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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported): January 7, 1999
McLEODUSA INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 0-20763 42-1407240
(State or Other (Commission (IRS Employer
Jurisdiction File Number) Identification Number)
of Incorporation)
McLeodUSA Technology Park 52406-3177
6400 C Street, S.W., P.O. Box 3177, Cedar Rapids, (Zip Code)
IA
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (319) 364-0000
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INFORMATION TO BE INCLUDED IN THE REPORT
Item 5. Other Events
Agreement to Acquire Ovation Communications, Inc.
On January 7, 1999, McLeodUSA Incorporated (the "Company") entered into an
Agreement and Plan of Merger (the "Ovation Merger Agreement") with Ovation
Communications, Inc., a Delaware corporation ("Ovation"), and certain
stockholders of Ovation pursuant to which Ovation will be merged with and into
a newly formed wholly owned subsidiary of the Company (the "Ovation Merger").
As a result of the Ovation Merger, (i) each share of Ovation's preferred stock
will be converted into the right to receive cash, and (ii) each share of
Ovation's common stock will be converted, at the election of the holder
thereof, into the right to receive cash or shares of the Company's Class A
common stock. The amount of cash into which each share of Ovation's preferred
stock will be converted and the amount of cash or number of shares of the
Company's Class A common stock into which each share of Ovation's common stock
will be converted will be determined immediately prior to consummation of the
Ovation Merger in accordance with formulas specified in the Ovation Merger
Agreement. The Company estimates that it will be required to issue
approximately 5.1 million shares of its Class A common stock and to pay
approximately $141 million pursuant to the Ovation Merger. The Company also
will assume approximately $83 million in Ovation debt. In addition, under the
terms of the Ovation Merger Agreement, each option to purchase Ovation common
stock issued under Ovation's stock option plan will become or be replaced by
an option to purchase a number of shares of the Company's Class A common stock
equal to the number of shares of Ovation common stock that could have been
purchased (assuming full vesting) under the Ovation stock option multiplied by
the exchange ratio used to convert Ovation common stock into the Company's
Class A common stock. The Company has agreed to register under the Securities
Act of 1933 the shares of its Class A common stock to be issued in the Ovation
Merger.
Consummation of the Ovation Merger is subject to the satisfaction of certain
conditions, including (i) approval of the Ovation Merger Agreement and the
Ovation Merger by the stockholders of Ovation, (ii) effectiveness of the
registration statement registering the shares of the Company's Class A common
stock to be issued in the Ovation Merger, (iii) compliance with all applicable
provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the
expiration of all applicable waiting periods thereunder, (iv) receipt of
specified regulatory approvals and (v) certain other customary conditions.
Certain stockholders and executive officers of Ovation have entered into
voting agreements pursuant to which, among other things, they have agreed to
vote their shares of Ovation common stock and preferred stock in favor of the
Ovation Merger at a meeting of the stockholders of Ovation. Both the Company
and Ovation may terminate the Ovation Merger Agreement if the Ovation Merger
has not been consummated by May 1, 1999.
In connection with the execution of the Ovation Merger Agreement, the
Company entered into a Revolving Credit Agreement with Ovation pursuant to
which the Company agreed to lend to Ovation up to $20 million on a senior
subordinated unsecured basis. In addition, certain stockholders of Ovation
entered into a Stockholders' Agreement (the "Stockholders' Agreement") with
the Company and certain stockholders of the Company pursuant to which, among
other things, such Ovation stockholders agreed through December 31, 2001 to
certain restrictions on their ability to transfer the shares of the Company's
Class A common stock that they will receive in the Ovation Merger.
Ovation is a facilities-based competitive local exchange carrier
headquartered in Minneapolis, Minnesota. Ovation offers local, long distance,
Integrated Services Digital Network (ISDN), voice mail, teleconferencing,
calling card and other telecommunications services to business and residential
customers primarily in urban areas in the upper Midwestern region of the
United States. As of December 31, 1998, Ovation served approximately 32,650
business local lines and 12,900 residential local lines to approximately 2,900
business customers and 11,750 residential customers in 135 cities and towns,
generating estimated 1998 revenues of $34.6 million.
2
Ovation has four switches and approximately 564 route miles of fiber optic
network. As of December 31, 1998, Ovation had 384 employees.
The foregoing descriptions of the Ovation Merger Agreement and the
Stockholders' Agreement, and the transactions contemplated thereby, do not
purport to be complete and are qualified in their entirety by reference to the
Ovation Merger Agreement and the Stockholders' Agreement, copies of which are
attached hereto as Exhibit 2.1 and Exhibit 4.1, respectively, and incorporated
herein by reference. A copy of the press release, dated January 7, 1999,
issued by the Company regarding the above-described transactions is attached
as Exhibit 99.1 hereto and incorporated herein by reference.
Agreements to Acquire Talking Directories, Inc. and Info America Phone Books,
Inc.
On January 7, 1999, the Company and its indirect wholly owned subsidiary,
McLeodUSA Publishing Company ("Pubco"), entered into an Agreement and Plan of
Merger (the "TDI Merger Agreement") with Talking Directories, Inc., a Michigan
corporation ("TDI"), and the stockholders of TDI pursuant to which a newly
formed wholly owned subsidiary of Pubco will be merged with and into TDI (the
"TDI Merger"). As a result of the TDI Merger, each share of TDI common stock
will be converted into the right to receive a number of shares of the
Company's Class A common stock determined in accordance with a formula
contained in the TDI Merger Agreement. The maximum number of shares of the
Company's Class A common stock issuable pursuant to the TDI Merger is expected
to be approximately 2,556,391. The Company will also assume approximately
$15.6 million of TDI debt. The Company intends to account for the TDI Merger
as a "pooling of interests."
Consummation of the TDI Merger is subject to the satisfaction of certain
conditions, including (i) approval of the TDI Merger Agreement and the TDI
Merger by the stockholders of TDI, (ii) compliance with all applicable
provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the
expiration of all applicable waiting periods thereunder, (iii) receipt of
required regulatory approvals, (iv) receipt of an opinion of the Company's
accountants that the TDI Merger may be treated as a "pooling of interests" for
accounting purposes, and (v) certain other customary conditions. Both Pubco
and TDI may terminate the TDI Merger Agreement if the TDI Merger has not been
consummated by February 15, 1999.
In a related transaction, on January 7, 1999, the Company and Pubco entered
into an Agreement and Plan of Merger (the "Info America Merger Agreement")
with Info America Phone Books, Inc., a Michigan corporation ("Info America"),
and certain stockholders of Info America pursuant to which a newly formed
wholly owned subsidiary of Pubco will be merged with and into Info America
(the "Info America Merger"). As a result of the Info America Merger, each
share of Info America's common stock will be converted into the right to
receive a number of shares of the Company's Class A common stock determined in
accordance with a formula contained in the Info America Merger Agreement. The
maximum number of shares of the Company's Class A common stock issuable
pursuant to the Info America Merger is expected to be approximately 1,203,007.
The Company intends to account for the Info America Merger as a "pooling of
interests."
Consummation of the Info America Merger is subject to the satisfaction of
certain conditions, including (i) approval of the Info America Merger
Agreement and the Info America Merger by the stockholders of Info America,
(ii) compliance with all applicable provisions of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 and the expiration of all applicable
waiting periods thereunder, (iii) receipt of required regulatory approvals,
(iv) receipt of an opinion of the Company's accountants that the Info America
Merger may be treated as a "pooling of interests" for accounting purposes, and
(v) certain other customary conditions. Both Pubco and Info America may
terminate the Info America Merger Agreement if the Info America Merger has not
been consummated by February 15, 1999.
TDI and Info America are related companies, headquartered in Grand Rapids,
Michigan, that together publish and distribute proprietary "white page" and
"yellow page" telephone directories primarily in Michigan and northwestern
Ohio. In 1998, TDI and Info America collectively published and distributed
approximately
3
2.6 million copies of 19 telephone directories. As of December 31, 1998, TDI
had 257 employees and Info America had no employees.
The foregoing descriptions of the TDI Merger Agreement and the Info America
Merger Agreement, and the transactions contemplated thereby, do not purport to
be complete and are qualified in their entirety by reference to the TDI Merger
Agreement and the Info America Merger Agreement, copies of which are attached
hereto as Exhibit 2.2 and Exhibit 2.3, respectively, and incorporated herein
by reference. A copy of the press release, dated January 7, 1999, issued by
the Company regarding the above-described transactions is attached as Exhibit
99.2 hereto and incorporated herein by reference.
Certain statements contained in this Current Report on Form 8-K are forward-
looking statements that involve risks and uncertainties, including, but not
limited to revision of expansion plans, availability of financing and
regulatory approvals, the number of potential customers in a target market,
the existence of strategic alliances or relationships, technological,
regulatory or other developments in the Company's business, changes in the
competitive climate in which the Company operates and the emergence of future
opportunities, all of which could cause actual results and experiences of the
Company to differ materially from anticipated results and expectations
expressed in the forward-looking statements contained herein. These and other
applicable risks are summarized under the caption "Risk Factors" and elsewhere
in the Company's Registration Statement on Form S-4, Registration
No. 333-68891, filed with the Securities and Exchange Commission on December
14, 1998.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(c) Exhibits.
2.1 Agreement and Plan of Merger, dated as of January 7, 1999, among McLeodUSA
Incorporated, Bravo Acquisition Corporation, Ovation Communications, Inc. and certain
stockholders of Ovation Communications, Inc.
2.2 Agreement and Plan of Merger, dated as of January 7, 1999, among McLeodUSA
Incorporated, McLeodUSA Publishing Company, Pubco Merging Co., Talking Directories,
Inc. and certain stockholders of Talking Directories, Inc.
2.3 Agreement and Plan of Merger, dated as of January 7, 1999, among McLeodUSA
Incorporated, McLeodUSA Publishing Company, Publication Merge Co., Info America Phone
Books, Inc. and certain stockholders of Info America Phone Books, Inc.
4.1 Stockholders' Agreement, dated as of January 7, 1999, by and among McLeodUSA
Incorporated, IES Investments Inc., Clark E. McLeod, Mary E. McLeod, Richard A.
Lumpkin, Gail Lumpkin, M/C Investors L.L.C. and Media/Communications Partners III
Limited Partnership.
99.1 Press Release, dated January 7, 1999, announcing the Company's execution of a
definitive agreement to acquire Ovation Communications, Inc.
99.2 Press Release, dated January 7, 1999, announcing McLeodUSA Publishing Company's
execution of definitive agreements to acquire Talking Directories, Inc. and Info
America Phone Books, Inc.
4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
McLeodUSA Incorporated
Date: January 14, 1999
/s/ Randall Rings
By: _________________________________
Randall Rings
Vice President, Secretary and
General Counsel
EXHIBIT INDEX
Page Number
in Sequential
Exhibit Number Exhibit Numbering System
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2.1 Agreement and Plan of Merger, dated as of
January 7, 1999, among McLeodUSA
Incorporated, Bravo Acquisition
Corporation, Ovation Communications, Inc.
and certain stockholders of Ovation
Communications, Inc.
2.2 Agreement and Plan of Merger, dated as of
January 7, 1999, among McLeodUSA
Incorporated, McLeodUSA Publishing Company,
Pubco Merging Co., Talking Directories,
Inc. and certain stockholders of Talking
Directories, Inc.
2.3 Agreement and Plan of Merger, dated as of
January 7, 1999, among McLeodUSA
Incorporated, McLeodUSA Publishing Company,
Publication Merge Co., Info America Phone
Books, Inc. and certain stockholders of
Info America Phone Books, Inc.
4.1 Stockholders' Agreement, dated as of January
7, 1999, by and among McLeodUSA
Incorporated, IES Investments Inc., Clark
E. McLeod, Mary E. McLeod, Richard A.
Lumpkin, Gail Lumpkin, M/C Investors L.L.C.
and Media/Communications Partners III
Limited Partnership.
99.1 Press Release, dated January 7, 1999,
announcing McLeodUSA Incorporated's
execution of a definitive agreement to
acquire Ovation Communications, Inc.
99.2 Press Release, dated January 7, 1999,
announcing McLeodUSA Publishing Company's
execution of definitive agreements to
acquire Talking Directories, Inc. and Info
America Phone Books, Inc.