesting, distribution or
increase in benefits or obligation to fund benefits or the forgiveness of
indebtedness with respect to any Affected Employee. For purposes of this
Section 2.11, "Controlled Group" shall include, collectively, each
business, entity or other organization which is a member of a "controlled
group," or an "affiliated service group" or under "common control" with the
Company (within the meaning of Sections 414(b), (c), (m) or (o) of the Code
or Section 4001(a)(14) of ERISA).
2.12. Intellectual Property. (a) Section 2.12(a) of the
Disclosure Schedule sets forth a list of all registered trademarks,
servicemarks and tradenames used in or necessary for the conduct of the
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business of the Company and its Subsidiaries as currently conducted (other
than the trademarks, servicemarks and tradenames of advertisers included in
the directories). "Intellectual Property" means (i) all inventions (whether
or not patentable) and all patents and patent applications, (ii) all
trademarks, service marks, trade dress, logos, trade names, business names
and domain names, together with all translations, adaptations, derivations,
and combinations thereof, including the goodwill associated therewith, and
all applications, registrations, and renewals in connection therewith,
(iii) all copyrightable works, all copyrights, and all applications,
registrations, and renewals therewith, (iv) all trade secrets and
confidential business information (including, without limitation, ideas,
research and development, know-how, formulas, compositions, manufacturing
and production processes and techniques, technical data, designs, drawings,
specifications, customer/subscriber lists, supplier lists, pricing and cost
information, and business and marketing plans and proposals), (v) all
computer software (including data and related documentation), (vi) all
other proprietary rights and (vii) all copies and tangible embodiments
thereof (in whatever form or medium).
(b) Each of the Company and its Subsidiaries has valid
and enforceable rights to use, whether through ownership thereof or by
license, all Intellectual Property used in or necessary for the conduct of
their businesses as now conducted and as presently planned to be conducted,
except where the failure to have such rights would not, in the aggregate,
have a Company Material Adverse Effect. Each of the Company and its
Subsidiaries has taken all reasonable steps necessary to maintain and
protect each item of its Intellectual Property except where the failure to
do so in the aggregate would not have a Company Material Adverse Effect.
Except as set forth in Section 2.12(b) of the Disclosure Schedule, no claim
is pending or, to the knowledge of the Seller, threatened against the
Company or any of its Subsidiaries to the effect that the rights of the
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Company or any of its Subsidiaries in or to any Intellectual Property owned
by it are invalid or unenforceable or that the use by the Company or any of
its Subsidiaries of any Intellectual Property infringes on the rights of
any third party, or which challenges the ownership by the Company or any of
its Subsidiaries of the Intellectual Property which each purports to own or
the validity or effectiveness of any license relating to any Intellectual
Property which each purports to license, except for such claims as would
not, in the aggregate, have a Company Material Adverse Effect. Neither the
Company nor any of its Subsidiaries has misappropriated, infringed upon, or
violated any Intellectual Property right of any third party and, to the
knowledge of the Seller, no third party has misappropriated, infringed
upon, or violated any Intellectual Property rights of the Company or any of
its Subsidiaries, except for such misappropriations, infringements or
violations as would not in the aggregate have a Company Material Adverse
Effect.
2.13. Material Contracts. Section 2.13 of the Disclosure
Schedule sets forth a complete list, as of the date hereof, of the
following agreements, contracts, arrangements or understandings, whether
written or oral (collectively, "Contracts") to which the Company or any of
its Subsidiaries is a party or by which any of their properties or assets
may be bound:
(a) each employment, severance, management, consulting
and other Contract involving compensation for services rendered or to be
rendered, in each case involving payments of more than $150,000 per year or
extending beyond December 31, 2002 (Seller hereby represents that the
Company and its Subsidiaries are not party to more than an aggregate of
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$1 million per year of Contracts involving such matters not terminable by the
Company or any of its Subsidiaries on 30 days' or less notice without
liability to the Company or any of its Subsidiaries and not set forth in
Section 2.13 of the Disclosure Schedule) (except for severance payments to
employees pursuant to the severance policy set forth in Section 2.11(a) of
the Disclosure Schedule) ;
(b) each lease relating to real property with a term of
one year or longer;
(c) each other Contract involving annual payments in
excess of $250,000 per year, unless cancellable on 60 days or less notice
for a nominal payment;
(d) each Contract that contains a covenant not to compete
or similar covenants for which the Company or its Subsidiaries is the
obligor thereunder;
(e) each Contract concerning a partnership or joint venture;
(f) each Contract containing an earnout or other
provision which has as its purpose the sharing of revenue or profits for
which the aggregate payment thereunder would exceed $25,000, the aggregate
earnout payments for such Contracts not to exceed the amount set forth in
Section 2.13(f) of the Disclosure Schedule subject to the assumptions
contained therein);
(g) each Contract creating a Lien securing payment of an
amount in excess of $100,000 per year in any one case or $500,000 in the
aggregate for all such Contracts;
(h) each Contract relating to the printing, binding or
distribution of any publication that involves annual payments in excess
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of $250,000; and
(i) each other Contract which is material to the
operations of the Company and its Subsidiaries.
The Seller has made available to the Buyer true and
complete copies of such written Contracts and summaries of such oral
Contracts, or standard forms thereof. Except as set forth in Section
2.13(b) of the Disclosure Schedule, all of such Contracts are valid and
binding obligations of the Company and/or its Subsidiaries and, to the
Seller's knowledge, the other party thereto and neither the Company nor any
of its Subsidiaries nor, to the Seller's knowledge, the other party thereto
is in breach of any such Contract, except for such failures to be valid and
binding and for such breaches as, in the aggregate, would not have a
Company Material Adverse Effect.
2.14. Transactions with Affiliates. Except as set forth
in Section 2.14 of the Disclosure Schedule, (i) since December 31, 2000,
there have not been any transactions, and (ii) there are no Contracts,
between the Company or any of its Subsidiaries, on the one hand, and Parent
or any of its affiliates (other than the Company or its Subsidiaries), on
the other hand, in each case other than transactions and Contracts which
are not, in the aggregate, material. This Section 2.14 does not contain any
material misstatement of fact or omit to state any material fact necessary
to make the statements herein, in light of the circumstances under which
they are made, not misleading. For all purposes of this Agreement,
including Article VII hereof, when considering the accuracy of the
representation and warranty set forth in this Section 2.14, benefits from
matters not disclosed in Section 2.14 shall be aggregated and netted
against the aggregate detriments from such matters.
2.15. Business and Properties. Except as set forth in
Section 2.15 of the Disclosure Schedule, the business, properties, assets
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(tangible or intangible), and rights held, owned or used by the Company or
any of its Subsidiaries and which the Buyer is acquiring indirectly at the
Closing by its purchase of the Shares, constitute all of the business,
properties, assets (tangible or intangible) and rights used in or necessary
for the conduct of the business of the Company and its Subsidiaries as
currently conducted. Except as set forth in Section 2.15 of the Disclosure
Schedule, the interest which the Buyer is acquiring in each of the assets
upon the consummation of the transactions contemplated by this Agreement
will either be an ownership interest in the asset or an interest pursuant
to a legally binding Contract.
2.16. Environmental Matters. Except as set forth in
Section 2.16 of the Disclosure Schedule: (a) each of the Company and its
Subsidiaries is in compliance with all applicable federal, state, local and
foreign laws and regulations relating to pollution, protection of human
health or the environment or health and safety of employees (including,
without limitation, ambient air, surface water, ground water, land surface
or subsurface strata) (collectively, "Environmental Laws"), except for any
failure to comply that would not in the aggregate have a Company Material
Adverse Effect, (b) neither the Company nor any of its Subsidiaries has
received written notice of, or, to the knowledge of the Seller, is the
subject of, any action, cause of action, claim, investigation, demand or
notice by any Person or entity alleging liability under or non-compliance
with any Environmental Law which would in the aggregate have a Company
Material Adverse Effect, (c) neither the Company nor any of its
Subsidiaries has entered into or agreed to any consent decree or order, or
is subject to any judgment, decree or judicial order relating to compliance
with, or the cleanup of regulated substances under, any applicable
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Environmental Law, and (d) all the real property owned or leased or
otherwise occupied by the Company or any of its Subsidiaries is free from
any Hazardous Substances (except those authorized pursuant to and in
accordance with Environmental Laws) and free of all contamination arising
from, relating to, or resulting from any such Hazardous Substances except
for such Hazardous Substances and contamination that would not in the
aggregate have a Company Material Adverse Effect. For purposes of this
Section 2.16, "Hazardous Substances" shall mean any hazardous substances
within the meaning of Section 101(14) of CERCLA, or any pollutant,
including petroleum or any fractions thereof.
2.17. Labor Relations. Except as set forth in Section
2.17 of the Disclosure Schedule, there is no unfair labor practice
complaint or other proceeding against the Company or any of its
Subsidiaries pending before the National Labor Relations Board which, if
adversely decided, in the aggregate would have a Company Material Adverse
Effect. Except as set forth in Section 2.17 of the Disclosure Schedule,
there is no labor strike, work stoppage or arbitration proceeding pending
or involving or, to the knowledge of the Seller, threatened against the
Company or any of its Subsidiaries which in the aggregate would have a
Company Material Adverse Effect. Except as set forth in Section 2.17 of the
Disclosure Schedule, to the Seller's knowledge, there are no organizing
efforts by any union or other group seeking to represent any employees of
the Company or any of its Subsidiaries. Neither the Company nor any of its
Subsidiaries is a party to any collective bargaining agreement.
2.18. Title to Assets. Except as set forth in Section
2.18 of the Disclosure Schedule, each of the Company and its Subsidiaries
has good, and, in the case of real property, marketable, title to the
assets it purports to own, free and clear of any Liens, except for (i)
Liens for current taxes not yet due and payable, (ii) Liens which would
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not, in the aggregate, have a Company Material Adverse Effect and (iii)
mechanics', carriers', workers' and other similar Liens arising or incurred
in the ordinary course of business consistent with past practice, none of
which Liens in the case of clauses (i)-(iii), in the aggregate, would
materially interfere with the utilization of such properties or assets for
their intended purposes. A list of all real property owned by the Company
or any of its Subsidiaries is set forth on Section 2.18 of the Disclosure
Schedule.
2.19. Brokers and Finders. Neither the Seller nor the
Company nor any of its Subsidiaries has employed any broker or finder or
incurred any liability for any investment banking fees, brokerage fees,
commissions or finders' fees in connection with the transactions
contemplated by this Agreement, except for fees and expenses payable to
Credit Suisse First Boston, which will be paid by Parent.
2.20. Insurance. Section 2.20 of the Disclosure Schedule
sets forth a list of all material insurance policies presently in effect
(including policies obtained in the past which continue to provide
insurance coverage at present) with respect to the Company or any of its
Subsidiaries. The Seller has heretofore delivered to, or made available for
review by, the Buyer accurate and complete copies of each such policy. All
such policies are valid, outstanding and enforceable; there are no material
claims pending as to which the insurers have denied liability or are
reserving their rights; and all material claims have been timely and
properly filed. Neither the Company nor any of its Subsidiaries (nor Parent
with respect to the Company or its Subsidiaries) has been refused any
insurance with respect to any aspect of the operations of the Company or
any of its Subsidiaries nor has its coverage been limited by any insurance
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carrier to which it has applied for insurance or with which it has carried
insurance during the last three years. No notice of cancellation or
termination has been received by the Company or any of its Subsidiaries
with respect to any such policy.
2.21. Taxes. Except as set forth in Section 2.21 of the
Disclosure Schedule:
(a) With respect to the Company and its Subsidiaries, (i)
all material returns, statements, reports, estimates, declarations and
forms with respect to Taxes (as defined in Section 4.6) (collectively, "Tax
Returns") required to be filed on or before the Closing Date have been or
will have been, timely filed in accordance with any applicable Laws, (ii)
all Taxes shown to have become due pursuant to such Tax Returns have been
or will be timely paid, and (iii) all Taxes for which a notice of, or
assessment or demand for, payment has been received or which are otherwise
due and payable have been paid or accrued on the financial books and
records of the Company or any of its Subsidiaries. All such Tax Returns are
true, correct and complete in all material respects. As of the Balance
Sheet Date the Company and its Subsidiaries had no material liability for
Taxes in excess of the accruals for Taxes reflected on the September 30
Balance Sheet.
(b) With respect to the Company or any of its
Subsidiaries, (i) there is no action, suit, proceeding, audit, written
claim, Lien (other than Liens for Taxes not yet due and payable or which
are being contested in good faith), or assessment pending or proposed with
respect to Taxes or with respect to any Tax Return, (ii) all
material amounts required to be collected or withheld with respect to Taxes
have been duly collected or withheld and any such amounts that are required
to be remitted to any taxing authority have been duly remitted, (iii) no
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extension of time within which to file any Tax Return has been requested
which Tax Return has not since been filed, (iv) there are no material
waivers or extensions of any applicable statute of limitations for the
assessment or collection of Taxes with respect to any Tax Return which
remain in effect, (v) there are no tax rulings, requests for rulings,
applications for change in accounting methods or closing agreements
relating to the Company or any of its Subsidiaries which could reasonably
be expected to affect its liability for Taxes for any period after the
Closing Date, and (vi) none of the Seller, the Company or any of its
Subsidiaries has agreed to, or is required to include in income, any
adjustment pursuant to Section 481(a) or 482 of the Code (or similar
provisions of other Law) (nor has any taxing authority proposed any such
adjustment or change of accounting method).
(c) The Company and each of its Subsidiaries is a member
of a U.S. consolidated return filing group of which Parent is the common
parent.
2.22. List of Publications. Section 2.22 of the
Disclosure Schedule contains a true and complete list of each telephone
directory to be published by the Company or any of its Subsidiaries at any
time from the date hereof to December 31, 2002 and the respective dates of
delivery.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer hereby represents and warrants to the Seller as
follows:
3.1. Corporate Organization; Etc. The Buyer is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and has all requisite power
and authority to own, lease and operate its properties and to carry on its
business as now being conducted, except where the failure to have such
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power or authority is not, in the aggregate, reasonably likely to have a
material adverse effect on the business, operations, results of operations,
assets, condition (financial or otherwise) of the Buyer (a "Buyer Material
Adverse Effect").
3.2. Authority Relative to this Agreement. The Buyer has
all requisite corporate authority and power to execute and deliver this
Agreement and the Ancillary Agreements to which it is a party and to
consummate the transactions contemplated hereby and thereby. The execution
and delivery of this Agreement and the Ancillary Agreements and the
consummation of the transactions contemplated hereby and thereby by the
Buyer have been duly and validly authorized by all required corporate
action on the part of the Buyer and no other corporate proceedings on the
part of the Buyer are necessary to authorize this Agreement or the
Ancillary Agreements or to consummate the transactions contemplated hereby
or thereby. This Agreement has been, and the Ancillary Agreements will be
as of the Closing, duly and validly executed and delivered by the Buyer
and, assuming such agreements have been duly authorized, executed and
delivered by the other parties thereto, constitutes a valid and binding
agreement of the Buyer, enforceable against the Buyer 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.
3.3. Consents and Approvals; No Violations. Except for
applicable requirements of the HSR Act, no filing with, and no permit,
authorization, consent or approval of any public body or governmental
authority is necessary for the consummation by the Buyer of the
transactions contemplated by this Agreement or the Ancillary Agreements;
provided that no representation or warranty is made as to any such approval
that may be required by reason of the effect of the transactions
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contemplated hereby on any permit, authorization, consent or approval held
by the Company or any of its Subsidiaries. Neither the execution and
delivery of this Agreement or the Ancillary Agreements by the Buyer nor the
consummation by the Buyer of the transactions contemplated hereby or
thereby nor compliance by the Buyer with any of the provisions hereof or
thereof will (a) conflict with or result in any breach of any provision of
the charter or bylaws of the Buyer, (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
note, bond, mortgage, indenture, license, contract, agreement or other
instrument or obligation to which the Buyer 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) assuming that the filings referred to in the first sentence of
this Section 3.3 are duly and timely made, violate any order, writ,
injunction, decree, statute, rule or regulation applicable to the Buyer,
any of its Subsidiaries or any of their properties or assets, except in the
case of (b) and (c) for violations, breaches or defaults which are not in
the aggregate reasonably likely to have a Buyer Material Adverse Effect or
prevent or materially delay the consummation of the transactions
contemplated hereby.
3.4. Acquisition of Shares for Investment; Investigation.
The Buyer is acquiring the Shares for investment and not with a view
toward, or for sale in connection with, any distribution thereof, nor with
any present intention of distributing or selling such Shares. The Buyer
agrees that the Shares may not be sold, transferred, offered for sale,
pledged, hypothecated or otherwise disposed of without registration under
the Securities Act of 1933, as amended (the "Act"), and any applicable
state securities laws, except pursuant to an exemption from such
registration under such Act and such laws.
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3.5. Sufficient Funds. As of the date hereof, Buyer's
affiliates have binding commitments for, and as of the Closing, the Buyer
will have, sufficient funds available (through immediately available cash
or existing credit facilities) to enable Buyer to consummate the
transactions contemplated hereby. Upon the consummation of the Stock
Purchase, (i) the Buyer will not be insolvent, (ii) the Buyer will not be
left with an unreasonably small capital, (iii) the Buyer will not have
incurred debts beyond its ability to pay such debts as they mature and (iv)
the capital of the Buyer will not be impaired, in each case as a result of
the financing of the Stock Purchase or the financial condition of the Buyer
as of the Closing.
3.6. Brokers and Finders. Neither the Buyer nor any of
its Subsidiaries has employed any investment banker, broker or finder or
incurred any liability for any investment banking fees, brokerage fees,
commissions or finders' fees in connection with the transactions
contemplated by this Agreement.
ARTICLE IV
COVENANTS OF THE PARTIES
4.1. Conduct of Business of the Company. Except as set
forth in Section 4.1 of the Disclosure Schedule or as required in
connection with the Restructuring (including in any proceedings required
under the Bankruptcy Code in connection with the Restructuring provided
that Seller has used all reasonable efforts not to limit its ability to
comply with this Section 4.1) or with the prior consent of the Buyer,
during the period from the date of this Agreement to the Closing, the
Seller will cause the Company and its Subsidiaries (i) to conduct their
business and operations in the ordinary course of business consistent with
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past practice except in connection with the transactions contemplated
hereby and (ii) to use all reasonable efforts to preserve intact its
properties, assets and business organization and relationships with third
parties, in each case in the ordinary course of business consistent with
past practice. Without limiting the generality of the foregoing, (and
except as set forth in Section 4.1 of the Disclosure Schedule or as
required in connection with the Restructuring (including in any proceedings
required under the Bankruptcy Code in connection with the Restructuring);
provided that Seller has used all reasonable efforts not to limit its
ability to comply with this Section 4.1), the Seller will cause the Company
and its Subsidiaries not to, prior to the Closing, without the prior
written consent of the Buyer, such consent not to be unreasonably withheld:
(a) declare, set aside or make any non-cash distribution
with respect to any of the Shares or shares of capital stock of the
Subsidiaries;
(b) transfer any asset included in the calculation of Net
Working Capital pursuant to Section 4.13 (x) as a distribution with respect
to any of the Shares or (y) in payment of any intercompany account;
(c) redeem, purchase or otherwise acquire any outstanding
Shares;
(d) amend its certificate of incorporation or bylaws;
(e) whether or not in the ordinary course of business
consistent with past practice, acquire or dispose of any property or assets
that are in the aggregate material;
(f) enter into any Contracts or transactions, except
Contracts or transactions made in the ordinary course of business
consistent with past practice;
(g) change in any respect any of the accounting
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principles or practices used by it (except as required by GAAP);
(h) engage in any transactions with, or enter into any
binding Contracts with, the Seller or their affiliates (other than among
the Company and its Subsidiaries) other than transactions in the ordinary
course of business consistent with past practice;
(i) enter into, adopt, amend or terminate any agreement
relating to the compensation or severance of any officer or director of the
Company or any of its Subsidiaries, except to the extent required by law or
any agreements set forth in the Disclosure Schedule;
(j) enter into, adopt, amend or terminate any agreement
relating to the compensation or severance of any non-officer or director
employees of the Company or any of its Subsidiaries, other than in the
ordinary course of business, except to the extent required by law or any
agreements set forth in the Disclosure Schedule;
(k) grant any increase in compensation or benefits to any
particular employee other than in the ordinary course in connection with a
periodic performance review, or grant any general increase in compensation
or benefits to any group of employees;
(l) make any material Tax election (unless required by
applicable Law or consistent with past practice) or settle any material Tax
liability which is the subject of dispute between Parent, the Seller, the
Company or one of its Subsidiaries, on the one hand, and a governmental
entity, on the other hand;
(m) fail to maintain in full force and effect its
insurance policies (or comparable insurance policies);
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(n) establish or adopt any new benefit plan or amend or
terminate any existing benefit plan other than as required by law;
(o) modify, amend or terminate, or waive, release or
assign any material rights or claims with respect to, any Contract other
than in the ordinary course of business consistent with past practices;
(p) enter into any non-compete Contracts under which the
Company is obligor, or modify or waive any of the Company's rights under
any existing material confidentiality or non-compete Contract under which
it is the beneficiary;
(q) change the payment terms available to its customers
(including with respect to discounts and timing) from those currently in
effect, or change the delivery schedule of any of its directories;
(r) take any action that would cause any of the
representations and warranties of the Seller to be untrue; or
(s) agree to take any of the foregoing actions.
Except as set forth in Section 4.1 of the Disclosure
Schedule, prior to the Closing Date, neither the Company nor any of its
Subsidiaries will (x) incur any indebtedness for borrowed money or issue or
sell any debt securities or assume, guarantee or endorse the obligations of
any other Persons or (y) mortgage, encumber or subject to any Lien any of
its material property or assets.
4.2. Access to Information.
(a) From the date of this Agreement to the Closing, the
Seller will cause each of the Company and its Subsidiaries to (i) give the
Buyer and its authorized representatives reasonable access to their books,
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records, personnel, offices and other facilities and properties and their
accountants and their accountants' work papers, (ii) permit the Buyer to
make such copies and inspections thereof as the Buyer may reasonably
request and (iii) cause the Company's officers to furnish the Buyer with
such financial and operating data and other information with respect to the
business and properties of each of the Company and its Subsidiaries as the
Buyer may from time to time reasonably request; provided, however, that any
such access shall be conducted at a reasonable time and in such a manner as
not to interfere unreasonably with the operation of the business of the
Company or any or its Subsidiaries.
(b) All such information and access will be used solely
for the purpose of evaluating the transactions contemplated hereby and will
not be used for any other business or competitive purpose. The Buyer agrees
that such information will be kept strictly confidential and will not be
disclosed by the Buyer or any of its representatives to any Person, except
as compelled by applicable law, regulation, judicial or governmental order
or other legal process but only after providing the Seller with written
notice of any request or requirement to disclose such information and the
circumstances surrounding such request or requirement so that the Seller
may seek a protective order or other appropriate remedy and if such
protective order or other remedy is not obtained, the Buyer and its
representatives agree to disclose only that portion of the information that
it is legally compelled to disclose. The Buyer agrees to be responsible for
any breach of this Section 4.2(b) by its representatives.
(c) From and after the Closing Date, for the purpose of
allowing Buyer to prepare historical financial statements of the Company
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and its Subsidiaries, the Seller will, at Buyer's sole cost and expenses,
(i) give the Buyer and its authorized representatives reasonable access to
their books, records and personnel and its accountants and their work
papers, (ii) permit the Buyer to make such copies and inspections thereof
as the Buyer may reasonably request and (iii) cause the Seller's officers
to furnish the Buyer with such historical financial and operating data and
other historical information with respect to the business of each of the
Company and its Subsidiaries as the Buyer may reasonably request; provided,
however, that any such access shall be conducted at a reasonable time and
in such a manner as not to interfere unreasonably with the operation of the
business of the Seller or any of its affiliates; provided, further, that
neither the Seller nor any of its affiliates shall be deemed to make any
representation or warranty as to such financial statements or other
information so provided.
4.3. Reasonable Efforts. Subject to the terms and
conditions herein provided, each of the parties hereto agrees to use all
reasonable efforts to take, or cause to be taken, all action, and to do, or
cause to be done, all things necessary, proper or advisable to fulfill the
conditions to the parties' obligations hereunder and to consummate and make
effective the transactions contemplated by this Agreement, including,
without limitation, making all required filings and applications and
complying with or responding to any requests by governmental agencies and
obtaining all consents, approvals, orders, waivers, licenses, permits and
authorizations required in connection with the transactions contemplated
hereby. If at any time after the Closing Date any further action is
necessary or desirable to carry out the purposes of this Agreement, the
parties hereto shall take or cause to be taken all such necessary action,
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including, without limitation, the execution and delivery of such further
instruments and documents as may be reasonably requested by the other party
for such purposes or otherwise to consummate and make effective the
transactions contemplated hereby.
4.4. Public Announcements. The Seller and the Buyer will
consult with each other before issuing any press release or otherwise
making any public statements with respect to the transactions contemplated
by this Agreement, and shall not issue any such press release or make any
such public statement without the prior approval of the other party, except
as may be required by law or by obligations pursuant to any listing
agreement with any national securities exchange or automated quotation
system.
4.5. Employee Matters. (a) From and after the Closing
Date, the active employees of the Company and its Subsidiaries as of the
Closing Date (the "Employees") shall, for the two year period commencing on
the Closing Date, be provided with benefit plans or arrangements which, in
the aggregate, provide substantially comparable benefits (other than the
benefit plans and arrangements set forth in Section 4.5(a) of the
Disclosure Schedule) as were provided to the Employees immediately prior to
the Closing Date. For purposes of this Section 4.5, "active employees"
include, without limitation, employees of the Company who are on short-term
disability, long-term disability and on authorized leave of absence, and
exclude employees who are terminated or retired. Such Employees shall
receive credit for past service with the Company and its predecessors or
affiliates for purposes of eligibility, vesting and vacation accrual under
any such benefit plans and arrangements, including, but not limited to,
satisfaction of any preexisting condition exclusion under any such plan
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providing health care coverage, and shall also be given credit for amounts
expended prior to the Closing Date for purposes of deductibles or out of
pocket limitations applicable under such plans. Nothing in this Section
4.5(a) will require the Buyer or the Company or any of its Subsidiaries to
maintain any particular plan or arrangement in effect or to maintain the
employment of any Employee after the Closing.
(b) The Seller will take all actions necessary to provide
for the full vesting of all Employees' accounts as of the Closing Date
under the McLeodUSA Incorporated 401(k) Profit Sharing Plan. The Seller
will take all actions necessary (i) to provide for the full vesting of the
accrued benefits of all Employees who are participants in the Illinois
Consolidated Telephone Company Retirement Income Plan for Hourly Employees
(the "ICTC Plan") and (ii) to treat service with Buyer or the Company or
any Subsidiary after the Closing as service with Seller or one of its
Affiliates for purposes of determining an Employee's date of retirement and
eligibility for early retirement benefits (including any subsidized early
retirement benefits) but not for purposes of accruing additional normal
retirement benefits.
(c) The Buyer presently intends to adopt an equity-based
plan pursuant to which Buyer in its sole discretion may make grants of
equity based compensation to select senior executives of the Company and
its Subsidiaries.
(d) The Seller and the Buyer acknowledge that the Closing
of the Stock Purchase will constitute a termination of the employment of
each current Employee for purposes of Parent's equity-based plans and
arrangements and that, in accordance with the provisions of Parent's equity
plans and arrangements, such employees will have a maximum of 30 days
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following the Closing in which to exercise any outstanding, vested Seller
stock options.
(e) The Seller shall indemnify and hold harmless the
Buyer and its affiliates, and their successors and assigns, from and
against any liability arising out of the Company or any of its Subsidiaries
being jointly and/or severally liable, on, before or after the Closing,
under Code Sections 412, 4971 or 4980, or ERISA Section 302 or Sections 601
through 609, or Title IV of ERISA, by reason of any of them being
considered to have been a member of a Controlled Group with the Seller or
any other member of Seller's Controlled Group.
(f) The Seller shall retain responsibility for and
continue to pay all medical, life insurance, disability and other welfare
plan expenses and benefits for all Employees and former employees of the
Company with respect to claims incurred by such employees or former
employees or their covered dependents on or prior to the Closing Date.
Expenses and benefits with respect to claims incurred by Employees and
their covered dependents after the Closing Date shall be the responsibility
of the Buyer. The Seller shall be responsible for all legally mandated
continuation of health care coverage for all former employees and their
covered dependents who participated in a plan maintained by Parent, the
Seller or any of their affiliates and who had or have a loss of health care
coverage due to a qualifying event (as defined under applicable law)
occurring as of or prior to the Closing Date.
(g) Seller agrees that (1) neither Buyer nor any of its
affiliates shall have any liability (A) with respect to that letter
agreement between Parent and Arthur L. Christofferson dated September 20,
1996 providing for severance benefits under certain circumstances following
a change in control, (B) arising out of or relating to the ICTC Plan, the
Illinois Consolidated Retirement Income Plan for Salaried and Affiliated
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Employees, the termination of either of such plans or the termination or
waiver of the participation of any employees or former employees of the
Company or any of its affiliates in either such plans, or (C) with respect
to the McLeodUSA Incorporated Deferred Compensation Plan for Certain
Employees and (2) Seller shall indemnify and hold harmless Buyer and its
affiliates against all Damages (as defined in Section 7.2) that relate to,
arise out of, or are the result of any of the foregoing.
4.6. Tax Matters.
(a) (i) For all Pre-Closing Periods for which the Company
or any of its Subsidiaries is required or eligible to do so, the Company or
any such Subsidiary shall join in all consolidated, combined or unitary
federal, state or local income Tax or franchise Tax Returns of Parent (or
any Tax Affiliate) ("Parent Tax Returns"), and, in each jurisdiction where
this is required or permissible under applicable law, the taxable year of
the Company and each of its Subsidiaries shall be terminated as of the
Closing Date. Parent and the Seller shall prepare or cause to be prepared
and timely filed all such Parent Tax Returns. Without duplication of
Section 4.6(b), Parent or Seller shall timely pay all Taxes shown to be due
on such Tax Returns.
(ii) The Seller shall prepare or cause to be
prepared and the Buyer shall timely file all income Tax Returns of the
Company and its Subsidiaries for all Pre-Closing Periods (other than those
Tax Returns referred to in Section 4.6(a)(i)), which Tax Returns have not
been filed as of the Closing Date. Without duplication of Section 4.6(b),
Parent or Seller shall pay all Taxes due with respect to such Tax Returns.
(iii) The Buyer shall prepare or cause to be
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prepared and file all Tax Returns (including Tax Returns with respect to
all Straddle Periods) with respect to the Company and the Subsidiaries for
which the Seller or Parent does not have filing responsibility pursuant to
Section 4.6(a)(ii). Upon timely written notice from the Buyer, no later
than ten days prior to the due date for the filing of each Tax Return for a
Straddle Period, the Seller shall pay to the Company the amount of Taxes
shown as due thereon that is attributable to the pre-closing portion of
such Straddle Period determined in accordance with Section 4.6(a)(vi) minus
any amount accrued or reserved for such Taxes in Net Working Capital.
(iv) In connection with the preparation of all
Tax Returns referred to in this Section 4.6(a), Parent and the Seller, on
the one hand, and the Buyer and the Company, on the other hand, shall each
fully cooperate with the other and provide such timely assistance to the
other as may be reasonably requested.
(v) The Tax Returns referred to in Section
4.6(a)(i), (ii) and the Straddle Period Tax Returns referred to in Section
4.6(a)(iii) shall be prepared in a manner consistent with past practice,
unless a contrary treatment is required by applicable law. The Seller shall
cause any Tax Return that is required to be filed under Section 4.6(a)(i)
or (ii), and the Buyer shall cause any Tax Returns for a Straddle Period
that is required to be filed by the Buyer under Section 4.6(a)(iii), to be
made available to the other party for its review and approval no later than
20 days prior to the due date for the filing of such Tax Return (taking
into account proper extensions); such approval shall not be unreasonably
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withheld or delayed and shall not to be required where such Tax Returns
have been prepared in accordance with past practice (including without
limitation, as to accounting methods and methods of measuring sales,
income, property values or other relevant items), or a contrary treatment
is required by applicable law.
(vi) For purposes of this Agreement, (A) the
amount of Taxes attributable to the pre-closing portion of a Straddle
Period shall be determined based on an interim closing of the books as of
the close of the Closing Date, except that the amount of any such Taxes
that are imposed on a periodic basis shall be determined by reference to
the relative number of days in the pre-closing and post-closing portions of
such Straddle Period; and (B) the taxable year of any partnership or other
pass- through entity in which the Company is partner or other beneficial
interest holder shall be deemed to terminate on the Closing Date.
(b) (i) Without duplication, Parent and the Seller shall,
jointly and severally, be responsible for and indemnify, defend and hold
the Buyer, the Company and its Subsidiaries harmless from and against any
and all Taxes and other Damages, as incurred, to the extent they consist
of, relate to, arise out of or are the result of (A) Taxes of or
attributable to the Company or any of its Subsidiaries with respect to all
Pre-Closing Periods; (B) Taxes of or attributable to the Company or any of
its Subsidiaries with respect to the pre-closing portion of any Straddle
Period; (C) Taxes payable by the Company or any of its Subsidiaries with
respect to any Pre-Closing Period or any Straddle Period by reason of the
Company or one of its Subsidiaries being severally liable for the Tax of
any Tax Affiliate pursuant to Treasury Regulation Section 1.1502-6 or any
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analogous state or local Tax law; (D) any amount required to be paid by the
Company or any of its Subsidiaries under an indemnification agreement
(other than this Agreement) or on a transferee liability theory, in respect
of any Taxes of any Person, which indemnification agreement or application
of transferee liability theory relates to an acquisition, disposition or
similar transaction occurring on or prior to the Closing Date; (E) to the
extent not included in the other clauses of this Section 4.6(b), by reason
of the breach by Seller or Parent or any of their affiliates of any
representation, warranty, covenant or agreement contained in Section 2.21
or Section 4.6 of this Agreement (without duplication); (F) any Taxes of
the Company or any Subsidiary with respect to Post-Closing Periods or the
post- Closing portion of a Straddle Period resulting from (i.e., that would
not have been incurred in that period but for) any adjustments pursuant to
Section 481(a) of the Code with respect to Pre-Closing Periods or the
pre-Closing portion of a Straddle Period; and (G) receipt of any payments
pursuant to this Section 4.6(b)(i); provided, however, that Seller or
Parent shall be required to indemnify the Buyer pursuant to this Section
4.6(b) only if and to the extent that the amount of such Tax or such other
Damages exceeds the sum of (y) the aggregate amount previously reimbursed
to the Buyer, the Company and its Subsidiaries by the Seller for such Tax
pursuant to Section 4.6(a) and (z) in the case of a Tax other than an
income Tax, the amounts accrued for or reserved for Taxes in computing Net
Working Capital.
(ii) Without duplication, the Buyer shall be
responsible for and indemnify, defend and hold Parent and the Seller
harmless from and against any and all Taxes and other Damages, as incurred,
to the extent they consist of, relate to, arise out of or are the result of
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(A) Taxes of or attributable to the Company or any of its Subsidiaries with
respect to all Post-Closing Periods; (B) Taxes of or attributable to the
Company or any of its Subsidiaries with respect to the post-closing portion
of any Straddle Period; (C) any liability for Taxes attributable to breach
by the Buyer or any of its affiliates of any warranty, covenant or
agreement relating to Taxes under Section 4.6 of this Agreement; (D) any
liability for Taxes of or attributable to the Company or any of its
Subsidiaries resulting from an action (other than an action taken by Parent
or Seller or any of their affiliates) of or with respect to the Company or
any of its Subsidiaries after the Closing on the Closing Date which is not
(y) in the ordinary course of business or (z) an action contemplated by
this Agreement or in connection with the Restructuring; and (E) receipt of
any payments pursuant to this Section 4.6(b)(ii); provided, however, that
in the case of clause (A) or (B), Buyer shall not be responsible for Taxes
or other Damages pursuant to this Section 4.6(b)(ii) to the extent that
Parent or the Seller is responsible for such Taxes pursuant to Section
4.6(b)(i)(F).
(iii) Any payment required to be made pursuant
to this Section 4.6(b) shall be made promptly, but in no event later than
10 days, after written request therefor, which request shall set forth in
reasonable detail the basis for calculating the amount requested.
(iv) In the event that any Person has been
indemnified for any Tax pursuant to this Section 4.6(b) and the payment or
accrual of such Tax results in a deduction which in turn results in an
actual reduction in the Tax liability of the indemnified Person or any
affiliate thereof for any Tax period, then (without duplication for any
such reduction otherwise taken into account) the indemnified Person will
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pay to the indemnifying party the amount of such reduction in Tax liability
at the time such Person actually realizes such reduction in Tax liability
through receipt of a refund of Tax or a credit against Tax liability then
due and payable. For purposes of this paragraph, a payment or accrual of a
Tax liability results in an actual reduction in Person's Tax liability with
respect to a Tax period, only to the extent that the amount of such
Person's Tax liability with respect to such period, taking into account
such accrual or payment, is less than the amount of such liability
determined without regard to such payment or accrual. To the extent
permitted by applicable law, the parties agree to treat all indemnity
payments made pursuant to this Agreement, and all other payments under this
Section 4.6, as adjustments to the Purchase Price or as capital
contributions to the Company, as appropriate, for all income Tax purposes.
(c) (i) Each of Parent and the Seller, on the one hand,
and the Buyer and the Company and its Subsidiaries, on the other hand,
shall notify the other party in writing within 15 days of receipt of
written notice of any pending or threatened examination, audit or other
administrative or judicial proceeding (a "Tax Audit") that could reasonably
be expected to result in an indemnification obligation under this Agreement
of such other party pursuant to this Agreement. If the recipient of such
notice of a Tax Audit fails to provide such notice to the other party it
shall not be entitled to indemnification for any Taxes arising in
connection with such Tax Audit, but only to the extent, if any, that such
failure shall have adversely affected the indemnifying party's ability to
defend against, settle, or satisfy any action, suit, or proceeding against
it, or any damage, loss, claim, or demand for which the indemnified party
is entitled to indemnification hereunder.
(ii) If a Tax Audit relates to any period
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ending on or prior to the Closing Date or to any Taxes for which the Seller
is or may be liable hereunder, the Seller shall at its expense control the
proceeding, defense and settlement of such Tax Audit to the extent it relates
to such Taxes. If such Tax Audit relates to any Post- Closing Period or to
any Taxes for which the Buyer is or may be liable hereunder, the Buyer shall
at its expense control the defense and settlement of such Tax Audit to the
extent that it relates to such Taxes. The party not in control of the defense
shall have the right to observe the conduct of any Tax Audit at its own
expense, including through its own counsel and other professional experts.
The Buyer and the Seller (or Parent) shall jointly represent the Company or
any relevant Subsidiary in any Tax Audit relating to a Straddle Period, and
fees and expenses related to such representation shall be paid equally by the
Buyer and the Seller.
(iii) Notwithstanding Section 4.6(c)(ii), to the
extent that an issue raised in any Tax Audit controlled by one party or
jointly controlled could materially affect the liability for Taxes of the
other party, the controlling party shall not, and neither party in the case
of joint control shall, enter into a settlement without the consent of the
other, which consent shall not be unreasonably withheld or delayed. Where a
party withholds its consent to any final settlement, that party may
continue or initiate further proceedings, at its own expense, and the
liability of the party that wished to settle (as between the consenting and
the non-consenting party) shall not exceed the liability that would have
resulted from the proposed final settlement (including interest, additions
to tax and penalties that have accrued at that time), and the
non-consenting party shall indemnify the consenting party for any such
excess.
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(d) Any refunds or credits of Taxes (i) of the Company or
any of its Subsidiaries plus any interest received with respect thereto for
any Pre-Closing Period (to the extent not included in the calculation of
Net Working Capital) or (ii) for which Parent or the Seller is otherwise
liable pursuant to Section 4.6(b), shall, in each such case, be for the
account of the Seller and shall be paid by the Buyer or the Company to the
Seller within ten days after such refund is received or after the relevant
Tax Return is filed in which the credit is applied against the Buyer's, the
Company's or the relevant Subsidiary's liability for Taxes for the
Post-Closing Period, net of any Taxes the Buyer, the Company or the
relevant Subsidiary is required to pay on account of the receipt of such
refund or credit, taking into account the deductibility of such payments to
the Seller or Parent. The Seller shall not apply for any refund that will
have an adverse effect on any Post-Closing Period Tax Return or the
post-closing portion of a Straddle Period Tax Return without the consent of
the Buyer, which consent will not be unreasonably withheld or delayed (it
being understood that it would be unreasonable for the Buyer to withhold
consent if Seller or Parent agrees to fully indemnify Buyer for such
adverse effect). Any refunds or credits of Taxes of the Company and its
Subsidiaries for any Straddle Period shall be apportioned between the
Seller and the Buyer in the same manner as the liability for such Taxes is
apportioned pursuant to Section 4.6(a)(vi).
(e) Parent and the Seller, on the one hand, and the
Buyer, on the other hand, shall and shall cause their respective affiliates
to provide the other party with such assistance and documents as may be
reasonably requested by such party in connection with (i) the preparation
of any Tax Returns of the Company or its Subsidiaries, (ii) the conduct of
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any Tax Audit relating to liability for or refunds or adjustments with
respect to Taxes, and (iii) any other matter related to Taxes that is a
subject of this Agreement. Such cooperation shall be provided to the
requesting party promptly upon its request. Such cooperation and assistance
shall include, without limitation, providing all information, records and
other documents relating to Taxes with respect to the Pre-Closing Periods
and Straddle Periods, preserving all such information until after the
expiration of any applicable statute of limitations (including extensions),
executing and delivering powers of attorney and making employees available
to provide additional information or explanation of any material provided
hereunder or to testify at proceedings relating to any Tax Audit.
(f) Any Tax sharing Contract between the Company or any
of its Subsidiaries and any other Person shall be terminated as to the
Company or such Subsidiary on, and effective as of, the Closing Date, and
no Person shall have any rights or obligations with respect to the Company
or such Subsidiary under such Tax sharing Contract after such termination,
and no such rights or obligations shall be included in computing Net
Working Capital.
(g) At the Parent's or the Seller's request, the Buyer
will, and will cause the Company and any of the Buyer's other Subsidiaries
to, timely make and/or join with Parent in making an election under
Treasury Regulations Section 1.1502-20(g) after the Closing to reattribute
the operating loss carryovers and net capital loss carryovers of the
Company and its Subsidiaries to the Parent. The Buyer will, and will cause
the Company and its Subsidiaries to, take all actions required of the
Buyer, the Company and any of its Subsidiaries by Treasury Regulations
Section 1.1502-20(g) so that such election may be properly made and
preserved.
(h) Notwithstanding anything to the contrary in this
Agreement, (i) the representations and warranties contained in Section
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2.21 and the covenants of the parties contained in this Section 4.6 shall
survive the Closing until the date 90 days after the expiration of the
applicable statute of limitations (including extensions) and (ii) the
provisions of this Section 4.6 shall be the sole and exclusive remedy for any
dispute between the parties with respect to Taxes and Damages that may be
suffered or incurred by them in respect of, or relating to, directly or
indirectly thereto. The provisions of Article VII, other than Section 7.7,
shall not apply to matters relating to Taxes.
(i) For purposes of this Agreement:
"Pre-Closing Period" means any taxable period ending on
or prior to the Closing Date.
"Post-Closing Period" means any taxable period beginning
on the day following the Closing Date.
"Straddle Period" means any taxable period that begins
before and ends after the Closing Date.
"Tax Affiliate" means any entity that is a member of an
affiliated group of corporations (within the meaning of Section 1504(a) of
the Code) filing a consolidated U.S. federal income Tax Return, and a group
of corporations filing a consolidated or combined Tax Return for state,
local or foreign Tax purposes (each, a "Consolidated Group"), if the
Company or any of its Subsidiaries could be held liable for the Taxes of
such entity or of such Consolidated Group.
"Tax" or "Taxes" means any and all taxes, charges, fees,
levies or other assessments, including, without limitation, income, gross
receipts, excise, real or personal property, sales, withholding, social
security, retirement, unemployment, occupation, use, service, net worth,
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payroll, franchise, license, gains, customs, transfer and recording taxes,
imposed by any taxing authority, and shall include any interest, penalties
or additions to tax.
4.7. Pre-Closing Insurance. With respect to any insurance
policy outstanding prior to the Closing insuring the Company or any of its
Subsidiaries or any aspect thereof, under the terms of which policy an
affiliate of the Company, rather than the Company, is required to file
claims, the Seller shall cause such affiliate to file promptly and
prosecute diligently such claims. To the extent, if any, that any of the
Seller or any of its affiliates receive payment in respect of any such
claim, the Seller shall pay over (or cause such affiliate to pay over) such
amounts to the Company at or after the Closing. The Seller shall procure at
the Buyer's expense (i) directors and officer insurance covering directors
and officers of the Company and its Subsidiaries for pre-Closing matters
and (ii) professional liability coverage and employment practices liability
coverage for pre-Closing matters.
4.8. Acquisition Proposals. Notwithstanding anything to
the contrary contained herein, the Buyer acknowledges that, from and after
the date hereof, the Seller will furnish information and access to
(including, without limitation, providing all necessary information in
connection with any filings under the HSR Act), participate in discussions
and negotiate with, and enter into agreements with, third parties
concerning any merger, sale of assets, sale of shares of capital stock or
other alternative transaction involving the Company or any Subsidiary or
division of the Company (an "Alternative Transaction"), provided, that the
Company may only furnish information to, and negotiate or otherwise engage
in discussions with, any Person who enters into a confidentiality and
non-disclosure agreement with the Seller or the Company no less favorable
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to the Seller or the Company than the confidentiality provisions contained
in Section 4.2(b). The Buyer covenants not to commence and expressly waives
any claim at law or equity, including any claim for tortious interference,
against the Seller or any other Person related to the activities
contemplated by this Section 4.8, except a claim against the Seller for
breach by the Seller of its obligations under this Section 4.8.
4.9. Related Agreements. At the Closing, the parties
hereto shall, and shall cause each of their affiliates to, execute and
deliver the Publishing, Branding and Operating Agreement substantially in
the form of Exhibit B (the "Operating Agreement"), the Telecom Agreement
substantially in the form of Exhibit C attached hereto (the "Telecom
Agreement") and the Transition Services Agreement attached hereto
substantially in the form of Exhibit D attached hereto (the "Transition
Services Agreement").
4.10. Right of First Offer.
(a) Except as provided in this Section 4.10, the Buyer
shall not enter into any written definitive acquisition agreement relating
to, or consummate any Sale Transaction (as defined below) within 24 months
of the Closing Date. If at any time during such period, the Buyer desires
to engage in a Sale Transaction (including by reason of the Buyer's receipt
of an unsolicited bona fide offer to engage in a Sale Transaction from an
unrelated third-party) the Buyer shall first offer to the Seller, by way of
written notice (the "Offer Notice"), the opportunity to engage in a Sale
Transaction.
(b) The Seller shall have 20 days after the Seller
receives the Offer Notice (the "Offer Period") to deliver a written notice
to the Buyer, (the "Formal Offer") offering to engage in a Sale
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Transaction. If Seller delivers an Offer Notice and the Buyer desires to
accept the Formal Offer, the Buyer and the Seller shall negotiate in good
faith to enter into an agreement containing the terms and conditions
specified in the Formal Offer and such other terms and conditions as the
Buyer and the Seller shall mutually agree; provided, however, that such
agreement shall (i) contain representations and warranties that are no more
extensive than those set forth herein, that cover only the period of
ownership of the Company by the Buyer, and that are subject to survival and
indemnification provisions no more extensive than those contained herein
and (ii) contain other covenants, agreements, and conditions (but only
those) substantially similar to those contained herein (other than Sections
4.8, 4.9, 4.10, 4.11 and 6.1(d)).
(c) If the Parent does not deliver to the Buyer a Formal
Offer prior to the expiration of the Offer Period or if the Buyer and
Seller fail to enter into a definitive agreement within 10 days after
Buyer's acceptance of a Formal Offer (the "Offer Negotiation Period"), then
the Buyer shall have the right for 180 days following the expiration of the
Offer Period or the expiration of the Offer Negotiation Period, as
applicable, to execute one or more definitive agreements relating to the
consummation of a Sale Transaction at any price and upon any terms and
conditions. If the Buyer has not executed such a definitive agreement
within such 180-day period, the Buyer shall be required to reoffer any
subsequent Sale Transaction to the Seller pursuant to the terms of this
Section.
(d) If the Parent delivers to the Buyer a Formal Offer
prior to the expiration of the Offer Period, and the Buyer desires to
reject the Formal Offer, it shall so notify the Parent in writing. The
Buyer shall have the right for 180 days following the receipt of the Formal
Offer to execute one or more definitive agreements relating to the
consummation of a Sale Transaction at a price greater than that specified
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in the Formal Offer and on other terms and conditions no less favorable to
the Buyer than those specified in the Formal Offer, except as to the scope
of the provisions relating to the representations and warranties of the
Buyer. If the Buyer has not executed such a definitive agreement within
such 180-day period, the Buyer shall be required to reoffer any subsequent
Sale Transaction to the Seller pursuant to the terms of this Section.
(e) If the Buyer and the Seller enter into a definitive
agreement in connection with a Formal Offer, and the Seller fails to timely
consummate the Sale Transaction for any reason other than the breach by the
Buyer of the definitive agreement, then, in addition to all other remedies
which the Buyer may have by reason of such non-consummation, this Section
4.10 shall be of no further force and effect.
(f) The Buyer shall not disclose to any Person that the
Seller has made a Formal Offer or any of the terms thereof except as
required by law.
(g) Notwithstanding anything to the contrary contained
herein, Sections 4.10 and 4.11 shall not apply to any underwritten public
offering of equity securities or equity linked securities by the Company or
any of its Subsidiaries and shall terminate upon the closing of the first
such public offering.
(h) To facilitate the exercise of the Seller's rights
under this Section 4.10, the Buyer will cause each of the Company and its
Subsidiaries to (i) give the Seller and its authorized representatives
reasonable access to their books, records, personnel, offices and other
facilities and properties and their accountants and their accountants' work
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papers, (ii) permit the Seller to make such copies and inspections thereof
as the Seller may reasonably request and (iii) cause the Company's officers
to furnish the Seller with such financial and operating data and other
information with respect to the business and properties of each of the
Company and its Subsidiaries as the Seller may from time to time reasonably
request, including, without limitation quarterly financial statements;
provided, however, that any such access shall be conducted at a reasonable
time and in such a manner as not to interfere unreasonably with the
operation of the business of the Company or any or its Subsidiaries. Any
such information furnished shall be subject to the same provisions as those
set forth in Section 4.2(b).
(i) Notwithstanding anything to the contrary contained
herein, Sections 4.10 and 4.11 shall not apply to any Sale Transaction with
an affiliate of the Buyer which agrees to be bound by the provision of
Sections 4.10 and 4.11 in the place of the Buyer.
4.11. Subsequent Sale. The Buyer covenants and agrees
that if (x) the Buyer or its affiliates consummates or enters into a
written definitive acquisition agreement for any Sale Transaction at any
time within 12 months after the Closing Date and (y) the Sale Consideration
exceeds the FL Investment Amount, concurrently with the consummation of
such Sale Transaction, the Buyer shall pay to the Seller by wire transfer
of immediately available funds an amount equal to 50% of such excess. For
purposes of this Agreement, "Sale Transaction" shall mean any sale (whether
in one or a series of transactions) of all or substantially all or the
assets of the Company and its Subsidiaries, taken as a whole, or 50% or
more of the capital stock of the Company, as well as any recapitalization,
restructuring or liquidation of the Company and its Subsidiaries by the
Buyer, a third party or any combination thereof, or any other form of
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transaction or disposition or series of transactions or dispositions which,
directly or indirectly, results in the effective transfer of the business
and operations of the Company and its Subsidiaries by the Buyer and its
affiliates. For purposes of this Agreement, the term "Sale Consideration"
shall mean the total fair market value (on the date or dates of payment) of
all consideration (including cash, securities or other property) paid or
payable, or otherwise to be distributed, directly or indirectly, to the
Buyer, its stockholders or affiliates in connection with the Sale
Transaction, as applicable, net of any fees and expenses paid to third
parties relating to the Sale Transaction; provided, however, that
contingent payments and amounts paid into escrow shall not be included in
the amount of Sale Consideration until such amounts are paid and provided,
further, Buyer shall be entitled to hold back an amount it deems reasonably
necessary for any post-closing purchase price adjustment or indemnification
payments until such amounts are finally determined, at which point any
amounts remaining shall be included in Sale Consideration and paid to
Seller in accordance with this Section 4.11. For purposes of this
Agreement, the term "FL Investment Amount" shall mean the total amount
drawn by affiliates of the Buyer and invested in the Buyer to fund the
acquisition of the Company and its Subsidiaries and the payment of fees and
expenses to third parties relating thereto and funding for the working
capital of the Company and its Subsidiaries.
4.12. Headquarters. The Buyer has no present intention to
change the location of the Company's headquarters and principal office and
agrees for a period of at least two years after the Closing Date, that the
Company's headquarters and principal office shall remain at its current
location in Cedar Rapids, Iowa.
4.13. Intercompany Indebtedness; Net Working Capital. (a)
Immediately prior to the Closing, Seller shall cause to be contributed
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to the Company as a capital contribution in respect of capital stock, all
indebtedness owed by the Company or its Subsidiaries to Seller or any
affiliate of Seller (other than the Company and its Subsidiaries). (b) Except
as set forth in Section 4.13 of the Disclosure Schedule, the Seller shall
cause the Net Working Capital of the Company and its Subsidiaries as of the
Closing Date to be an amount not less than the amount set forth in Section
4.13 of the Disclosure Schedule.
"Net Working Capital" shall mean the amount obtained by
subtracting the Current Liabilities from the Current Assets, in each case
as of the close of business on the day immediately preceding the Closing.
"Current Assets" shall mean the sum of (w) cash and cash
equivalents (but not including any proceeds from the sale of the property
located at 1200 Network Centre Drive, Effingham, IL 62401), (x) accounts
receivable, billed and unbilled, of the Company and its Subsidiaries, net
of allowance for bad debts and other adjustments, (y) other receivables,
and (z) prepaid expenses, in each case determined in accordance with GAAP
on a consistent basis with the December Balance Sheets and using consistent
classifications; but excluding (i) any intercompany accounts, (ii) the
asset captioned "deferred expenses" in the December Balance Sheets and
(iii) any income tax asset.
"Current Liabilities" shall mean the sum of (w) accounts
payable of the Company and its Subsidiaries (including any outstanding
checks), (x) accrued expenses, (y) an amount for Earn-Out Obligations (as
defined below) equal to the aggregate amount of the Earn-Out Obligations
reflected on the September 30 Balance Sheet, and (z) deposits, determined,
except in the case of the Earn-Out Obligations, in accordance with GAAP on
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a consistent basis with the December Balance Sheets and using consistent
classifications, but excluding (i) any intercompany accounts, (ii) any
income tax liability or (iii) the current maturities of other long term
debt.
"Earn-Out Obligations" mean any reserves, liabilities or
similar items recorded in connection with purchase accounting under APB
Opinion No. 16, including, without limitation, contingent payment amounts.
In determining the amount of accounts receivable, billed
and unbilled, accounts receivable recorded in the month which includes the
Closing Date (the "Closing Date Month") shall be equal to the amount
determined by multiplying the revenue from such sales recorded in the
Closing Date Month which give rise to accounts receivable by a fraction the
numerator of which is the number of calendar days from the beginning of the
Closing Date Month until the Closing Date and the denominator of which is
the number of calendar days in the Closing Date Month; appropriate
adjustment shall be made for the collection prior to the Closing Date of
accounts receivable that originated in the Closing Date Month and for the
related allowance for bad debts and adjustments. Net Working Capital shall
be determined as if the day preceding the Closing Date were a normal year
end. For purposes of determining Net Working Capital, the amount of Taxes
accrued or reserved for shall be equal to (i) the amount accrued as a
current liability on the September 30 Balance Sheet for Taxes (other than
income Taxes) payable in respect of periods ended on or prior to September
30, 2001, less any amount paid in respect of such Taxes after September 30,
2001 and prior to the Closing Date, plus (ii) the amount that would be
accrued as a current liability on a balance sheet prepared as of the day
immediately prior to the Closing Date in accordance with GAAP consistent
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with past practices to reflect Taxes (other than income Taxes) payable in
respect of ordinary course of business operations conducted during the
period commencing October 1, 2001 and ending on the day immediately prior
to the Closing. For avoidance of doubt, under no circumstances shall the
amount described in clause (ii) above include any accrual for Taxes that
are attributable to any period prior to October 1, 2001.
The parties agree that the sole and exclusive remedy for
disputes arising under this Section 4.13 shall be to submit such disputes
for resolution to an independent accounting firm to which the parties may
mutually agree, or failing such agreement, to a firm or a partner at a firm
appointed at the request of any party by the American Arbitration
Association (the "Arbiter"). All proceedings conducted by the Arbiter shall
take place in New York, New York. The Arbiter shall act as an arbitrator to
determine, based solely on the presentations by the Seller and the Buyer,
and not by independent review, whether the Net Working Capital as of the
Closing Date was calculated in the manner provided in this Section 4.13.
The fees, costs and expenses of the Arbiter shall be borne equally by the
Seller and the Buyer. The determination of the Arbiter shall be final and
binding upon the parties.
4.14. Bankruptcy Matters. The Buyer hereby agrees that if
proceedings are commenced under the Bankruptcy Code by or against Parent
and/or its Subsidiaries (including the Company and its Subsidiaries) and
the Closing of the transactions contemplated hereby is subject to approval
under Section 363 of the Bankruptcy Code, neither the requirement for such
approval process nor the actions required to be take by such process
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shall not constitute a breach of this Agreement and Buyer shall not be
released from its obligations hereunder as a result thereof.
4.15. Leases and Other Obligations. From and after the
date hereof, Buyer shall cooperate with Seller and use all reasonable
efforts to cause the leasing arrangements and other obligations set forth
on Section 4.15 of the Disclosure Schedule to be assigned or otherwise
transferred to the Company and to cause Seller and any of its affiliates
(other than the Company and its Subsidiaries) to be released from any and
all obligations thereunder prior to the Closing Date. In the event such
transfer and release do not occur prior to the Closing, Buyer shall
indemnify Seller and its affiliates and hold Seller and its affiliates
harmless from and against any and all Damages that Seller or any of its
affiliates may incur with respect to such leasing arrangements and other
obligations from and after the Closing, provided, however, that such
damages shall not include any damages to the extent they relate to, arise
out of or are the result of any breach by Seller or any of its affiliates
of, or any other wrongful act or failure to act by, any of them with
respect to any of the foregoing leasing arrangements and other obligations.
Seller shall use reasonable efforts to assign or cause to be assigned to
the Company the rights or assets listed on Schedule 4.15(b); provided,
however, neither Seller nor any of its affiliates shall be required to pay
any amount to the third parties or grant any accommodation financial or
otherwise in connection with such assignment.
4.16. Real Property. The Seller and the Buyer agree to
enter into a real estate transfer agreement providing for the transfer of
the fee interest in the buildings and real estate (including parking
spaces) specified in Section 4.16 of the Disclosure Schedule. Such
agreement will provide for appropriate easements and right-of-ways in favor
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of the Seller and the Buyer, as the case may be, to allow for the continued
use of such buildings and real estate in a manner consistent with current
practice. In addition, the parties will enter into a maintenance and care
agreement providing for the equitable allocation of grounds keeping, snow
removal and other costs.
The Seller and the Buyer shall share equally the costs of
(a) real estate transfer Taxes required by the State of Iowa or the County
of Linn, (b) document recording fees, (c) formal subdivision (excluding any
survey) of such buildings and real estate, if and to the extent required by
applicable law, and (d) if title insurance is requested by the Buyer, an
ALTA standard form of owner's title insurance. If the Buyer desires (a)
extended title coverage (insuring over the five standard exceptions to
title), (b) title endorsements, or (c) a survey, the Buyer shall promptly
obtain the same at its sole cost and expense.
ARTICLE V
CONDITIONS TO CONSUMMATION OF THE STOCK PURCHASE
5.1. Conditions to Each Party's Obligations to Consummate
the Stock Purchase. The respective obligations of each party to consummate
the Stock Purchase is subject to the satisfaction 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 Stock Purchase;
(b) all consents, approvals, orders and Permits of, and
registrations, declarations and filings with, any governmental authority
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that shall be legally required in order to enable the Seller and the Buyer
to consummate the transactions contemplated hereby shall have been made or
obtained, and any waiting period applicable to the Stock Purchase under the
HSR Act shall have terminated or expired; and
(c) 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.
5.2. Further Conditions to the Seller's Obligations. The
obligations of the Seller to consummate the Stock Purchase are further
subject to satisfaction or waiver of the following conditions:
(a) the representations and warranties of the Buyer
contained herein shall be true and correct as of the Closing Date as if
made at and as of such date (other than those representations and
warranties that address matters only as of a particular date or only with
respect to a specific period of time which need only be true and accurate
as of such date or with respect to such period), except where the failure
of such representations and warranties to be so true and accurate (without
giving effect to any limitation as to "materiality" or "Buyer Material
Adverse Effect" set forth therein) would not, individually or in the
aggregate, have a Buyer Material Adverse Effect;
(b) the Buyer shall have performed and complied in all
material respects with all agreements, obligations, covenants and
conditions required by this Agreement to be performed or complied with by
it on or prior to the Closing;
(c) the Seller shall have received a certificate of an
authorized officer of the Buyer to the effect that the conditions in
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paragraphs (a) and (b) of this Section 5.2 have been satisfied; and
(d) all corporate actions, proceedings, instruments and
documents of the Buyer required to carry out the transactions contemplated
by this Agreement or incidental thereto and all other related legal matters
shall be reasonably satisfactory to counsel for the Seller, and such
counsel shall have been furnished with such certified copies of such
corporate actions and proceedings and such other instruments, documents and
opinions as it shall have reasonably requested.
5.3. Further Conditions to the Buyer's Obligations. The
obligation of the Buyer to consummate the Stock Purchase are further
subject to the satisfaction or waiver of the following conditions:
(a) the representations and warranties of the Seller
contained herein shall be true and correct as of the Closing Date as if
made at and as of such date (other than those representations and
warranties that address matters only as of a particular date or only with
respect to a specific period of time which need only be true and accurate
as of such date or with respect to such period), except where the failure
of such representations and warranties to be so true and accurate (without
giving effect to any limitation as to "materiality" or "Company Material
Adverse Effect" set forth therein) would not, individually or in the
aggregate, have a Company Material Adverse Effect;
(b) the Seller shall have performed and complied in all
material respects with all agreements, obligations, covenants and
conditions required by this Agreement to be performed or complied with by
it on or prior to the Closing;
(c) the Buyer shall have received a certificate of an
authorized officer of the Seller to the effect that the conditions in
paragraphs (a) and (b) of this Section 5.3 have been satisfied; and
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(d) all actions, proceedings, instruments and documents
of the Seller required to carry out the transactions contemplated by this
Agreement or incidental thereto and all other related legal matters shall
be reasonably satisfactory to counsel for the Buyer, and such counsel shall
have been furnished with such certified copies of such actions and
proceedings and such other instruments, documents and opinions as it shall
have reasonably requested.
ARTICLE VI
TERMINATION AND ABANDONMENT
6.1. Termination. This Agreement may be terminated at any
time prior to the Closing Date:
(a) by mutual written consent of the Seller and the
Buyer;
(b) by the Seller or the Buyer 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;
(c) by the Seller or by the Buyer, 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;
(d) by the Seller at any time if the Seller enters into a
definitive agreement for, or otherwise consummates, a Superior Combination;
provided, that on the date of termination, the Seller shall deliver to
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the Buyer a written notice of termination of this Agreement pursuant to this
Section 6.1(d).
For purposes of this Section 6.1, a "Superior Combination" is
an Alternative Transaction that provides for a purchase price higher than
the Purchase Price on terms substantially similar to the terms of this
Agreement (other than Sections 4.8, 4.11 and 6.1(d)) with such other terms
and conditions as the Seller determines in good faith would not materially
impair or delay Parent's ability to consummate a capital restructuring
approved by the Board of Directors of Parent; provided, that in order to
constitute a Superior Combination, such Alternative Transaction must
contain a condition to the Seller's obligation to complete such a
transaction (which condition may not be waived by the Seller) that such a
restructuring be accomplished on terms that do not materially deviate from
the terms set forth on Exhibit A.
6.2. Effect of Termination. In the event of termination
of this Agreement and abandonment of the transactions contemplated hereby
by the parties hereto pursuant to Section 6.1 hereof, this Agreement shall
forthwith become null and void and of no further effect, without any
liability on the part of any party or its directors, officers, partners,
affiliates, employees, agents or securityholders, other than the provisions
of Section 4.2(b). Nothing in this Section 6.2 shall relieve any party from
any liability for any willful breach of this Agreement.
ARTICLE VII
SURVIVAL AND INDEMNIFICATION
7.1. Survival Periods. All representations and warranties
of the parties contained in this Agreement shall survive the Closing until
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the date which is 18 months after the Closing Date, except for the
representations and warranties in Sections 2.2, 2.3, 2.19 and 3.2, which
shall survive the Closing without limitation as to time and the
representations and warranties in Section 2.11, which shall survive until 90
days after the expiration of the applicable statute of limitations. The
covenants and agreements of the parties hereto shall survive the Closing in
accordance with their terms without limitation as to time. From and after the
Closing, the Seller shall indemnify and hold harmless the Buyer, the Company
and its Subsidiaries and the Buyer shall indemnify and hold harmless the
Seller, against certain liabilities, in accordance with the terms of this
Article VII. No party providing indemnification pursuant to this Article VII
(an "Indemnifying Party") shall be obligated to provide such indemnification
with respect to representations and warranties to the party seeking
indemnification (the "Indemnified Party") unless the Indemnifying Party shall
have received written notice thereof within the applicable time period for
survival of such representation or warranty, as set forth above.
7.2. Indemnification. Subject to the other provisions of
this Article VII, from and after the Closing, the Indemnifying Party shall
indemnify and hold harmless the Indemnified Party from and against any
costs or expenses (including without limitation reasonable attorneys' fees,
and the reasonable out-of- pocket expenses of testifying and preparing for
testimony and responding to document and other information requests,
whether or not a party to such litigation), judgments, fines, losses,
claims (whether or not meritorious) and damages (collectively, "Damages"),
as incurred, to the extent they relate to, arise out of or are the result
of (i) any breach of any representation or warranty or (ii) failure to
perform any covenant or agreement made by the Indemnifying Party under
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this Agreement; provided, however, that any effects on or changes in the
Company or its Subsidiaries resulting from or relating to (A) the execution
of this Agreement and the announcement of this Agreement and the transactions
contemplated hereby or (B) the announcement of, and subsequent disclosures
related to, the Restructuring or the commencement or pendency of proceedings
under Bankruptcy Code by or against Parent and/or its Subsidiaries (including
the Company and its Subsidiaries) shall be excluded from the determination of
the amount of any Damages hereunder. In addition, the Buyer agrees to use all
commercially reasonable efforts to settle or otherwise resolve the items set
forth on Section 2.9 of the Disclosure Schedule, in the ordinary course of
business consistent with the Company's and its Subsidiaries past practice
(including by providing advertising at no-cost). Subject to the preceding
sentence, Seller shall indemnify and hold harmless the Buyer, the Company and
its Subsidiaries against any and all out-of-pocket, cash Damages paid to
third parties, as incurred, to the extent they relate to, arise out of or are
the result of the items set forth on Section 2.9 of the Disclosure Schedules
net of any insurance proceeds ("Litigation Damages") to the extent such
Litigation Damages exceed, in the aggregate, $1,000,000 (the "Litigation
Deductible"), but only to the extent of such excess. To the extent the Buyer,
the Company or any of its Subsidiaries incur any Litigation Damages for which
they are not entitled to indemnification by reason of the Litigation
Deductible, the Deductible (as herein defined) shall be reduced on a dollar
for dollar basis. Notwithstanding the 30-day time limit to assume third party
claims in Section 7.4, Seller shall have the right to assume control of
(consistent with Section 7.4) the litigation set forth in Section 2.9 of the
Disclosure Schedule at any time. Buyers will keep Seller informed, on a
monthly basis or as otherwise reasonably requested, on the status of such
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litigation.
7.3. Indemnification Amounts. (a) Notwithstanding any
provision to the contrary contained in this Agreement, the Indemnifying
Party shall not be obligated to indemnify the Indemnified Party for any
Damages with respect to breaches of representations and warranties (i)
unless and until the amount of Damages arising from or relating to any
single circumstance or related circumstances exceeds $25,000 ("Covered
Damages"), (ii) unless and until the amount of all such Covered Damages
shall in the aggregate equal 2% of Purchase Price (the "Deductible"), and
then only to the extent of such amount in excess of the Deductible, and
(iii) to the extent that the amount of all such payments by the
Indemnifying Party would exceed 25% of Purchase Price; provided, that this
Section 7.3 shall not apply to any indemnification by the Seller for
Damages relating to, arising out of or resulting from any breach of the
representations and warranties contained in Sections 2.2, 2.3, 2.15, 2.19
and 3.2, which indemnification shall not be limited in any respect or by or
to any amount.
(b) The Company Material Adverse Effect, Buyer Material
Adverse Effect and materiality (or correlative meaning) qualifications
included in the representations and warranties set forth in Article II or
Article III shall have no effect on any provision in Section 7.2 concerning
the indemnification of the Indemnified Parties with respect to such
representations and warranties, each of which is given as though there were
no Company Material Adverse Effect, Buyer Material Adverse Effect or
materiality qualifications for purposes of such indemnification.
7.4. Claims. (a) If an Indemnified Party intends to seek
indemnification pursuant to this Article VII, such Indemnified Party shall
promptly notify the Indemnifying Party, in writing, of such claim
describing such claim in reasonable detail, provided, that the failure
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to provide such notice shall not affect the obligations of the Indemnifying
Party unless and only to the extent it is actually prejudiced thereby,
subject, however, to the time periods specified in Section 7.1 hereof. In the
event that such claim involves a claim by a third party against the
Indemnified Party, the Indemnifying Party shall have 30 days after receipt of
such notice to decide whether it will undertake, conduct and control, through
counsel of its own choosing and at its own expense, the settlement or defense
thereof, and if it so decides, the Indemnified Party shall cooperate with it
in connection therewith, provided, that the Indemnified Party may participate
in such settlement or defense through counsel chosen by it, and provided,
further, that the fees and expenses of such counsel shall be borne by the
Indemnified Party. The Indemnifying Party shall not, without the written
consent of the Indemnified Party (which consent shall not be unreasonably
withheld), settle or compromise any action. If the Indemnifying Party does
not notify the Indemnified Party within 30 days after the receipt of the
Indemnified Party's notice of a claim of indemnity hereunder that it elects
to undertake the defense thereof, the Indemnified Party shall have the right
to contest, settle or compromise the claim but shall not thereby waive any
right to indemnity therefor pursuant to this Agreement. As long as the
Indemnifying Party is contesting any such claim in good faith, the
Indemnified Party shall not pay or settle any such claim without the consent
of the Indemnifying Party (which consent shall not be unreasonably withheld).
(b) The Indemnifying Party and the Indemnified Party
shall cooperate fully in all aspects of any investigation, defense,
pre-trial activities, trial, compromise, settlement or discharge of any
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claim in respect of which indemnity is sought pursuant to this Article VII,
including, but not limited to, by providing the other party with reasonable
access to employees and officers (including as witnesses) and other
information.
7.5. Exclusive Remedy. Absent fraud, the indemnification
provisions of this Article VII shall be the exclusive remedy following the
Closing for any breaches or alleged breaches of any representation or
warranty contained in this Agreement. Each of the parties hereto agrees not
to bring any actions or proceedings, at law, equity or otherwise, against
any other party or its direct or indirect partners or securityholders in
respect of any breaches or alleged breaches of any representation or
warranty except pursuant to the express provisions of this Article VII. The
parties hereby agree that no party has made any representations or
warranties, express or implied, with respect to this Agreement or the
matters contemplated hereby, except as explicitly set forth in this
Agreement.
7.6. Insurance. The Indemnifying Party shall be
subrogated to the rights of the Indemnified Party in respect of any
insurance relating to Damages to the extent of any indemnification payments
made (provided that the Indemnifying Party shall not be entitled to
subrogation to the extent the deductible under Section 7.3(a)(i) hereof or
the cap under Section 7.3(a)(ii) hereof was applied to the indemnification
claim).
7.7. Duplication. Any liability for indemnification
hereunder shall be determined without duplication of recovery by reason of
the state of facts giving rise to such liability constituting a breach of
more than one representation, warranty, covenant or agreement; provided,
however, that subject to there being no duplication of recovery, the
Indemnified Party shall be entitled to recover to the maximum extent
provided in this Agreement (e.g., if any Indemnified Party's entitlement to
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indemnification is both by reason of a breach of a representation and
warranty to which the limitations of Section 7.3(a) apply and by reason of
a breach of a representation and warranty to which such limitations do not
apply, the Indemnified Party shall be entitled to indemnification without
such limitations being applied).
ARTICLE VIII
MISCELLANEOUS PROVISIONS
8.1. Amendment and Modification. This Agreement may be
amended or modified at any time by the parties hereto, pursuant to an
instrument in writing signed by all parties.
8.2. Extension; Waiver. At any time prior to the Closing
Date, the party entitled to the benefit of any respective term or provision
hereof may (a) extend the time for the performance of any of the
obligations or other acts of the other party hereto, (b) waive any
inaccuracies in the representations and warranties contained herein or in
any document, certificate or writing delivered pursuant hereto or (c) waive
compliance with any obligation, covenant, agreement or condition contained
herein. Any agreement on the part of a party to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed
by the party entitled to the benefits of such extended or waived term or
provision. The representations, warranties and agreements of any of the
parties provided for in this Agreement, and the parties' obligations
hereunder, shall continue in effect notwithstanding any investigation made
by the other party hereto.
8.3. Entire Agreement; Assignment. This Agreement (a)
constitutes the entire agreement between the parties hereto with respect to
the subject matter hereof and supersedes all other prior agreements and
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understandings, both written and oral, between the parties hereto with
respect to the subject matter hereof (other than the Ancillary Agreements
and (b) shall not be assigned, by operation of law or otherwise by a party
hereto, without the prior written consent of the other parties, except that
the Buyer may assign its rights under this Agreement to one or more of its
affiliates, but such assignment shall not relieve the Buyer of its
obligations hereunder.
8.4. Validity. The invalidity or unenforceability of any
term or provision of this Agreement in any situation or jurisdiction shall
not affect the validity or enforceability of the other terms or provisions
hereof or the validity or enforceability of the offending term or provision
in any other situation or in any other jurisdiction.
8.5. Notices. Unless otherwise provided herein, all
notices and other communications hereunder shall be in writing and shall be
deemed given upon receipt by the other parties at the following addresses
or telecopy numbers:
(a) if to the Seller and/or Parent, to
McLeodUSA Incorporated
McLeodUSA Technology Park
6400 C Street SW
PO Box 3177
Cedar Rapids, Iowa 52406-3177
Telecopy: (319) 790-7901
Attention: Randall Rings, Esq.
Group Vice President and Chief Legal Officer
with a copy to
Skadden, Arps, Slate, Meagher & Flom (Illinois)
333 West Wacker Drive
Chicago, Illinois 60606
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Telecopy: (312) 407-0411
Attention: Peter C. Krupp, Esq.
(b) if to the Buyer, 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, New York 10004
Telecopy: (212) 859-4000
Attention: Aviva Diamant, Esq.
8.6. Governing Law and 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 8.5 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
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that any such litigation brought in any such court has been brought in an
inconvenient forum. Notwithstanding the foregoing, in the event that Parent
and/or any of its Subsidiaries commence proceedings under the Bankruptcy
Code, the Buyer and the Seller 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).
8.7. Descriptive Headings. The descriptive headings
herein are inserted for convenience of reference only and shall in no way
be construed to define, limit, describe, explain, modify, amplify, or add
to the interpretation, construction or meaning of any provision of, or
scope or intent of, this Agreement nor in any way affect this Agreement.
8.8. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
8.9. Expenses. Whether or not this Agreement and the
transactions contemplated hereby are consummated, and except as otherwise
expressly set forth herein, all costs and expenses (including legal fees
and expenses) incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expenses. Any transfer, sales, use or any similar taxes payable in
connection with the Stock Purchase shall be borne 50% by the Seller and 50%
by the Buyer. Any Tax Returns relating to such taxes shall be prepared and
filed when due by the party primarily or customarily responsible under
applicable local law for the filing of such Tax Returns. To the extent that
such Tax Returns require an allocation of the purchase price hereunder
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the parties shall use their best efforts to agree on such allocation. The
filing party shall provide drafts of such Tax Returns to the other party for
their review and comment at least two days prior to the due date of the
return.
8.10. Parties in Interest. This Agreement shall be
binding upon and inure solely to the benefit of each party hereto and its
affiliates and nothing in this Agreement, express or implied, is intended
by or shall confer upon any other Person any rights, benefits or remedies
of any nature whatsoever under or by reason of this Agreement.
8.11. No Waivers. Except as otherwise expressly provided
herein, no failure to exercise, delay in exercising, or single or partial
exercise of any right, power or remedy by any party, and no course of
dealing between the parties, shall constitute a waiver of any such right,
power or remedy. No waiver by a party of any default, misrepresentation, or
breach of warranty or covenant hereunder, whether intentional or not, shall
be deemed to extend to any prior or subsequent default, misrepresentation,
or breach of warranty or covenant hereunder or affect in any way any rights
arising by virtue of any prior or subsequent such occurrence. No waiver
shall be valid unless in writing and signed by the party against whom such
waiver is sought to be enforced.
8.12. Specific Performance. The parties hereto agree that
if any of the provisions of this Agreement were not performed in accordance
with their specific terms or were otherwise breached, irreparable damage
would occur, no adequate remedy at law would exist and damages would be
difficult to determine, and that the parties shall be entitled to specific
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performance of the terms hereof and immediate injunctive relief, in
addition to any other remedy at law or equity.
8.13. Construction. All references herein to the
knowledge of the Seller shall mean the actual knowledge of the executive
officers and General Counsel of Parent, the elected officers of Seller, the
Company and each of its Subsidiaries, and the Corporate Counsel and
Controller of the Company.
8.14. Guarantees. Parent unconditionally guarantees the
performance of the obligations of the Seller under this Agreement.
IN WITNESS WHEREOF, each of the undersigned has caused
this Agreement to be duly signed as of the date first above written.
McLEODUSA HOLDINGS, INC.
By: /s/ Chris A. Davis
--------------------------------------------
Name: Chris A. Davis
Title: Chief Operating and Financial Officer
PUBCO ACQUISITION CORP.
By: /s/ Thomas H. Lister
--------------------------------------------
Name: Thomas H. Lister
Title: Vice President
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Solely for purposes of being bound by
the terms of Section 8.14:
McLEODUSA INCORPORATED
By: /s/ Chris A. Davis
--------------------------------------------
Name: Chris A. Davis
Title: Chief Operating and Financial Officer
Exhibit A
PRINCIPAL TERMS OF RESTRUCTURING
--------------------------------
The following is a description of the principal terms for the restructuring
of the Company:
1. The Company will (A) sell its directory publishing business to
either (i) Forstmann Little & Co. or its affiliates for a cash
purchase price of at least $535,000,000 or (ii) such other person
that submits a higher and better all cash offer and (B) use (i)
the first $535,000,000 of the gross cash proceeds of such sale and
(ii) at the Company's option, use the gross cash proceeds in
excess of $560,000,000 to redeem the outstanding Indenture Debt;
2. The FL Standby Purchase Agreement shall not provide for any
break-up fee or any expense reimbursement in favor of the
purchaser;
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3. In the event that the Restructuring is consummated through the
Out-of-Court Alternative, the Indentures governing the Indenture
Debt will be amended to remove all lien, indebtedness and
restrictive subsidiary agreements restrictions;
4. The outstanding shares of Series A Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock and existing common
stock of the Borrower will be converted to common stock (the "New
Common Stock").
5. Forstmann Little & Co. ("Forstmann Little") and its affiliates
will make a $100,000,000 all cash investment in a new series of
preferred stock of the restructured Company, $25,000,000 of such
investment will be used to pay the Borrower's Indenture Debt,
$35,000,000 of such investment will be used to prepay the Term
Borrowings and $40,000,000 of such investment will be retained by
the Borrower and used for general corporate purposes, including
capital expenditures. Such preferred stock shall be mandatorily
convertible into common stock of the Company within 60 days of the
issuance thereof;
6. The Borrower may implement the Restructuring either out-of-court
through an exchange offer for the Indenture Debt and the
Borrower's Series A, D and E Preferred Stock or in-court through a
proceeding under Chapter 11 of the United States Bankruptcy Code,
which in either case shall be consummated on or prior to August 1,
2002;
7. If the Restructuring is accomplished through the In-Court
Alternative, the plan of reorganization for the Restructuring
shall be confirmed on or prior to August 1, 2002 and shall provide
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that the liens and claims of the Lenders under the Credit
Agreement will be unimpaired within the meaning of Section 1124 of
the Bankruptcy Code;
8. The Company will redeem at least 95% of its outstanding Indenture
Debt for (i) cash in the amount of $560,000,000; (ii) common
equity of the restructured Borrower in an amount acceptable to the
Arrangers; and (iii) at the Borrower's discretion, the excess, if
any, of the gross sales proceeds received by the Borrower in the
sale of its directory publishing business over $560,000,000; and
9. Upon consummation of the Restructuring, (i) Forstmann Little and
its affiliates will be entitled to at least two representatives on
the restructured Borrower's Board of Directors; (ii) Forstmann
Little and its affiliates will own common stock and warrants of
the restructured Borrower in an amount representing approximately
40% of the equity ownership of the restructured Borrower; and
(iii) Theodore J. Forstmann will be chairman of the Executive
Committee of the restructured Borrower.
The Company shall be entitled to amend the terms of this Exhibit A without
the consent of Forstmann Little provided that the terms of the amended
Exhibit A do not materially deviate from the terms set forth above.
ANNEX
DEFINITIONS
"Arrangers" means JPMorgan Chase Bank, Bank of America,
N.A. and Citicorp USA, Inc.
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"FL Standby Purchase Agreement" means the standby
purchase agreement entered into among Forstmann Little, certain of its
affiliates and the Borrower on or about the Third Amendment Effective Date
and each other agreement, document, certificate or instrument delivered or
to be delivered in connection therewith, pursuant to which Forstmann Little
or any of such affiliates will, in the event that the Borrower has not
received and accepted a higher and better all cash offer for the sale of
the Publishing Assets on or prior to the Restructuring Date, purchase the
Publishing Assets for cash consideration of $535,000,000 on or prior to the
Restructuring Date.
"FL New Preferred Stock Purchase Agreement" means the
stock purchase agreement entered into among Forstmann Little, certain of
its affiliates and the Borrower on or about the Third Amendment Effective
Date and each other agreement, document, certificate or instrument
delivered or to be delivered in connection therewith, pursuant to which
Forstmann Little and such affiliates will make an investment in a new
series of preferred stock (the "New Preferred Stock") of the restructured
Borrower as described in Exhibit A.
"Forstmann Little" is defined in Exhibit A.
"Indenture Debt" means the outstanding Indebtedness of
the Borrower under the Indentures.
"New Common Stock" is defined in Exhibit A.
<Page>
Exhibit B
PUBLISHING, BRANDING AND OPERATING AGREEMENT
This PUBLISHING, BRANDING AND OPERATING AGREEMENT
("AGREEMENT") is made as of the __ day of __, ____, by and among MCLEODUSA
PUBLISHING COMPANY, an Iowa corporation (the "DIRECTORY PUBLISHER"); MCLEODUSA,
INC., a Delaware corporation ("MCLEOD"); MCLEODUSA TELECOMMUNICATIONS SERVICES,
INC., a Delaware corporation (the "TELEPHONE COMPANY"); and PUBCO ACQUISITION
CORP., a Delaware corporation ("NEWCO").
WHEREAS, the Directory Publisher is in the business of
publishing and distributing telephone directories (including white pages and
yellow pages, and yellow page advertising) (as further defined in Section 1.3,
the "DIRECTORIES");
WHEREAS, McLeod owns the following United States trademark and
service mark registrations (the "REGISTRATIONS") for MCLEOD and design, MCLEOD
USA and design, and MCLEODUSA and design:
<Table>
<Caption>
Mark Reg. No.
------------------------------------- -------------
MCLEOD and Design 2,097,023
MCLEOD USA and Design 2,151,922
MCLEOD USA and Design 2,183,393
MCLEOD USA and Design 2,183,392
MCLEODUSA and Design 2,149,799
MCLEODUSA and Design 2,149,798
</Table>
WHEREAS, prior to the date hereof, the Directory Publisher has
used the Licensed Marks (as defined in Subsection 6.1(a)) in connection with the
publishing and distributing of the Directories;
WHEREAS, on the date hereof Newco is acquiring the Directory
Publisher from McLeodUSA Holdings, Inc., pursuant to that certain Stock Purchase
Agreement dated as of December 3, 2001, by and between McLeodUSA Holdings, Inc.,
and Newco (the "STOCK PURCHASE AGREEMENT");
WHEREAS, the Stock Purchase Agreement provides that the
parties hereto enter into this Agreement in order to provide for the continued
publication and distribution of Directories which are currently published by the
Directory Publisher, including in each of the areas where local telephone
service subscribers are served by the Telephone Company, as well as the
publication and distribution of other Directories, following the closing of the
transactions contemplated by the Stock Purchase Agreement;
WHEREAS, in connection with the closing of the transactions
contemplated by the Stock Purchase Agreement, McLeod wants to grant, and the
Directory Publisher wants to obtain, a license to use the Licensed Marks subject
to the terms and conditions of this Agreement;
<Page>
WHEREAS, in connection with the closing of the transactions
contemplated by the Stock Purchase Agreement, McLeod wants to assign, and the
Directory Publisher wants to obtain, rights McLeod has in and to the Trade Dress
(as defined in Section 7.1) to the Directory Publisher subject to the terms and
conditions set forth in this Agreement; and
WHEREAS, the parties hereto desire to set forth certain
additional understandings among themselves to the operation of the Directory
Publisher following the closing of the transactions contemplated by the Stock
Purchase Agreement;
NOW, THEREFORE, in consideration of the premises and the
mutual representations, warranties, covenants and agreements set forth in this
Agreement and the consummation of the transactions contemplated by the Stock
Purchase Agreement, the parties hereto agree as follows:
ARTICLE I
DIRECTORY PUBLISHING
1.1 TELEPHONE COMPANY AND MCLEOD GENERAL OBLIGATIONS. On
the terms and conditions set forth herein, the Telephone Company agrees to
provide to the Directory Publisher Subscriber List Information (as defined in
Section 3.1) and McLeod grants to the Directory Publisher the right to use the
Licensed Marks in publishing and distributing the Directories.
1.2 DIRECTORY PUBLISHER GENERAL OBLIGATIONS. On the terms
and conditions set forth herein, the Directory Publisher agrees to publish and
distribute the Directories using the Licensed Marks.
1.3 DIRECTORIES AND PUBLICATION SCHEDULE.
(a) EXISTING DIRECTORIES. SCHEDULE 1.3(a), which
will be updated on at least an annual basis, lists the Directories as currently
titled and their scheduled month of publication. The Directory Publisher will
publish one edition of each of the Directories on an annual basis, or if annual
publication is not consistent with the Directory Publisher's past practices with
respect to a particular Directory, then in accordance with such past practices;
PROVIDED that in all cases the Directory Publisher shall publish each Directory
with such frequency as is necessary for the Telephone Company to meet its
regulatory obligations. Subject to compliance with the immediately preceding
sentence, the Directory Publisher may change the titles and months of
publication of the Directories on Schedule 1.3(a) in its sole discretion and
shall give thirty days' prior notice of such changes to the Telephone Company.
(b) OTHER DIRECTORIES. If the Directory
Publisher publishes other telephone directories covering areas within the states
listed on SCHEDULE 1.3(b) during the term, the publication of such directories
shall conform to the provisions of this Agreement and shall be deemed
"Directories" as used in this Agreement. The Directory Publisher shall promptly
notify the Telephone Company if the Directory Publisher intends to publish
additional directories.
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(c) EXCLUSIONS. Notwithstanding the provisions
of Subsections 1.3(a) and 1.3(b), the following categories of telephone
directories shall not be deemed "Directories" for purposes of this Agreement:
(i) Those telephone directories (the
"CCD DIRECTORIES") currently published by Consolidated Communications
Directories, Inc. ("CCD"), which is a subsidiary of the Directory
Publisher; and
(ii) Those telephone directories (the
"EXISTING NEWCO DIRECTORIES"), if any, that were published by Newco or
its subsidiaries prior to the Effective Date.
(d) NO OTHER PUBLICATION. Newco shall cause all
of its subsidiaries not to publish any telephone directory other than the
Directories, except that (i) CCD may continue to publish the CCD Directories,
(ii) Newco (or the relevant Newco subsidiary) may continue to publish the
Existing Newco Directories, and (iii) Newco (or the relevant Newco subsidiary)
may publish telephone directories that cover areas outside the states listed on
Schedule 1.3(b).
1.4 MAINTENANCE AND DISCONTINUANCE OF DIRECTORIES. The
Directory Publisher shall continue to publish and maintain each Directory that
was listed on Schedule 1.3(a) as of the Effective Date until it has published at
least three annual editions. In the event the Directory Publisher decides to
discontinue any such Directory after having published three annual editions, or
in the event the Directory Publisher decides to discontinue any other Directory,
it shall provide the Telephone Company with at least one year's notice prior to
the next regularly scheduled publication date for such Directory after the last
edition of such Directory to be published by the Directory Publisher hereunder
(the "DISCONTINUANCE NOTICE"). Upon receipt of the Discontinuance Notice:
(a) The Directory Publisher grants to the
Telephone Company a perpetual, royalty-free, transferable (but only pursuant to
Section 11.3) and sublicensable right and license to use the Trade Dress in
connection with the business of the publication and distribution of, and the
sale of advertising in, telephone directories in the areas covered by the
Directory being discontinued pursuant to the Discontinuance Notice. This license
is exclusive except that the Directory Publisher may continue to use the Trade
Dress in such areas to fulfill its obligations under Section 4.2 until the first
anniversary of the discontinuance of such Directory;
(b) The license for the Licensed Marks granted
to the Directory Publisher pursuant to Subsection 6.1(a) shall terminate with
respect to the areas covered by the discontinued Directory; PROVIDED that the
Directory Publisher may continue to use the Licensed Marks in such areas to
fulfill its obligations under Section 4.2 until the first anniversary of the
discontinuance of such Directory;
(c) McLeod and its subsidiaries shall be
relieved entirely from compliance with the provisions of Subsection 10.2(b) with
respect to the areas covered by the discontinued Directory;
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(d) Newco and its subsidiaries shall not, for
the remainder of the term of this Agreement, directly or indirectly, through one
or more subsidiaries, engage or have an interest, alone or in association with
others, as a partner or stockholder or through the investment of capital,
lending of money or property, or otherwise, in any business that publishes
directories in the area covered by the discontinued Directory; PROVIDED that the
Directory Publisher's fulfillment of its obligations under Section 4.2 until the
first anniversary of the discontinuance of such Directory is permitted; and
(e) The amount payable by the Telephone Company
pursuant to Section 5.2 in respect of advertising space provided by the
Directory Publisher on the cover and spine, shall be reduced by multiplying such
amount by a fraction, (i) the numerator of which is the number of customers
served by the Telephone Company in areas covered by all of the Directories that
were on Schedule 1.3(a) as of the Effective Date then being published hereunder
other than the discontinued Directory, and (ii) the denominator of which is the
number of customers served by the Telephone Company in areas covered by all of
the Directories that were on Schedule 1.3(a) as of the Effective Date then being
published hereunder, including the discontinued Directory; PROVIDED, however,
that no fee reduction for the amount payable by the Telephone Company pursuant
to Section 5.2 shall be made if the discontinued Directory was not on Schedule
1.3(a) as of the Effective Date. The Telephone Company shall calculate such
fraction in its reasonable good-faith judgment using existing operating data as
of a date that is as close as practicable to the date on which the
Discontinuance Notice was received.
Nothing in this Section 1.4 shall restrict the Directory Publisher from
reformatting or rescoping the directories in Schedule 1.3(a) in any market other
than the markets covered by discontinued Directories.
1.5 TELEPHONE COMPANY MARKET EXPANSION. The Telephone
Company may request from time to time that the Directory Publisher initiate a
new Directory in areas that the Telephone Company or its affiliates plan to
provide telecommunications service (the "REQUESTED AREAS"). If, within sixty
days after such request, the Directory Publisher does not agree to publish a new
Directory covering the Requested Areas, or expand coverage of an existing
Directory to cover the Requested Areas, in accordance with a mutually agreed
upon initial publication schedule:
(a) The license for the Licensed Marks granted
to the Directory Publisher pursuant to Subsection 6.1(a) shall terminate with
respect to the Requested Areas;
(b) McLeod and its subsidiaries shall be
relieved entirely from compliance with the provisions of Subsection 10.2(b) with
respect to the Requested Areas;
(c) If the Telephone Company establishes a
directory in the Requested Area within twelve months of the Directory
Publisher's declining to enter the Requested Areas, Newco and its subsidiaries
shall not, for the remainder of the term of this Agreement, directly or
indirectly, through one or more subsidiaries, engage or have an interest, alone
or in association with others, as a partner or stockholder or through the
investment of capital, lending of money or property, or otherwise, in any
business that publishes directories in such Requested Areas; and
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(d) To the extent the Requested Areas are in the
states listed on Schedule 1.3(d), the Directory Publisher grants to the
Telephone Company a perpetual, royalty-free, exclusive, transferable (but only
pursuant to Section 11.3) and sublicensable right and license to use the Trade
Dress in connection with the business of the publication and distribution of,
and the sale of advertising in, telephone directories in the Requested Areas
within the states listed on Schedule 1.3(d). This license is exclusive except
that the Directory Publisher may continue to use the Trade Dress in such areas
to fulfill its obligations under Section 4.2 until the first anniversary of the
discontinuance of such Directory.
ARTICLE II
TERM AND TERMINATION
2.1 EFFECTIVENESS. This Agreement will become effective
as of the date hereof (the "EFFECTIVE DATE") and will apply to the publication
of each Directory that occurs after that date during the term.
2.2 TERM; AUTOMATIC RENEWAL. Unless terminated earlier in
accordance with Section 2.3, this Agreement will remain in effect until the
fifth anniversary of the Effective Date. Unless a party provides written notice
of termination to the other parties prior to the fourth anniversary of the
Effective Date, thereafter this Agreement shall be renewed for successive
one-year terms, unless a party provides written notice of termination to the
other parties not less than one year prior to the end of the then-current term.
2.3 TERMINATION.
(a) If the Telephone Company or McLeod
materially breaches its obligations hereunder and fails to cure such material
breach within sixty days after the Directory Publisher or Newco provides notice
to the Telephone Company and McLeod of such breach, specifying in reasonable
detail the nature of the alleged breach, then the Directory Publisher or Newco
may, in addition to all other rights and remedies they may have under law or
pursuant to this Agreement, terminate this Agreement upon notice to the
Telephone Company and McLeod effective upon the completion of the distribution
of the Directories, sales for which had begun before the notice of termination.
(b) If the Directory Publisher or Newco
materially breaches its obligations hereunder and fails to cure such material
breach within sixty days after the Telephone Company or McLeod provides notice
to the Directory Publisher and Newco of such breach, specifying in reasonable
detail the nature of the alleged breach, then the Telephone Company and McLeod
may, in addition to all other rights and remedies they may have under law or
pursuant to this Agreement, terminate this Agreement upon notice to the
Directory Publisher and Newco effective upon the completion of the distribution
of the Directories, sales for which had begun before the notice of termination.
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(c) In the event that the Directory Publisher
fails to adhere to the quality standards set forth in Subsection 6.2(a), and
fails to cure such failure as provided for in Subsection 6.2(c), the licenses
granted in Article VI hereof may be terminated by McLeod.
(d) The Telephone Company and McLeod shall have
the right, but not the obligation, to terminate this Agreement, immediately upon
notice:
(i) if the Directory Publisher or Newco
shall make a general assignment for the benefit of creditors or
acknowledges that it cannot pay its debts as they become due;
(ii) if the Directory Publisher or Newco
files a petition for adjudication as a bankrupt, for reorganization or
for an arrangement under any bankruptcy or insolvency law, or if any
involuntary petition under such law is filed against the Directory
Publisher or Newco, individually, and not dismissed within ninety days
thereafter; or
(iii) if there is Change of Control of
the Directory Publisher or Newco.
"CHANGE OF CONTROL" means any transaction or event, whether voluntary
or involuntary, that results in, or as a consequence of which any
person or group acquires directly or indirectly beneficial ownership of
more than fifty percent of the capital stock of a party or a party's
direct or indirect parent or more than fifty percent of that party's
assets; PROVIDED, however, that a public offering of a party or any
entity including all or substantially all of such party's assets will
not be considered "Change of Control."
(e) The Directory Publisher and Newco shall have the
right, but not the obligation, to terminate this Agreement, immediately upon
notice:
(i) if there is a Change of Control of the
Telephone Company and the Telephone Company or its successor thereafter
does not use the McLeodUSA brand, or a substantially similar brand, in
marketing telecommunications services in the same areas where the
Telephone Company currently provides local telephone service; or
(ii) if, following the completion of corporate
restructuring that the Telephone Company and its affiliates are
currently engaged in or considering, the Telephone Company files an
additional petition for adjudication as a bankrupt, for reorganization
or for an arrangement under any bankruptcy or insolvency law, or if any
involuntary petition under such law is filed against the Directory
Publisher, individually, and not dismissed within ninety days
thereafter.
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2.4 EFFECT OF TERMINATION.
(a) Upon the termination of this Agreement and
upon the condition that the Telephone Company continues to own rights in the
Licensed Marks, the Directory Publisher will publish only those issues of the
Directories that are scheduled to be published before this Agreement terminates,
and shall not conduct any solicitation of any advertising or undertake any other
publishing activities using the Licensed Marks with respect to any of the issues
of the Directories that are not scheduled to be published before such
termination. Once any Directories scheduled to be published have been published,
the Directory Publisher shall promptly:
(i) change its corporate name or d/b/a
to delete therefrom all references to the Licensed Marks (to the extent
that such corporate name use was permitted hereunder);
(ii) cease all use of, and destroy or
effectively remove, the Licensed Marks and all references thereto from
any products offered by the Directory Publisher, as well as any
advertising, marketing materials and similar items; and
(iii) refrain from further use of or
reference to the Licensed Marks, or any other trademark, service mark,
trade name, design or logo that is confusingly similar to the Licensed
Marks;
PROVIDED, however, that the Directory Publisher may continue to use the
Licensed Marks until the first anniversary of the termination of this
Agreement but solely in connection with the distribution, in accordance
with the provision of Section 4.2, of Directories published prior to
the termination of this Agreement or at the printers in anticipation of
publication at the time of termination.
(b) Upon the termination of this Agreement, all
rights granted to the Directory Publisher hereunder in and to the Licensed
Marks, together with any interest in and to the Licensed Marks which the
Directory Publisher may have or may have acquired pursuant to this Agreement or
otherwise, shall forthwith, without further act or instrument, be assigned to
and revert to McLeod. In addition, the Directory Publisher will execute any
instruments requested by McLeod that are necessary to accomplish or confirm the
foregoing.
(c) In the event of termination, notwithstanding
the provisions of Section 10.2, both the Telephone Company and the Directory
Publisher may begin to market advertising in, and make other preparations for
the publication and distribution of, telephone directories that are scheduled to
be published following termination.
(d) The Directory Publisher acknowledges and
admits that there would be no adequate remedy at law for its failure to cease
use of the Licensed Marks upon termination of this Agreement. The Directory
Publisher agrees that, in the event of such failure, the Telephone Company shall
be entitled to equitable relief by the way of temporary, preliminary
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and permanent injunction and such other and further relief as any court with
jurisdiction may deem just and proper.
ARTICLE III
SUBSCRIBER LIST INFORMATION
3.1 CERTAIN DEFINITIONS.
(a) "SUBSCRIBER LIST INFORMATION" is information
identifying the names of subscribers to the local telephone services provided by
the Telephone Company and such subscribers' telephone numbers and, where the
Telephone Company is reasonably able to include such information, the addresses
and/or primary advertising classifications for business subscribers (as such
classifications are assigned at the time of the establishment of such service)
of each of the Telephone Company's local telephone service subscribers (other
than information pertaining to such subscribers who have elected not to have
their information published or listed). Subscriber List Information does not
include any information that the Telephone Company is required by law or by
contract (including tariff) to keep private or confidential, or not to publish
or allow to be published in the Directories.
(b) "BASE FILE SUBSCRIBER LIST INFORMATION"
means the Subscriber List Information as of the first date on which such
information is provided to the Directory Publisher pursuant to this Agreement.
(c) "UPDATED SUBSCRIBER LIST INFORMATION" means
changes to the Subscriber List Information occurring between specified dates.
3.2 PROVISION OF BASE FILE SUBSCRIBER LIST INFORMATION.
Within thirty days following the date after a request from the Directory
Publisher, the Telephone Company will provide to the Directory Publisher the
Base File Subscriber List Information in Telephone Company's standard format for
the purpose of allowing the Directory Publisher to create a database for
publishing the Directories. Alternatively, Telephone Company may provide
Directory Publisher with a release sufficient to enable Directory Publisher to
obtain such a list from a third party.
3.3 PROVISION OF UPDATED SUBSCRIBER LIST INFORMATION. The
Telephone Company will provide to the Directory Publisher, within thirty days of
a request by the Directory Publisher, Updated Subscriber List Information for
dates specified by the Directory Publisher. At the least, the Directory
Publisher shall request Updated Subscriber List Information (or request new Base
File Subscriber List Information pursuant to Section 3.2) for each Directory
within a reasonable time prior to the publication of such Directory so as to
allow the Directory to include as much Updated Subscriber List Information as is
reasonably practicable.
3.4 RATES FOR SUBSCRIBER LIST INFORMATION. The Directory
Publisher shall pay to the Telephone Company $0.04 per listing for Base File
Subscriber List Information and $0.06 per listing for Updated Subscriber List
Information provided to the Directory Publisher by the
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Telephone Company. The Telephone Company may from time to time alter the rates
charged by it hereunder for Subscriber List Information upon notice to the
Directory Publisher; PROVIDED that such rates shall not exceed the maximum rates
allowed by law for such Subscriber List Information.
3.5 PAYMENT TERMS. The Directory Publisher shall pay all
amounts stated in each invoice from the Telephone Company for Subscriber List
Information within thirty days following the date of such invoice, in the manner
specified in the invoice. Interest will accrue monthly on past-due amounts at an
annual rate equal to the lesser of the prime lending rate announced by JP Morgan
Chase, or its equivalent, as then in effect plus two percent and the highest
interest rate allowed by law.
3.6 USE OF SUBSCRIBER LIST INFORMATION.
(a) NON-PUBLISHED OR UNLISTED LISTINGS. The
Directory Publisher shall not publish in the Directories or otherwise disclose
any information concerning subscribers designated as "non-published" or
"unlisted" or the like. The Directory Publisher shall not solicit the people or
entities so identified in connection with the sale of advertising in the
Directories.
(b) RESTRICTED USE. The Directory Publisher may
only use information, including Subscriber List Information, provided by the
Telephone Company hereunder for the purposes of carrying out its obligations
hereunder and shall not use such information in any other manner or in any way
that interferes with the proper and efficient furnishing of services by the
Telephone Company or that adversely affects the relationship between the
Telephone Company and its customers and the public or that would otherwise
violate applicable law.
3.7 THIRD-PARTY REQUESTS FOR INFORMATION. The Directory
Publisher will refer any requests it receives for, or questions about,
Subscriber List Information directly to the Telephone Company for response by
the Telephone Company. The Directory Publisher will not enter into or divulge
any agreements pertaining to the purchase of or per-listing charge for the
Telephone Company's Subscriber List Information or any other information about
the Telephone Company's Subscriber List Information. The Telephone Company shall
have sole authority over the decision to sell its listings to any third parties,
and any agreements regarding same shall be solely between the Telephone Company
and any applicable third party. The Directory Publisher will not be a party to
any such agreements or transactions.
ARTICLE IV
OBLIGATIONS OF THE DIRECTORY PUBLISHER
4.1 PUBLISHING OF DIRECTORIES.
(a) The Directory Publisher shall be responsible
for (including through the selection of contractors):
(i) the printing of the Directories,
including their covers;
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(ii) the compilation, composition and
layout of the Directories;
(iii) the purchasing of paper and other
materials for the Directories;
(iv) the creation, maintenance and
production of telephone and directory services pages and any pages or
information that may be necessary to permit the Telephone Company to
meet its regulatory obligations, in each case as reasonably specified
by the Telephone Company for inclusion within the Directories, in
accordance with the past practices of the Telephone Company and the
Directory Publisher with respect to such pages;
(v) the promotion of usage of the
Directories;
(vi) the selling of advertising in the
yellow pages of the Directories;
(vii) the preparation of art for
advertisers as requested by them in the Directories;
(viii) billing and collections, including
the handling of claims and uncollectibles, related to advertising in
the Directories; and
(ix) other miscellaneous matters related
to the Directories.
(b) The Directory Publisher shall carry out its
obligations hereunder, including those set forth in Subsection 4.1(a), in a
professional and workmanlike fashion in accordance with quality standards
generally observed by reputable firms in the directory publishing industry and
in a manner that does not interfere with the proper and efficient furnishing of
services by the Telephone Company or that adversely affects the relationship
between the Telephone Company and its customers and the public.
4.2 DELIVERY. The Directory Publisher will arrange for
one of the Directories (or two, where white pages and yellow pages are in
separate Directories) to be delivered, in the manner specified by the Directory
Publisher and at its sole expense, to each of the Telephone Company's local
telephone service subscribers during the dates of delivery as scheduled pursuant
to Subsection 1.3(a). The Directory Publisher shall also provide to the
Telephone Company, at the Telephone Company's request, additional copies of each
of the Directories to allow the Telephone Company to provide such Directories to
new subscribers, as replacements, and for the Telephone Company's use consistent
with past practices. The obligations of the Directory Publisher under this
Section 4.2 with respect to Directories published prior to the termination of
this Agreement shall survive the termination of this Agreement until the first
anniversary of such termination.
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4.3 YELLOW PAGES LISTINGS. Unless otherwise requested by
a subscriber to local business telephone services, the Directory Publisher will
provide without charge in the yellow pages of the Directories under a
classification in the approved heading structure best describing the
subscriber's business one light-face standard listing representing the primary
listing of each subscriber to business telephone service as accepted by the
Telephone Company for publication in the white pages of the Directories where
applicable. Nothing herein shall constitute an obligation for the Directory
Publisher to produce white pages; PROVIDED that, should the Directory Publisher
cease publication of white pages in any market in which the Telephone Company
offers local service, the Directory Publisher will provide twelve months' prior
written notice to the Telephone Company.
ARTICLE V
DIRECTORY FORMAT AND POLICIES
5.1 POLICIES. The Directory Publisher will formulate all
policies (including telemarketing policies) relating to advertising in and the
publishing and delivery of the Directories and will use commercially reasonable
efforts to advise the Telephone Company of material changes in these policies.
All of the policies related to the Directories shall not interfere with the
proper and efficient furnishing of services by the Telephone Company and shall
not adversely affect the relationship between the Telephone Company and its
customers and the public. Nothing in this Agreement will be interpreted as a
limitation of the generality of the obligations undertaken by the Directory
Publisher in this Section 5.1.
5.2 DIRECTORY COVER. Attached hereto is EXHIBIT 5.2,
which is a representative copy of a Directory cover that will serve as the basis
for interpreting the obligations set forth in this Section 5.2. During the term
hereof, and unless otherwise expressly agreed to in writing by the parties
hereto, the name and logo of the Telephone Company and/or one or more of the
Licensed Marks will appear clearly and conspicuously across the outside bottom
quartile of the front cover and the spine of the Directories in the format and
style, and in the location, specified by the Telephone Company consistent with
past practice. Additionally, the Telephone Company may advertise its products
and/or services in the upper right-hand corner of each Directory in the "tab" or
"dog ear" (as such terms are used in Section 7.1) in a manner consistent with
past practice. Specifically, such space shall be of a color, size and placement
that is consistent with past practice. The Telephone Company shall specify the
content (including copy and font size) of such advertisements. In consideration
of the advertising space provided by the Directory Publisher pursuant to this
Section 5.2 and pursuant to Section 5.3, the Telephone Company will pay the
Directory Publisher an annual advertising fee of $ [o]million in equal monthly
installments.
(a) SALE OF COVER AND SPINE SPACE TO THIRD
PARTIES. In those markets in which the Telephone Company does not provide
telephone services, the Directory Publisher and the Telephone Company may agree
in writing to sell the space on the front cover and spine otherwise allocated to
the Telephone Company to any third party(ies); PROVIDED, however, that, in the
event the Directory Publisher wants to use the Trade Dress in connection with
such
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Directories, the Directory Publisher may not use the McLeod Star (as defined in
Section 7.2). In the event that the Directory Publisher wants to display a star
in connection with the Trade Dress, the Directory Publisher must utilize a
different-shape star that is not the same size as the McLeod Star and that, if a
shade of yellow, must be a shade of yellow that is at least two Pantone Matching
System(R) colors away from the yellow of the McLeod Star. Any revenues derived
from the sale of advertising space to third parties as provided for in this
Subsection 5.2(a) shall be divided equally between the Directory Publisher on
the one hand and the Telephone Company on the other hand.
(b) SALE OF REMAINING COVER AND SPINE SPACE TO
THIRD PARTIES. The Directory Publisher may sell the remaining space on the front
cover, spine and back cover of the Directories to third parties; PROVIDED,
however, that such third parties may not be competitive or incumbent (voice or
data) telecommunications service providers (including, without limitation,
competitive local exchange carriers, long-distance service providers and the
Bell companies) or providers of dial Internet access services.
5.3 INITIAL PAGES OF DIRECTORY. Attached hereto is
EXHIBIT 5.3, which is a representative copy of the initial-pages insert in a
Directory that will serve as the basis for interpreting the obligations set
forth in this Section 5.3. The Telephone Company may specify the content
(including copy, layout, color and paper type consistent with past practice) of
up to the first eight pages (for markets in which the Telephone Company provides
competitive local telephone services) or up to four pages, consistent with the
Directory Publisher's past practices (for markets in which the Telephone Company
does not offer competitive local telephone services), as applicable, of each
Directory (different content may be specified for different Directories).
Notwithstanding the foregoing, the Telephone Company may specify more initial
pages for inclusion than is consistent with the Directory Publisher's past
practices; PROVIDED that the costs incurred by the Directory Publisher in
connection with the printing of such additional pages, relative to historical
practice in each market, will be paid by the Telephone Company at market rates
(in addition to the fees paid pursuant to Section 5.2). The Directory Publisher
shall include and publish such initial pages as specified by the Telephone
Company without alteration. Notwithstanding the foregoing, the Directory
Publisher will not be obligated to publish any content that is contrary to its
reasonable publishing standards or any content that primarily promotes a party
other than McLeod and its affiliates, except in accordance with past practices.
The Directory Publisher may not sell or otherwise provide advertising space to
any competitive or incumbent (voice or data) telecommunications service provider
(including, without limitation, competitive local exchange carriers,
long-distance service providers and the Bell companies) or a provider of dial
Internet access services, except for advertising space sold or otherwise
provided within the white and yellow pages under the classification in the
approved heading structure best describing such provider's business.
5.4 TERMINATION OF COVER AND INITIAL PAGES ADVERTISING
RIGHT. In the event that a state public utility regulatory commission issues a
final order levying a material fine against the Telephone Company as the result
of a finding that the Telephone Company provided poor-quality services, the
Directory Publisher shall be excused from performing its obligations under
Sections 5.1 and 5.2 with respect to Directories published and distributed
within that state.
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In such an event the amount payable by the Telephone Company pursuant to Section
5.2 in respect of advertising space provided by the Directory Publisher on the
cover and spine shall be reduced by multiplying such amount by a fraction, (i)
the numerator of which is the number of customers served by the Telephone
Company in areas covered by all of the Directories being published prior to such
action other than the customers served by the Telephone Company in areas within
the states where the state public utility regulatory commission takes such
action, and (ii) the denominator of which is the number of customers served by
the Telephone Company in areas covered by all of the Directories being published
hereunder prior to such action, including such states. The Telephone Company
shall calculate such fraction in its reasonable good-faith judgment using
existing operating data as of a date that is as close as practicable to the date
on which the Discontinuance Notice was received.
5.5 TELEPHONE COMPANY ADVERTISING. In addition to the
advertising provided pursuant to Sections 5.2 and 5.3, the Directory Publisher
shall provide to the Telephone Company advertising space in each Directory
(white pages and yellow pages), priced at the Directory Publisher's cost for
such advertising. Such space shall be of the same quantity, size and placement
as provided by the Directory Publisher prior to the Effective Date. EXHIBIT 5.5
is a representative sample of the advertising space provided by the Directory
Publisher prior to the Effective Date. The Directory Publisher may not sell or
otherwise provide advertising space to any competitive or incumbent (voice or
data) telecommunications service provider (including, without limitation,
competitive local exchange carriers, long-distance service providers and the
Bell companies) or a provider of dial Internet access services, except for
advertising space sold or otherwise provided within the white and yellow pages
under the classification in the approved heading structure best describing such
provider's business.
5.6 DIRECTORY CONTENT. The Directory Publisher will
include in the white-pages sections of the Directories the Subscriber List
Information provided hereunder and all other listings that the Telephone Company
notifies the Directory Publisher that the Telephone Company is required to
publish for its subscribers by state regulation.
ARTICLE VI
TRADEMARK LICENSE AND USE OF LICENSED MARKS
6.1 USE OF LICENSED MARKS.
(a) Subject to the terms and conditions of this
Agreement, McLeod hereby grants to the Directory Publisher a personal,
non-transferable, non-sublicensable license to use the Licensed Marks during the
term of this Agreement in connection with the business of the publication and
distribution of, and the sale of advertising in, the Directories. For purposes
of this Agreement, the "LICENSED MARKS" refer exclusively to the McLeod,
McLeodUSA and McLeod USA names and to the McLeod Star. The license to the
Licensed Marks is nonexclusive with respect to all uses of the Licensed Marks
except for the publication of white page and yellow page directories, in
connection with which the Directory Publisher is granted an exclusive license
for the term of this Agreement. The license granted in this Section 6.1 only
extends to the use of the Licensed Marks in connection with the business of the
publication and
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distribution of, and sale of advertising in, the Directories, where such use is
approved by McLeod and in accordance with such approval. To the extent that
McLeod engages in the publication of white page and yellow page directories
pursuant to the terms of Section 10.2 during the term of this Agreement, it will
not use the Licensed Marks in connection with the marketing or publication of
such directories in any markets in which the Directory Publisher publishes
competing directories.
(b) Throughout the term of this Agreement and
for any renewals and extensions thereof, the Directory Publisher shall be
obligated to use the Licensed Marks in connection with the business of the
publication and distribution of, and sale of advertising in, Directories, except
as otherwise provided under this Agreement. Other than in connection with
publishing and distribution of, and sale of advertising in, Directories, the
Directory Publisher may not use the Licensed Marks in connection with any
service or product, including without limitation any telecommunications
services, Internet services (except for Internet directories specifically
approved in writing by the Telephone Company) or cable services.
6.2 QUALITY STANDARDS.
(a) The Directory Publisher acknowledges that
the Licensed Marks have established extremely valuable goodwill and reputation,
and are well recognized among the Telephone Company's customers, and that it is
of great importance that this goodwill and reputation be maintained. Accordingly
the Directory Publisher shall, in its operation of its business after the
Effective Date, adhere to a level of quality at least as high as that
established for its business as operated by the Directory Publisher prior to the
Effective Date.
(b) The Directory Publisher shall provide to
McLeod for review and approval representative samples of the Directory
Publisher's proposed use of the Licensed Marks whenever such samples are not
consistent with the use of such Licensed Marks prior to the Effective Date, and
upon McLeod's reasonable request. In the event that McLeod does not notify the
Directory Publisher within thirty days of its receipt of any such samples that
it disapproves of the Directory Publisher's proposed use of the Licensed Marks,
McLeod shall be deemed to have approved of such use. McLeod acknowledges that
the review and approval requirement set forth in this Subsection 6.2(b) is only
for the purposes of ascertaining compliance with the quality standards set forth
in this Agreement.
(c) In the event that McLeod reasonably believes
that the business operated by the Directory Publisher, any Directory or any
other product or service offered in connection with such business or any
advertising or other materials associated with such business does not reasonably
conform with the quality standards set forth in Subsection 6.2(a), McLeod may
notify the Directory Publisher of such non-conformance. The Directory Publisher
shall cure each such non-conformance with respect to all Directories that are
printed following such notice.
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6.3 OWNERSHIP AND PROTECTION.
(a) OWNERSHIP. The Directory Publisher shall not
have any right, title or interest, express or implied, in and to the Licensed
Marks under this Agreement other than the license set forth in Section 6.1. The
Directory Publisher acknowledges that McLeod owns the Licensed Marks and the
goodwill associated therewith. All uses of the Licensed Marks by the Directory
Publisher, and the goodwill generated thereby, shall inure to the benefit of
McLeod and shall not vest in the Directory Publisher any ownership interest in
the Licensed Marks. For purposes of registration, all uses of the Licensed Marks
by the Directory Publisher shall be deemed to have been made for the benefit of
McLeod.
(b) USAGE. The Directory Publisher shall use the
Licensed Marks in accordance with reasonable trademark and trade name usage
principles and in accordance with all applicable laws and regulations, including
without limitation all laws and regulations relating to the maintenance of the
validity and enforceability of the Licensed Marks, and the Directory Publisher
shall not use the Licensed Marks in any manner that does or is reasonably likely
to tarnish, disparage or reflect adversely on McLeod, Telephone Company or the
Licensed Marks.
(c) NO CHALLENGE. The Directory Publisher shall
not, during the term and thereafter for so long as McLeod continues to own
rights in the Licensed Marks, (i) challenge McLeod's title or rights in and to
the Licensed Marks or the validity of the Licensed Marks in any jurisdiction or
(ii) contest the fact that the Directory Publisher's rights under this Agreement
are solely those of a licensee.
(d) INFRINGEMENT. The Directory Publisher shall
promptly notify McLeod in writing of any uses that may be unauthorized uses,
infringements or dilutions by others of the Licensed Marks that may come to the
Directory Publisher's attention. McLeod shall have the sole right to take, and
to determine whether or not to take, any actions it deems appropriate in its
sole discretion with respect to any unauthorized use, infringement or dilution
of the Licensed Marks. Any actions taken pursuant to this Subsection 6.3(d)
shall be at McLeod's expense, and all recovery in the form of monetary damages
or settlement shall belong to McLeod.
ARTICLE VII
ASSIGNMENT OF TRADE DRESS
7.1 ASSIGNMENT. Subject to the terms and conditions of
this Agreement, McLeod hereby irrevocably assigns to the Directory Publisher,
for its own use and enjoyment, and for the use and enjoyment of its successors,
assigns and other legal representatives, McLeod's entire right, title and
interest in the United States, all foreign countries and jurisdictions, and
throughout the universe, in the Trade Dress, together with the goodwill
symbolized by and associated with the business conducted under said Trade Dress,
and all income, royalties, damages and payments now or hereafter due or payable
in respect thereto, and in and to all causes of action (either in law or in
equity) and the right to sue, counterclaim and recover for past, present and/or
future infringement, damages or other unauthorized use of the
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rights assigned to the Directory Publisher pursuant to this Section 7.1. For
avoidance of doubt, this assignment survives the termination of this Agreement,
regardless of the reason for such termination. "TRADE DRESS" shall mean the
Directory covers which consist of a cover with a black background, a yellow star
in center of the cover, a map of the region covered by the Directory in the
center of the star, the names of the towns covered by the Directory in white on
the left of the cover, the date of the Directory in white in the upper left
corner of the cover, the names of the primary towns covered by the Directory in
white on the upper left and on the spine, and a yellow "tab" or "dog ear" on the
upper right of cover. An illustrative example of the Directory cover is included
as Exhibit 5.2. McLeod explicitly acknowledges that the trademarks, service
marks and trade dress owned or used by the Directory Publisher, including those
marks associated with Telecom*USA, other than the Licensed Marks, belong
exclusively to Directory Publisher or are licensed to Directory Publisher by
third parties, and that this Agreement does not create any right, title or
interest in and to such marks by McLeod or the Telephone Company (other than any
licenses that may be granted hereunder to the Trade Dress).
7.2 RIGHT TO USE THE MCLEOD STAR. For the sake of
clarity, the parties acknowledge and agree that the Trade Dress does not include
the stylized yellow star which is the subject of the Registrations and which is
among the Licensed Marks licensed to the Directory Publisher hereunder (the
"MCLEOD STAR"). Accordingly the Directory Publisher acknowledges and agrees
that, immediately upon the termination or expiration of this Agreement, it must
cease all use of the McLeod Star except as expressly permitted under this
Agreement and, in the event it wants to continue using a star in connection with
the Trade Dress, must utilize a different-shape star that is not the same size
as the McLeod Star and that, if a shade of yellow, must be a shade of yellow
that is at least two Pantone Matching System(R) colors away from the yellow of
the McLeod Star.
ARTICLE VIII
INTERNET DIRECTORIES
8.1 INTERNET DIRECTORIES. Each of the parties
acknowledges that Internet operations represent a significant part of each
party's business activities. Accordingly McLeod agrees that, following the
transition period described above and for the duration of this Agreement, it
will establish and maintain a hypertext link between the McLeod web site and the
Directory Publisher's web site in connection with the provision of white and
yellow page listings; during the same period the Directory Publisher will
establish and maintain a hypertext link between the Directory Publisher's web
site in connection with the provision of telecommunications services, in each
case consistent with past practice.
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ARTICLE IX
INDEMNIFICATION
9.1 Indemnification.
(a) DIRECTORY PUBLISHER INDEMNITY. The Directory
Publisher shall defend, hold harmless and indemnify McLeod, the Telephone
Company and each of their affiliates, officers, directors, shareholders,
employees, contractors, agents and representatives from and against any and all
claims, demands, actions, liabilities, damages, losses, fines penalties, costs
and expenses (including all attorneys' fees) of any kind (collectively "LOSSES")
to the extent actually or allegedly resulting from (i) any errors, omissions,
refusals to accept advertising, misclassification or misuse of information,
claimed or actual, concerning any of the Directories; (ii) any other claims by
advertisers in the Directories; (iii) any breach of this Agreement by the
Directory Publisher or Newco; (iv) the Directory Publisher's and Newco's
activities with respect to the publishing of the Directories; and (v) the use of
the Licensed Marks by the Directory Publisher in violation of this Agreement, in
each case except for such Losses as are caused solely by the gross negligence,
fraud or willful misconduct of McLeod or the Telephone Company, or errors,
omissions or misclassifications caused by the Telephone Company in the
Subscriber List Information.
(b) MCLEOD INDEMNITY. The Telephone Company
shall defend, hold harmless and indemnify the Directory Publisher, Newco and
each of their affiliates, officers, directors, shareholders, employees,
contractors, agents and representatives from and against any and all Losses to
the extent actually or allegedly resulting from (i) any errors, omissions or
misclassifications negligently or willfully caused by the Telephone Company in
the Subscriber List Information; (ii) any breach of this Agreement by the
Telephone Company or McLeod, in either case except for such Losses as are caused
solely by the gross negligence, fraud or willful misconduct of the Directory
Publisher or Newco. It is expressly agreed that any liability of McLeod and the
Telephone Company arising under clause 9.1(b)(i) hereunder will be limited, on a
listing-by-listing basis, to the amount paid by the Directory Publisher to the
Telephone Company for that listing out of which any liability arose.
ARTICLE X
ADDITIONAL COVENANTS
10.1 BOARD OF DIRECTORS OF DIRECTORY PUBLISHER. During the
term of this Agreement, the Telephone Company shall have the right to designate
one member to the Directory Publisher's Board of Directors or other similar
governing body; PROVIDED that such designee shall have been approved by Newco,
which approval shall not to be unreasonably withheld or delayed. Newco will take
all actions necessary to have such designee elected to the Board of Directors.
Such designee shall have the same access to information concerning the business
and operations of the Directory Publisher and its subsidiaries and at the same
time as other directors of the Directory Publisher.
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10.2 NON-COMPETE AND NON-SOLICITATION.
(a) During the term of this Agreement Newco
agrees that it shall not, directly or indirectly, through one or more
subsidiaries, engage or have an interest, alone or in association with others,
as a partner or stockholder or through the investment of capital, lending of
money or property, or otherwise, in any business that competes with the products
and services provided by McLeod and its subsidiaries (other than the Directory
Publisher and its subsidiaries) as of the Effective Date; PROVIDED, however,
that it shall not be a violation of this Subsection 10.2(a) for Newco or any of
its subsidiaries to invest in, own an interest in or acquire, in a single
transaction or a series of transactions, all or a majority of the equity
interests in, or assets of, any person whose primary business is not the
provision of any voice or data telecommunications service (including, without
limitation, competitive local exchange carriers, long-distance service providers
and the Bell companies) or dial Internet access services. Through the first
anniversary of the Effective Date, Newco shall not, directly or indirectly,
through one or more of its subsidiaries, on behalf of itself or any other
person, (i) recruit or otherwise solicit or induce any person who is an employee
as to whom the employer is exempt from legal obligations to pay overtime
(referred to as an "exempt employee") of McLeod or any of its subsidiaries
(other than the Directory Publisher and its subsidiaries) or any of their
successors to terminate his or her employment relationship with McLeod or its
subsidiaries (other than the Directory Publisher and its subsidiaries) or (ii)
offer employment to or employ a person who is at that time an exempt employee of
McLeod or its subsidiaries (other than the Directory Publisher and its
subsidiaries) or who was such an employee within ninety days of the time of such
offer of employment. The foregoing shall not, however, prohibit Newco or any of
its subsidiaries from publishing any general public solicitation of employment
opportunities.
(b) During the term of this Agreement, McLeod
agrees that it shall not, directly or indirectly, through one or more
subsidiaries, engage or have an interest, alone or in association with others,
as partner or stockholder or through the investment of capital, lending of money
or property, or otherwise, in any business that competes with the products and
services provided by the Directory Publisher and its subsidiaries as of the
Effective Date; PROVIDED, however, that it shall not be a violation of this
Subsection 10.2(b) for McLeod or any of its subsidiaries to (i) invest in
securities representing less than ten percent of the outstanding capital stock
of any person, the securities of which are publicly traded or listed on any
securities exchange or automated quotation system, or (ii) invest in, own an
interest in or acquire, in a single transaction or series of transactions, all
or a majority of the equity interests in, or assets of, any person whose primary
business is not the business of the publication of telephone directories.
Through the first anniversary of the Effective Date, McLeod shall not, directly
or indirectly, through one or more of its subsidiaries, on behalf of itself or
any other person, (i) recruit or otherwise solicit or induce any person who is
an exempt employee of Newco and its subsidiaries or any of their successors to
terminate his or her employment relationship with Newco and its subsidiaries or
(ii) offer employment to or employ a person who is at that time an exempt
employee of Newco or its subsidiaries or who was such an employee within ninety
days of the time of such offer of employment. The foregoing shall not, however,
prohibit the Telephone Company or any of its subsidiaries from publishing any
general public solicitation of employment opportunities.
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10.3 PROVISION OF ADVERTISING DATA. Upon the request of
the Telephone Company, the Directory Publisher shall, on the first day of each
calendar month, provide to the Telephone Company a copy of the Directory
Publisher's then-current list of persons who purchased advertising in the
Directories during the preceding month. The Telephone Company may use such
information to solicit customers for telephone and other telecommunications
services and for related purposes.
10.4 CONFIDENTIAL INFORMATION. Each of the parties (in
such capacity, the "RECIPIENT") agrees that all information relating to the
business, customers and operations of the other parties and their affiliates
that is obtained in connection with the subject matter of this Agreement (except
Subscriber List Information, which is subject to the restrictions on use
contained in Section 3.6) is the confidential information ("CONFIDENTIAL
INFORMATION") of the party as to which such information relates (the
"DISCLOSER"). The Recipient shall not, without the prior written consent of the
Discloser, use Confidential Information of the Discloser other than in
connection with the performance of its obligations hereunder or disclose or
permit access to any Confidential Information by any third party. The Recipient
shall use the same degree of care that it uses with respect to its own
confidential information and take the same action as it does with respect to its
own confidential information to cause its officers, employees, agents and
representatives to take such action as shall be necessary or advisable to
preserve and protect the confidentiality of Confidential Information of the
Discloser. The Recipient shall not be obligated to treat as confidential
pursuant to this Section 10.4 any information that (a) is rightfully known to
the Recipient prior to its disclosure by the Discloser; (b) is released by the
Discloser or its affiliate to any other person, firm or entity without a
confidentiality restriction; (c) is independently developed by the Recipient
without any reliance on Confidential Information of the Discloser; or (d) is or
later becomes publicly available without violation of this Agreement or other
confidentiality restriction. In the event that the Recipient is required to
produce Confidential Information of the Discloser in compliance with applicable
law or a court order, it shall provide the Discloser immediate notice of such
required disclosure such that the Discloser shall have an opportunity to object
to and/or attempt to limit such production.
10.5 RETURN OR DESTRUCTION OF CONFIDENTIAL INFORMATION.
All Confidential Information, including any copies thereof, shall be returned to
the Discloser or, at the Discloser's request, destroyed, within ten days of the
termination of this Agreement.
ARTICLE XI
GENERAL PROVISIONS
11.1 REPRESENTATIONS AND WARRANTIES.
(a) GENERAL REPRESENTATIONS AND WARRANTIES. Each
of the parties represents and warrants to the others that it has and shall
continue to have throughout the term of this Agreement the full right to enter
into this Agreement and perform its obligations hereunder and that this
Agreement is a legal, valid and binding obligation of it, enforceable in
accordance with its terms.
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(b) DISCLAIMER. SUBSCRIBER LIST INFORMATION AND
OTHER INFORMATION, THE LICENSED MARKS AND THE TRADE DRESS ARE PROVIDED ON AN
"AS-IS" BASIS. EXCEPT FOR THE REPRESENTATION AND WARRANTY SET FORTH IN
SUBSECTION 11.1(a), NEITHER MCLEOD NOR THE TELEPHONE COMPANY MAKES ANY
REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, OF ANY KIND HEREUNDER,
INCLUDING WITHOUT LIMITATION AS TO THE ACCURACY OF THE SUBSCRIBER LIST
INFORMATION OR OTHER INFORMATION PROVIDED BY THE TELEPHONE COMPANY HEREUNDER, OR
THE VALIDITY, ENFORCEABILITY, REGISTRABILITY OR RIGHTS TO USE THE LICENSED
MARKS, THE TRADE DRESS, THE SUBSCRIBER LIST INFORMATION OR ANY OTHER SUCH
INFORMATION.
11.2 AMENDMENT AND MODIFICATION. This Agreement may be
amended or modified at any time by the parties hereto, pursuant to an instrument
in writing signed by all parties.
11.3 ENTIRE AGREEMENT; ASSIGNMENT. This Agreement (a)
constitutes the entire agreement among the parties hereto with respect to the
subject matter hereof and supersedes all other prior agreements and
understandings, both written and oral, among the parties hereto with respect to
the subject matter hereof and (b) shall not be assigned, by operation of law or
otherwise by a party hereto, without the prior written consent of the other
parties; PROVIDED that the Telephone Company may assign its rights and delegate
its duties under this Agreement to a purchaser of all or substantially all of
the Telephone Company's assets (although such a transaction may be grounds for
termination under paragraph 2.3(e)(i)), and McLeod may assign its rights and
delegate its duties under this Agreement to a purchaser of the Licensed Marks.
11.4 VALIDITY. The parties intend that this Agreement
complies with and does not violate any law or regulation applicable to the
Telephone Company. The invalidity or unenforceability of any term or provision
of this Agreement in any situation or jurisdiction shall not affect the validity
or enforceability of the other terms or provisions hereof or the validity or
enforceability of the offending term or provision in any other situation or in
any other jurisdiction. In the event that any term of this Agreement or other
provision thereof should be held to be unenforceable or invalid for any reason,
such term or provision thereof shall be modified in such a manner as to make
this Agreement as modified legal and enforceable to the fullest extent permitted
under applicable laws. The parties shall negotiate in good faith to replace such
term or provision with an appropriate legal and enforceable term or provision.
11.5 NOTICES. Unless otherwise provided herein, all
notices and other communications hereunder shall be in writing and shall be
deemed given upon receipt by the other parties at the following addresses or
facsimile numbers, or at such other address and facsimile number as may be
specified by a party by giving notice to the other parties of such change:
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(a) if to the Directory Publisher and/or Newco,
to
McLeodUSA Publishing Company
McLeodUSA Technology Park
6400 C Street SW
Building 1
Cedar Rapids, IA 52406
Facsimile: (319) 368-1311
Attention: General Counsel
(b) if to McLeod and/or the Telephone Company,
to
McLeodUSA Telecommunications Services, Inc.
McLeodUSA Technology Park
6400 C Street SW
Building 2
Cedar Rapids, IA 52406
Facsimile: (319) 790-7901
Attention: President
with a copy to the attention of the General Counsel at the
same address, facsimile: (319) 790-7901.
11.6 GOVERNING LAW. 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.
11.7 DESCRIPTIVE HEADINGS. The descriptive headings herein
are inserted for convenience of reference only and shall in no way be construed
to define, limit, describe, explain, modify, amplify or add to the
interpretation, construction or meaning of any provision of, or scope or intent
of, this Agreement nor in any way affect this Agreement.
11.8 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
11.9 EXPENSES. Except as otherwise provided herein, each
party shall bear its own costs in negotiating, performing and enforcing this
Agreement.
11.10 PARTIES IN INTEREST. This Agreement shall be binding
upon and inure solely to the benefit of each party hereto and its affiliates,
and nothing in this Agreement, express or implied, is intended to or shall
confer upon any other person any rights, benefits or remedies of any nature
whatsoever under or by reason of this Agreement.
11.11 NO WAIVERS. Any of the terms or conditions of this
Agreement that may be lawfully waived may be waived in writing at any time by
the party that is entitled to the
21
<Page>
benefits thereof. No failure to exercise, delay in exercising or single or
partial exercise of any right, power or remedy by any party, and no course of
dealing among the parties, shall constitute a waiver of any such right, power or
remedy. No waiver by a party of any breach of this Agreement, whether
intentional or not, shall be deemed to extend to any prior or subsequent breach
or affect in any way any rights arising by virtue of any prior or subsequent
such occurrence. No waiver shall be valid unless in writing and signed by the
party against whom such waiver is sought to be enforced.
11.12 SPECIFIC PERFORMANCE. The parties hereto agree that
if any of the provisions of this Agreement are not performed in accordance with
their specific terms or are otherwise breached, irreparable damage will occur,
no adequate remedy at law will exist and damages will be difficult to determine,
and that the parties shall be entitled to specific performance of the terms
hereof, as well as immediate injunctive relief, in addition to any other remedy
at law or equity.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
22
<Page>
IN WITNESS WHEREOF, each of the undersigned has caused this
Agreement to be duly signed as of the date first above written.
MCLEODUSA PUBLISHING COMPANY
By:_________________________________
Name:
Title:
MCLEODUSA, INC.
By:__________________________________
Name:
Title:
MCLEODUSA TELECOMMUNICATIONS SERVICES, INC.
By:___________________________________
Name:
Title:
PUBCO ACQUISITION CORP.
By:___________________________________
Name:
Title:
<Page>
SCHEDULE 1.3(a)
DIRECTORY LIST AND PUBLICATION SCHEDULE
<Table>
<Caption>
- ----------------------------------------------------------------------------------------------------------
# STATE MARKET NAME DATE
- ----------------------------------------------------------------------------------------------------------
1 AR Harrison/Mountain Home Jun
- ----------------------------------------------------------------------------------------------------------
2 AR Little Rock/North Little Rock Jun
- ----------------------------------------------------------------------------------------------------------
3 AR Searcy Sep
- ----------------------------------------------------------------------------------------------------------
4 AR Batesville/Greers Ferry Nov
- ----------------------------------------------------------------------------------------------------------
5 AR Jonesboro/Paragould/Kennett Nov
- ----------------------------------------------------------------------------------------------------------
6 CO Denver & West Suburbs Mar
- ----------------------------------------------------------------------------------------------------------
7 CO South Suburban Denver Mar
- ----------------------------------------------------------------------------------------------------------
8 CO Pueblo/Canon City Apr
- ----------------------------------------------------------------------------------------------------------
9 CO North Suburban Denver May
- ----------------------------------------------------------------------------------------------------------
10 CO Salida/Leadville/Gunnison/Buena Vista Jun
- ----------------------------------------------------------------------------------------------------------
11 CO Grand Junction Jul
- ----------------------------------------------------------------------------------------------------------
12 CO Aurora/Montbello Sep
- ----------------------------------------------------------------------------------------------------------
13 CO Boulder/Longmont Sep
- ----------------------------------------------------------------------------------------------------------
14 CO Craig/Granby/Steamboat Springs Oct
- ----------------------------------------------------------------------------------------------------------
15 CO Greeley Oct
- ----------------------------------------------------------------------------------------------------------
16 CO Aspen/Carbondale/Glenwood Springs/Rifle/Snowmass Village Nov
- ----------------------------------------------------------------------------------------------------------
17 CO Fort Collins/Loveland/Estes Park Nov
- ----------------------------------------------------------------------------------------------------------
18 CO Summit County Nov
- ----------------------------------------------------------------------------------------------------------
19 CO Vail Nov
- ----------------------------------------------------------------------------------------------------------
20 CO Colorado Springs Dec
- ----------------------------------------------------------------------------------------------------------
21 FL Naples/Marco Island Jan
- ----------------------------------------------------------------------------------------------------------
22 FL Venice/Englewood/North Port Feb
- ----------------------------------------------------------------------------------------------------------
23 FL Sun City Center Membership Mar
- ----------------------------------------------------------------------------------------------------------
24 FL Tampa Apr
- ----------------------------------------------------------------------------------------------------------
25 FL New Port Richey/Hudson/Spring Hill Jun
- ----------------------------------------------------------------------------------------------------------
26 FL Fort Myers/Cape Coral Aug
- ----------------------------------------------------------------------------------------------------------
27 FL Dade City/Zephyrhills Oct
- ----------------------------------------------------------------------------------------------------------
28 FL Punta Gorda/Port Charlotte Oct
- ----------------------------------------------------------------------------------------------------------
29 FL Sarasota/Bradenton Nov
- ----------------------------------------------------------------------------------------------------------
30 FL St. Petersburg / Clearwater Nov
- ----------------------------------------------------------------------------------------------------------
31 FL Tarpon Springs Dec
- ----------------------------------------------------------------------------------------------------------
32 IA Cedar Rapids/Marion Mar
- ----------------------------------------------------------------------------------------------------------
33 IA Clinton/Camanche Mar
- ----------------------------------------------------------------------------------------------------------
34 IA Muscatine Mar
- ----------------------------------------------------------------------------------------------------------
35 IA Sioux City Mar
- ----------------------------------------------------------------------------------------------------------
36 IA Spencer/Storm Lake Mar
- ----------------------------------------------------------------------------------------------------------
37 IA Ft. Dodge/Algona/Humbolt/Webster City Apr
- ----------------------------------------------------------------------------------------------------------
38 IA Marshalltown/Newton/Grinnell Apr
- ----------------------------------------------------------------------------------------------------------
</Table>
1.3(a)-1
<Page>
<Table>
<Caption>
- ----------------------------------------------------------------------------------------------------------
# STATE MARKET NAME DATE
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
39 IA Mason City May
- ----------------------------------------------------------------------------------------------------------
40 IA Waterloo/Cedar Falls Jun
- ----------------------------------------------------------------------------------------------------------
41 IA Charles City/Decorah/Oelwein Jul
- ----------------------------------------------------------------------------------------------------------
42 IA Ottumwa/Oskaloosa Jul
- ----------------------------------------------------------------------------------------------------------
43 IA Carroll/Denison/Jefferson/Perry Aug
- ----------------------------------------------------------------------------------------------------------
44 IA Council Bluffs Aug
- ----------------------------------------------------------------------------------------------------------
45 IA Dubuque Aug
- ----------------------------------------------------------------------------------------------------------
46 IA Quad Cities Sep
- ----------------------------------------------------------------------------------------------------------
47 IA Ames/Boone/Nevada Oct
- ----------------------------------------------------------------------------------------------------------
48 IA Des Moines Nov
- ----------------------------------------------------------------------------------------------------------
49 IA Iowa City/Coralville Nov
- ----------------------------------------------------------------------------------------------------------
50 IA Burlington/Mt. Pleasant/Ft. Madison/Keokuk Dec
- ----------------------------------------------------------------------------------------------------------
51 ID Twin Falls Mar
- ----------------------------------------------------------------------------------------------------------
52 ID Boise/Nampa/Caldwell Apr
- ----------------------------------------------------------------------------------------------------------
53 ID Idaho Falls/Pocatello Jun
- ----------------------------------------------------------------------------------------------------------
54 ID Ontario/Emmett Oct
- ----------------------------------------------------------------------------------------------------------
55 IL Chester/Sparta Jan
- ----------------------------------------------------------------------------------------------------------
56 IL Gurnee/Highland Park/Libertyville/Vernon Hills/Waukegan Jan
- ----------------------------------------------------------------------------------------------------------
57 IL Orland Park/Tinley Park/Palos Hills/Frankfort Jan
- ----------------------------------------------------------------------------------------------------------
58 IL Galesburg/Monmouth Feb
- ----------------------------------------------------------------------------------------------------------
59 IL Champaign/Urbana Mar
- ----------------------------------------------------------------------------------------------------------
60 IL Litchfield/Hillsboro Mar
- ----------------------------------------------------------------------------------------------------------
61 IL Mt. Vernon/Centralia Apr
- ----------------------------------------------------------------------------------------------------------
62 IL Robinson/Newton Apr
- ----------------------------------------------------------------------------------------------------------
63 IL Rockford/Belvidere/Loves Park/Machesney Park Apr
- ----------------------------------------------------------------------------------------------------------
64 IL Arlington Heights/Barrington/Buffalo Grove/Hoffman Estates/Palatine/Schaumburg May
- ----------------------------------------------------------------------------------------------------------
65 IL Canton/Macomb May
- ----------------------------------------------------------------------------------------------------------
66 IL Joliet/Bolingbrook May
- ----------------------------------------------------------------------------------------------------------
67 IL Madison & St. Clair Counties May
- ----------------------------------------------------------------------------------------------------------
68 IL Danville Jun
- ----------------------------------------------------------------------------------------------------------
69 IL Freeport/Monroe Jun
- ----------------------------------------------------------------------------------------------------------
70 IL La Salle/Peru/Ottawa Jul
- ----------------------------------------------------------------------------------------------------------
71 IL Aurora/Naperville/St. Charles Aug
- ----------------------------------------------------------------------------------------------------------
72 IL Harrisburg/Carmi Aug
- ----------------------------------------------------------------------------------------------------------
73 IL Kankakee Aug
- ----------------------------------------------------------------------------------------------------------
74 IL Lincoln/Havana/Mason City Aug
- ----------------------------------------------------------------------------------------------------------
75 IL Mt. Carmel/Olney/Fairfield/Flora Aug
- ----------------------------------------------------------------------------------------------------------
76 IL Peoria/Pekin/Metamora Aug
- ----------------------------------------------------------------------------------------------------------
77 IL Taylorville/Pana Aug
- ----------------------------------------------------------------------------------------------------------
78 IL Algonquin/Elgin/Crystal Lake/Harvard/McHenry/Wonder Lake/Woodstock Sep
- ----------------------------------------------------------------------------------------------------------
</Table>
1.3(a)-2
<Page>
<Table>
<Caption>
- ----------------------------------------------------------------------------------------------------------
# STATE MARKET NAME DATE
- ----------------------------------------------------------------------------------------------------------
79 IL Effingham Sep
- ----------------------------------------------------------------------------------------------------------
80 IL Jerseyville/Carrollton Sep
- ----------------------------------------------------------------------------------------------------------
81 IL Southeast Cook County Sep
- ----------------------------------------------------------------------------------------------------------
82 IL Decatur Oct
- ----------------------------------------------------------------------------------------------------------
83 IL Dekalb/Sauk Valley Oct
- ----------------------------------------------------------------------------------------------------------
84 IL Vandalia/Greenville Oct
- ----------------------------------------------------------------------------------------------------------
85 IL Bloomington/Normal Nov
- ----------------------------------------------------------------------------------------------------------
86 IL Downers Grove/Elmhurst/Glen Ellyn/ La Grange/Oak Brook/Wheaton Nov
- ----------------------------------------------------------------------------------------------------------
87 IL Mattoon/Charleston Nov
- ----------------------------------------------------------------------------------------------------------
88 IL Shelbyville Nov
- ----------------------------------------------------------------------------------------------------------
89 IL Springfield Nov
- ----------------------------------------------------------------------------------------------------------
90 IL Jacksonville/Beardstown Dec
- ----------------------------------------------------------------------------------------------------------
91 IL Quincy Dec
- ----------------------------------------------------------------------------------------------------------
92 IN Anderson/Muncie/New Castle Jan
- ----------------------------------------------------------------------------------------------------------
93 IN Bloomington/Bedford Feb
- ----------------------------------------------------------------------------------------------------------
94 IN Greater Indianapolis- South Edition Feb
- ----------------------------------------------------------------------------------------------------------
95 IN South Bend/Mishawaka/Elkhart Feb
- ----------------------------------------------------------------------------------------------------------
96 IN Washington Feb
- ----------------------------------------------------------------------------------------------------------
97 IN Huntington/Columbia City Mar
- ----------------------------------------------------------------------------------------------------------
98 IN Warsaw Mar
- ----------------------------------------------------------------------------------------------------------
99 IN Crawfordsville/Greencastle Apr
- ----------------------------------------------------------------------------------------------------------
100 IN Fort Wayne Apr
- ----------------------------------------------------------------------------------------------------------
101 IN LaPorte/Michigan City Apr
- ----------------------------------------------------------------------------------------------------------
102 IN Marion Apr
- ----------------------------------------------------------------------------------------------------------
103 IN Plymouth May
- ----------------------------------------------------------------------------------------------------------
104 IN Evansville/Henderson Jul
- ----------------------------------------------------------------------------------------------------------
105 IN Portage/Valparaiso Jul
- ----------------------------------------------------------------------------------------------------------
106 IN Greater Indianapolis- North Edition Aug
- ----------------------------------------------------------------------------------------------------------
107 IN Vincennes/Lawrenceville Aug
- ----------------------------------------------------------------------------------------------------------
108 IN Angola/Auburn/Kendallville Sep
- ----------------------------------------------------------------------------------------------------------
109 IN Peru/Wabash Sep
- ----------------------------------------------------------------------------------------------------------
110 IN Richmond Sep
- ----------------------------------------------------------------------------------------------------------
111 IN Lafayette/West Lafayette Oct
- ----------------------------------------------------------------------------------------------------------
112 IN Logansport Oct
- ----------------------------------------------------------------------------------------------------------
113 IN Northwest Indiana Oct
- ----------------------------------------------------------------------------------------------------------
114 IN Kokomo Nov
- ----------------------------------------------------------------------------------------------------------
115 IN Terre Haute Dec
- ----------------------------------------------------------------------------------------------------------
116 KS Leavenworth/Lansing/Bonner Springs Jan
- ----------------------------------------------------------------------------------------------------------
117 KS Lawrence/Ottawa Mar
- ----------------------------------------------------------------------------------------------------------
118 KS Manhattan/Junction City Apr
- ----------------------------------------------------------------------------------------------------------
</Table>
1.3(a)-3
<Page>
<Table>
<Caption>
- ----------------------------------------------------------------------------------------------------------
# STATE MARKET NAME DATE
- ----------------------------------------------------------------------------------------------------------
119 KS Overland Park/ Olathe/Shawnee/Mission/Lenexa/Prairie Village/Leawood Sep
- ----------------------------------------------------------------------------------------------------------
120 KS Topeka Oct
- ----------------------------------------------------------------------------------------------------------
121 MI Bad Axe/Caro/Cass City/Marlette/Sandusky/Vassar Feb
- ----------------------------------------------------------------------------------------------------------
122 MI Battle Creek/Marshall Feb
- ----------------------------------------------------------------------------------------------------------
123 MI Grand Rapids Feb
- ----------------------------------------------------------------------------------------------------------
124 MI Big Rapids/Fremont/Newaygo Mar
- ----------------------------------------------------------------------------------------------------------
125 MI Cadillac Mar
- ----------------------------------------------------------------------------------------------------------
126 MI East Area Metro Detroit Mar
- ----------------------------------------------------------------------------------------------------------
127 MI Hastings Mar
- ----------------------------------------------------------------------------------------------------------
128 MI North Woodward Mar
- ----------------------------------------------------------------------------------------------------------
129 MI Grand Traverse Area Apr
- ----------------------------------------------------------------------------------------------------------
130 MI Marquette Apr
- ----------------------------------------------------------------------------------------------------------
131 MI Cheboygan/Petoskey May
- ----------------------------------------------------------------------------------------------------------
132 MI Holland/Grand Haven May
- ----------------------------------------------------------------------------------------------------------
133 MI Lansing/East Lansing May
- ----------------------------------------------------------------------------------------------------------
134 MI Saginaw/Bay City/Midland/Mt. Pleasant May
- ----------------------------------------------------------------------------------------------------------
135 MI Beulah/Frankfort Jun
- ----------------------------------------------------------------------------------------------------------
136 MI Muskegon/Norton Shores/Muskegon Heights Jun
- ----------------------------------------------------------------------------------------------------------
137 MI Escanaba/Iron Mountain/Manistique Jul
- ----------------------------------------------------------------------------------------------------------
138 MI Kalamazoo/Portage Jul
- ----------------------------------------------------------------------------------------------------------
139 MI Ludington/Manistee Jul
- ----------------------------------------------------------------------------------------------------------
140 MI North Oakland Jul
- ----------------------------------------------------------------------------------------------------------
141 MI Sturgis/Three Rivers Jul
- ----------------------------------------------------------------------------------------------------------
142 MI Detroit Down River Aug
- ----------------------------------------------------------------------------------------------------------
143 MI Greenville/Belding/Ionia Aug
- ----------------------------------------------------------------------------------------------------------
144 MI West Northwest Detroit Area Aug
- ----------------------------------------------------------------------------------------------------------
145 MI South Haven/Paw Paw Sep
- ----------------------------------------------------------------------------------------------------------
146 MI Allegan/Otsego/Plainwell Oct
- ----------------------------------------------------------------------------------------------------------
147 MI Gaylord/Grayling/Houghton Lake Oct
- ----------------------------------------------------------------------------------------------------------
148 MI Benton Harbor/St. Joseph/Niles/Dowagiac Nov
- ----------------------------------------------------------------------------------------------------------
149 MI Flint/Lapeer Nov
- ----------------------------------------------------------------------------------------------------------
150 MI Sault Ste. Marie/Eastern Upper Peninsula Nov
- ----------------------------------------------------------------------------------------------------------
151 MI West Branch /Oscoda/Standish/Tawas City Nov
- ----------------------------------------------------------------------------------------------------------
152 MI Alpena Dec
- ----------------------------------------------------------------------------------------------------------
153 MN Albert Lea/Austin/Owatonna Jan
- ----------------------------------------------------------------------------------------------------------
154 MN Brainerd Lakes Feb
- ----------------------------------------------------------------------------------------------------------
155 MN Rochester Feb
- ----------------------------------------------------------------------------------------------------------
156 MN Thief River Falls/Crookston/Roseau Mar
- ----------------------------------------------------------------------------------------------------------
157 MN Bemidji May
- ----------------------------------------------------------------------------------------------------------
158 MN New Ulm/Redwood Falls May
- ----------------------------------------------------------------------------------------------------------
159 MN Alexandria/Glenwood/Morris/Sauk Centre Jun
- ----------------------------------------------------------------------------------------------------------
</Table>
1.3(a)-4
<Page>
<Table>
<Caption>
- ----------------------------------------------------------------------------------------------------------
# STATE MARKET NAME DATE
- ----------------------------------------------------------------------------------------------------------
160 MN Faribault/Northfield/Red Wing Jun
- ----------------------------------------------------------------------------------------------------------
161 MN St. Cloud Jun
- ----------------------------------------------------------------------------------------------------------
162 MN Stillwater/Hudson/River Falls Jun
- ----------------------------------------------------------------------------------------------------------
163 MN Crow River Area Jul
- ----------------------------------------------------------------------------------------------------------
164 MN Detroit Lakes/Fergus Falls/Wahpeton Jul
- ----------------------------------------------------------------------------------------------------------
165 MN Marshall/Worthington Aug
- ----------------------------------------------------------------------------------------------------------
166 MN Minneapolis/St. Paul Aug
- ----------------------------------------------------------------------------------------------------------
167 MN Willmar/Montevideo/Olivia/Paynesville Aug
- ----------------------------------------------------------------------------------------------------------
168 MN Duluth/Superior Sep
- ----------------------------------------------------------------------------------------------------------
169 MN The Greater Twin Cities- South Edition Oct
- ----------------------------------------------------------------------------------------------------------
170 MN Cambridge/Chisago Lakes/East Bethel/Forest Lake/Mora/North Branch/Pine City Nov
- ----------------------------------------------------------------------------------------------------------
171 MN Elk River/Buffalo/Monticello Nov
- ----------------------------------------------------------------------------------------------------------
172 MN Hibbing/Virginia/Grand Rapids/Chisholm Dec
- ----------------------------------------------------------------------------------------------------------
173 MN Mankato Dec
- ----------------------------------------------------------------------------------------------------------
174 MO City of St. Louis and North St. Louis County Jan
- ----------------------------------------------------------------------------------------------------------
175 MO Columbia/Jefferson City Jan
- ----------------------------------------------------------------------------------------------------------
176 MO Farmington/Park Hills Jan
- ----------------------------------------------------------------------------------------------------------
177 MO Cape Girardeau Feb
- ----------------------------------------------------------------------------------------------------------
178 MO Joplin Feb
- ----------------------------------------------------------------------------------------------------------
179 MO Moberly/Macon Feb
- ----------------------------------------------------------------------------------------------------------
180 MO St. Charles/St. Peters/O'Fallen Apr
- ----------------------------------------------------------------------------------------------------------
181 MO Hannibal May
- ----------------------------------------------------------------------------------------------------------
182 MO The Lake of the Ozarks May
- ----------------------------------------------------------------------------------------------------------
183 MO Gladstone/Liberty/Parkville Jun
- ----------------------------------------------------------------------------------------------------------
184 MO Jefferson County Jul
- ----------------------------------------------------------------------------------------------------------
185 MO Springfield/Branson Jul
- ----------------------------------------------------------------------------------------------------------
186 MO Aurora/Monett Sep
- ----------------------------------------------------------------------------------------------------------
187 MO Sedalia Sep
- ----------------------------------------------------------------------------------------------------------
188 MO West Plains/Mountain Grove Sep
- ----------------------------------------------------------------------------------------------------------
189 MO City of St. Louis and South St. Louis County Oct
- ----------------------------------------------------------------------------------------------------------
190 MO Nevada/Fort Scott Oct
- ----------------------------------------------------------------------------------------------------------
191 MO Poplar Bluff/Sikeston Oct
- ----------------------------------------------------------------------------------------------------------
192 MO St. Joseph/Atchison/Maryville Oct
- ----------------------------------------------------------------------------------------------------------
193 MO Franklin/Gasconade Regional/Washington/Sullivan/Union Nov
- ----------------------------------------------------------------------------------------------------------
194 MO Ft. Leonard Wood/Lebanon/Rolla Nov
- ----------------------------------------------------------------------------------------------------------
195 MO Kirksville Nov
- ----------------------------------------------------------------------------------------------------------
196 MO City of St. Louis and West St. Louis County Dec
- ----------------------------------------------------------------------------------------------------------
197 MO Lee's Summit/Blue Springs Dec
- ----------------------------------------------------------------------------------------------------------
198 MS The Original De Soto Area-Wide Phone Book Aug
- ----------------------------------------------------------------------------------------------------------
199 MT Great Falls/Havre/Lewistown Mar
- ----------------------------------------------------------------------------------------------------------
200 MT Bozeman Apr
- ----------------------------------------------------------------------------------------------------------
</Table>
1.3(a)-5
<Page>
<Table>
<Caption>
- ----------------------------------------------------------------------------------------------------------
# STATE MARKET NAME DATE
- ----------------------------------------------------------------------------------------------------------
201 MT Missoula Jun
- ----------------------------------------------------------------------------------------------------------
202 MT Billings/Sheridan/Cody Aug
- ----------------------------------------------------------------------------------------------------------
203 MT Butte/Helena Dec
- ----------------------------------------------------------------------------------------------------------
204 ND Jamestown/Valley City Mar
- ----------------------------------------------------------------------------------------------------------
205 ND Bismarck/Mandan/Dickinson Jun
- ----------------------------------------------------------------------------------------------------------
206 ND Grand Forks/East Grand Forks Jul
- ----------------------------------------------------------------------------------------------------------
207 ND Minot/Williston Sep
- ----------------------------------------------------------------------------------------------------------
208 ND Fargo/Moorhead/West Fargo Dec
- ----------------------------------------------------------------------------------------------------------
209 NE Fremont Feb
- ----------------------------------------------------------------------------------------------------------
210 NE Kearney Apr
- ----------------------------------------------------------------------------------------------------------
211 NE Omaha May
- ----------------------------------------------------------------------------------------------------------
212 NE Columbus Sep
- ----------------------------------------------------------------------------------------------------------
213 NE Grand Island/Hastings Nov
- ----------------------------------------------------------------------------------------------------------
214 NE Lincoln Nov
- ----------------------------------------------------------------------------------------------------------
215 OH Dayton Jan
- ----------------------------------------------------------------------------------------------------------
216 OH Toledo Mar
- ----------------------------------------------------------------------------------------------------------
217 OH Troy/Piqua/Sidney/Tipp City Mar
- ----------------------------------------------------------------------------------------------------------
218 OH Lebanon Apr
- ----------------------------------------------------------------------------------------------------------
219 OH Bowling Green May
- ----------------------------------------------------------------------------------------------------------
220 OH Fremont May
- ----------------------------------------------------------------------------------------------------------
221 OH Middletown May
- ----------------------------------------------------------------------------------------------------------
222 OH Celina/Greenville/Portland/Winchester Jun
- ----------------------------------------------------------------------------------------------------------
223 OH Columbus Jun
- ----------------------------------------------------------------------------------------------------------
224 OH Lima Jun
- ----------------------------------------------------------------------------------------------------------
225 OH Springfield Jul
- ----------------------------------------------------------------------------------------------------------
226 OH Beaver Creek/Fairborn/Xenia Aug
- ----------------------------------------------------------------------------------------------------------
227 OH Defiance/Bryan/Napoleon Sep
- ----------------------------------------------------------------------------------------------------------
228 OH Van Wert/Paulding Sep
- ----------------------------------------------------------------------------------------------------------
229 OH Eaton/Oxford/Brookville/New Lebanon Nov
- ----------------------------------------------------------------------------------------------------------
230 OR Klamath Falls Feb
- ----------------------------------------------------------------------------------------------------------
231 OR Eugene Apr
- ----------------------------------------------------------------------------------------------------------
232 OR Medford/Grants Pass Sep
- ----------------------------------------------------------------------------------------------------------
233 OR Coos Bay Nov
- ----------------------------------------------------------------------------------------------------------
234 OR Roseburg Dec
- ----------------------------------------------------------------------------------------------------------
235 SD Rapid City/Gillette Jan
- ----------------------------------------------------------------------------------------------------------
236 SD Aberdeen/Watertown Feb
- ----------------------------------------------------------------------------------------------------------
237 SD Huron/Mitchell/Pierre Feb
- ----------------------------------------------------------------------------------------------------------
238 SD Sioux Falls/Brookings/Vermillion/Yankton Jul
- ----------------------------------------------------------------------------------------------------------
239 TN Dyersburg Apr
- ----------------------------------------------------------------------------------------------------------
240 TN Memphis Area Wide Apr
- ----------------------------------------------------------------------------------------------------------
241 TN Jackson Dec
- ----------------------------------------------------------------------------------------------------------
</Table>
1.3(a)-6
<Page>
<Table>
<Caption>
- ----------------------------------------------------------------------------------------------------------
# STATE MARKET NAME DATE
- ----------------------------------------------------------------------------------------------------------
242 WI Janesville/Beloit Jan
- ----------------------------------------------------------------------------------------------------------
243 WI Door County Feb
- ----------------------------------------------------------------------------------------------------------
244 WI Manitowoc/Two Rivers Feb
- ----------------------------------------------------------------------------------------------------------
245 WI Rice Lake/Amery/Grantsburg/Hayward/Ladysmith/ Osceola/Spooner/ Saint Croix Falls Feb
- ----------------------------------------------------------------------------------------------------------
246 WI Wausau Feb
- ----------------------------------------------------------------------------------------------------------
247 WI La Crosse/Winona Mar
- ----------------------------------------------------------------------------------------------------------
248 WI Oshkosh/Berlin/Ripon/Wautoma Mar
- ----------------------------------------------------------------------------------------------------------
249 WI Ashland/Ironwood Apr
- ----------------------------------------------------------------------------------------------------------
250 WI Rhinelander/Eagle River/Minoqua/Lac Du Flambeau/Tomahawk/Woodruff Apr
- ----------------------------------------------------------------------------------------------------------
251 WI Baraboo/Portage/Reedsburg/Mauston/Sauk City/ Wisconsin Dells May
- ----------------------------------------------------------------------------------------------------------
252 WI Madison May
- ----------------------------------------------------------------------------------------------------------
253 WI Burlington/Delavan/Elkhorn/Lake Geneva/Mukwonago/Twin Lakes Jun
- ----------------------------------------------------------------------------------------------------------
254 WI Waupaca/Shawano Counties Jun
- ----------------------------------------------------------------------------------------------------------
255 WI Watertown/Whitewater/Fort Atkinson/Jefferson Jul
- ----------------------------------------------------------------------------------------------------------
256 WI Appleton/Fox Cities Aug
- ----------------------------------------------------------------------------------------------------------
257 WI Marshfield/Stevens Point/Wisconsin Rapids Aug
- ----------------------------------------------------------------------------------------------------------
258 WI Prairie Du Chien/Dodgeville/Richland Center/Viroqua Sep
- ----------------------------------------------------------------------------------------------------------
259 WI Fond Du Lac/Beaver Dam/Columbus/Hartford/Mayville/Waupun Oct
- ----------------------------------------------------------------------------------------------------------
260 WI Green Bay/De Pere Nov
- ----------------------------------------------------------------------------------------------------------
261 WI Marinette/Menominee Nov
- ----------------------------------------------------------------------------------------------------------
262 WI Eau Claire Dec
- ----------------------------------------------------------------------------------------------------------
263 WI Sheboygan County Dec
- ----------------------------------------------------------------------------------------------------------
264 WY Cheyenne/Laramie/Rawlins/Wheatland Feb
- ----------------------------------------------------------------------------------------------------------
265 WY Casper May
- ----------------------------------------------------------------------------------------------------------
266 WY Rock Springs Dec
- ----------------------------------------------------------------------------------------------------------
267 MI Ann Arbor Oct
- ----------------------------------------------------------------------------------------------------------
</Table>
1.3(a)-7
<Page>
SCHEDULE 1.3(b)
MCLEOD SERVICE STATES
1. Arizona
2. Arkansas
3. Colorado
4. Idaho
5. Illinois
6. Indiana
7. Iowa
8. Kansas
9. Louisiana
10. Michigan
11. Minnesota
12. Missouri
13. Montana
14. Nebraska
15. New Mexico
16. North Dakota
17. Ohio
18. Oklahoma
19. Oregon
20. South Dakota
21. Texas
22. Utah
23. Washington
24. Wisconsin
25. Wyoming
<Page>
EXHIBIT 5.2
DIRECTORY COVER SAMPLE
<Page>
EXHIBIT 5.3
INITIAL PAGES INSERT SAMPLE
<Page>
EXHIBIT 5.5
WHITE AND YELLOW PAGES ADVERTISING SAMPLE