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EXHIBIT 1.1
DRAFT DATE: 5/14/96
MCLEOD, INC.
10,000,000 Shares
Class A Common Stock
($.01 par value)
Underwriting Agreement
May , 1996
Salomon Brothers Inc
Morgan Stanley & Co.
Bear, Stearns & Co. Inc.
As Representatives of the several Underwriters,
c/o Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048
Dear Sirs:
McLeod, Inc., a Delaware corporation (the "Company"), proposes to sell
to the underwriters named in Schedule I hereto (the "Underwriters"), for whom
you (the "Representatives") are acting as representatives, shares (the
"Underwritten Securities") of Class A Common Stock, $.01 par value (the "Common
Stock") of the Company. The Company also proposes to grant to the Underwriters
an option to purchase up to additional shares of Common Stock (the "Option
Securities"; the Option Securities, together with the Underwritten Securities,
being hereinafter called the "Securities").
1. Representations and Warranties.
(a) The Company represents and warrants to, and agrees
with, each Underwriter as set forth below in this Section 1. Certain terms
used in this Section 1 are defined in paragraph (iii) hereof.
(i) The Company has filed with the Securities and
Exchange Commission (the "Commission") a registration
statement (file number 333-3112) on Form S-1, including a
related preliminary prospectus, for the registration under the
Securities Act of 1933 (the "Act") of the offering and sale of
the Securities. The Company may have filed one or more
amendments thereto, including the related preliminary
prospectus, each of which have previously been furnished to
you. The Company will
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next file with the Commission either (A) prior to
effectiveness of such registration statement, a further
amendment to such registration statement (including the form
of final prospectus) or (B) after effectiveness of such
registration statement, a final prospectus in accordance with
Rules 430A and 424(b)(1) or (4). In the case of clause (B),
the Company has included in such registration statement, as
amended at the Effective Date, all information (other than
Rule 430A Information) required by the Act and the rules
thereunder to be included in the Prospectus with respect to
the Securities and the offering thereof. As filed, such
amendment and form of final prospectus, or such final
prospectus, shall contain all Rule 430A Information, together
with all other such required information, with respect to the
Securities and the offering thereof and, except to the extent
the Representatives shall agree in writing to a modification,
shall be in all substantive respects in the form furnished to
you prior to the Execution Time or, to the extent not
completed at the Execution Time, shall contain only such
specific additional information and other changes (beyond that
contained in the latest Preliminary Prospectus) as the Company
has advised you, prior to the Execution Time, will be included
or made therein.
(ii) On the Effective Date, the Registration
Statement did or will, and when the Prospectus is first filed
(if required) in accordance with Rule 424(b) and on the
Closing Date, the Prospectus (and any supplements thereto)
will, comply in all material respects with the applicable
requirements of the Act and the rules thereunder; on the
Effective Date, the Registration Statement did not or will not
contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or
necessary in order to make the statements therein not
misleading; and, on the Effective Date, the Prospectus, if not
filed pursuant to Rule 424(b), did not or will not, and on the
date of any filing pursuant to Rule 424(b), the Prospectus
will not, and on the Closing Date, the Prospectus (together
with any supplement thereto) will not, include any untrue
statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not
misleading; provided, however, that the Company makes no
representations or warranties as to
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the information contained in or omitted from the Registration
Statement or the Prospectus (or any supplement thereto) in
reliance upon and in conformity with information furnished in
writing to the Company by or on behalf of any Underwriter
through the Representatives specifically for inclusion in the
Registration Statement or the Prospectus (or any supplement
thereto).
(iii) The terms which follow, when used in this
Agreement, shall have the meanings indicated. "Effective
Date" shall mean each date that the Registration Statement and
any post-effective amendment or amendments thereto became or
become effective. "Execution Time" shall mean the date and
time that this Agreement is executed and delivered by the
parties hereto. "Preliminary Prospectus" shall mean any
preliminary prospectus referred to in paragraph (i) above and
any preliminary prospectus included in the Registration
Statement at the Effective Date that omits Rule 430A
Information. "Prospectus" shall mean the prospectus relating
to the Securities that is first filed pursuant to Rule 424(b)
after the Execution Time or, if no filing pursuant to Rule
424(b) is required, shall mean the form of final prospectus
relating to the Securities included in the Registration
Statement at the Effective Date. "Registration Statement"
shall mean the registration statement referred to in paragraph
(i) above, including exhibits and financial statements, as
amended at the Execution Time (or, if not effective at the
Execution Time, in the form in which it shall become
effective) and, in the event any post-effective amendment
thereto becomes effective prior to the Closing Date (as
hereinafter defined), shall also mean such registration
statement as so amended. Such term shall include any Rule
430A Information deemed to be included therein at the
Effective Date as provided by Rule 430A. "Rule 424" and "Rule
430A" refer to such rules under the Act. "Rule 430A
Information" means information with respect to the Securities
and the offering thereof permitted to be omitted from the
Registration Statement when it becomes effective pursuant to
Rule 430A.
(iv) Since the date of the most recent financial
statements included in the Prospectus (exclusive of any
supplement thereto), there has been no material adverse
change, or any development which will result in a material
adverse change, in the condition (financial or
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other), earnings, business, prospects or properties of the
Company and its subsidiaries, whether or not arising from
transactions in the ordinary course of business, except as set
forth in the Prospectus (exclusive of any supplement thereto);
and, since the respective dates as of which information is
given in the Registration Statement and the Prospectus,
there has not been any change in the capital stock (other than
grants of options and issuances of common stock pursuant to
existing employee stock option plans, stock ownership plans or
stock purchase plans, repurchases by the Company of its common
stock in the ordinary course of business or conversions of
outstanding convertible securities) or long-term debt (other
than changes as a result of maturities, regularly scheduled
payments and payments contemplated as a result of the
application of proceeds of the offering of the securities,
amortization of debt discount or currency fluctuations) of the
Company or any of its subsidiaries.
(v) Each of (a) the Company and (b) McLeod
Telemanagement, Inc., MWR Telecom, Inc., McLeod Network
Services, Inc., McLeod Wireless, Inc., McLeod Transit, Inc.
and McLeod Telecommunications, Inc. (individually a
"Subsidiary" and collectively the "Subsidiaries") has been
duly incorporated and is validly existing as a corporation in
good standing under the laws of the jurisdiction in which it
is chartered or organized, with full corporate power and
authority to own its properties and conduct its business as
described in the Prospectus, and is duly qualified to do
business as a foreign corporation and is in good standing
under the laws of each jurisdiction which requires such
qualification, except where the failure to be so qualified
could not reasonably be expected to have a material adverse
effect on the Company and the Subsidiaries. Except for the
Subsidiaries, the Company has no subsidiaries which,
considered in the aggregate as a single subsidiary, would
constitute a "significant subsidiary" as defined in Rule
1-02(w) of Regulation S-X promulgated under the Act.
(vi) All the outstanding shares of capital stock
of each Subsidiary have been duly and validly authorized and
issued and are fully paid and nonassessable, and, except as
otherwise set forth in the Prospectus, all outstanding shares
of capital stock of the Subsidiaries are owned by the Company
either directly or through
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wholly owned subsidiaries free and clear of any security
interests, claims, liens or encumbrances.
(vii) The Company's authorized equity capitalization
is as set forth in the Prospectus; the capital stock of the
Company conforms in all material respects to the description
thereof contained in the Prospectus; the outstanding shares of
Common Stock have been duly and validly authorized and issued
and are fully paid and nonassessable; the Securities have been
duly and validly authorized, and, when issued and delivered to
and paid for by the Underwriters pursuant to this Agreement,
will be fully paid and nonassessable; the Securities are duly
authorized for listing, subject to official notice of
issuance, on the Nasdaq National Market; the certificates for
the Securities are in valid and sufficient form; and the
holders of outstanding shares of capital stock of the Company
are not entitled to statutory preemptive or similar
contractual rights to subscribe for the Securities in
connection with the issuance and sale thereof by the Company.
(viii) There is no pending or, to the Company's
knowledge, threatened action, suit or proceeding before any
court or governmental agency, authority or body or any
arbitrator involving the Company or any of its subsidiaries of
a character required to be disclosed in the Registration
Statement which is not adequately disclosed in the Prospectus,
and there is no franchise, contract or other document of a
character required to be described in the Registration
Statement or Prospectus, or to be filed as an exhibit, which
is not described or filed as required; and the statements in
the Prospectus under the headings "Business - Legal Matters,"
"Management-- Stockholders' Agreements" and, with respect to
the Credit Facility (as defined in the Prospectus),
"Management's Discussion and Analysis of Financial Condition
and Results of Operations-- Liquidity and Capital Resources"
fairly summarize the matters therein described.
(ix) This Agreement has been duly authorized,
executed and delivered by the Company.
(x) No consent, approval, authorization or order of
any court or governmental agency or body is required for the
consummation of the transactions contemplated
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herein, except such as have been or will be obtained under the
Act and such as may be required under all applicable state
securities and blue sky laws of any jurisdiction in connection
with the purchase and distribution of the Securities by the
Underwriters and such other approvals as have been obtained.
(xi) Neither the issue and sale of the Securities,
the consummation of any other of the transactions herein
contemplated nor the fulfillment of the terms hereof, in each
case by the Company, will conflict with, result in a breach or
violation of, or constitute a default under the charter or
by-laws of the Company or the terms of any indenture or other
agreement or instrument to which the Company or any of its
Subsidiaries is a party or bound or (assuming compliance with
all applicable state securities and blue sky laws and that the
Registration Statement has been declared effective and, if
required, that the Prospectus has been filed pursuant to Rule
424(b)(1) or 424(b)(4)) any law, rule or regulation applicable
to the Company or any of the Subsidiaries or any judgement,
order or decree applicable to the Company or any of its
subsidiaries of any court, regulatory body, administrative
agency, governmental body or arbitrator having jurisdiction
over the Company or any of its subsidiaries.
(xii) No holders of securities of the Company have
rights to the registration of such securities under the
Registration Statement that have not been duly waived.
(xiii) McGladrey & Pullen, LLP, who are reporting
upon the audited financial statements and schedule included in
the Registration Statement, are independent public accountants
as required by the Act and the rules and regulations of the
Commission thereunder.
(xiv) The consolidated financial statements included
in the Registration Statement present fairly the financial
position of the Company and its subsidiaries as of the dates
indicated and the consolidated results of the operations and
cash flows of the Company and its subsidiaries for the periods
specified. Such financial statements (except as disclosed in
the notes thereto or otherwise stated therein) have been
prepared in conformity with generally accepted accounting
principles applied on a
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consistent basis throughout the entire period involved. The
financial statement schedules, if any, included in the
Registration Statement present fairly the information stated
therein. The selected financial data included in the
Prospectus present fairly the information shown therein and
have been compiled on a basis consistent with that of the
audited consolidated financial statements included in the
Registration Statement. The pro forma financial statements
and other pro forma financial information, if any, included in
the Registration Statement present fairly the information
shown therein, have been prepared in accordance with the
Commission's rules and guidelines with respect to pro forma
financial statements, have been properly compiled on the pro
forma bases described therein, and, in the opinion of the
Company, the assumptions used in the preparation thereof are
reasonable and the adjustments used therein are appropriate to
give effect to the transactions or circumstances referred to
therein.
(xv) Neither the Company nor any of the Subsidiaries
is in violation of its charter or in default in the
performance or observance of any obligation, agreement,
covenant or condition contained in any indenture or other
agreement or instrument to which the Company or any of the
Subsidiaries is a party or by which it or any of them may be
bound, or to which any of the property or assets of the
Company or any of the Subsidiaries is subject, other than
defaults (considered in the aggregate) which could not
reasonably be expected to have a material adverse effect on
the condition (financial or other), earnings, business,
prospects or properties of the Company and its subsidiaries.
(xvi) The Company and the Subsidiaries possess
adequate certificates, authorities or permits issued by the
appropriate state, federal or foreign regulatory agencies or
bodies necessary to conduct the business now operated by them
and are in compliance in all material respects with all such
certificates, authorities and permits. Neither the Company
nor any of its subsidiaries has received any notice of
proceedings relating to the revocation or modification of any
such certificate, authority or permit, with such exceptions as
could not reasonably be expected to, singly or in the
aggregate, have a material adverse effect on the condition
(financial or other), earnings,
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business, prospects or properties of the Company and its
subsidiaries.
(xvii) The Company and its subsidiaries have timely
filed all United States federal income tax returns and all
other material tax returns which are required to be filed by
them and have paid all taxes due and payable (other than
taxes, the payment of which are being contested in good
faith), and no tax liens have been filed and no claims are
being asserted with respect to any such taxes, which could
reasonably be expected to have a material adverse effect on
the condition (financial or other), earnings, business,
prospects or properties of the Company and the Subsidiaries.
The provisions for taxes on the books of the Company are
adequate in all material respects for all open years and for
its current fiscal period.
(xviii) The Company and the Subsidiaries (A) are in
compliance with all applicable federal, state, local or
foreign or other laws and regulations relating to the
protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (B) have received all
permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective
businesses and (C) are in compliance with all terms and
conditions of any such permit, license or approval, except, in
each case, where such noncompliance with Environmental Law,
failure to receive required permits, licenses or other
approvals or failure to comply with the terms and conditions
of such permits, licenses or approvals could not reasonably be
expected, singly or in the aggregate, to have a material
adverse effect on the condition (financial or other),
earnings, business, prospects or properties of the Company and
its subsidiaries.
(xix) The Company and the Subsidiaries have good and
marketable title to all real property and good and valid title
to all personal property owned by them, in each case free and
clear of all liens, encumbrances and defects, and any real
property and buildings held under lease by the Company and the
Subsidiaries are held by them under valid, subsisting and
enforceable leases, except, in each case, for such exceptions
as are set forth in the Prospectus or which could not
reasonably be expected to have a material adverse effect on
the
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condition (financial or other), earnings, business, prospects
or properties of the Company and its subsidiaries.
(xx) The Company together with the Subsidiaries own
and possess all right, title and interest in and to, or have
duly licensed from third parties a valid, enforceable right to
use, all patents, patent rights, licenses, inventions,
copyrights, know-how (including trade secrets and other
unpatented or unpatentable proprietary or confidential
information, systems or procedures), trademarks, service marks
and trade names (collectively, "Patent and Proprietary
Rights") currently employed by it in connection with its
business and neither the Company nor any of its subsidiaries
has received notice of infringement or misappropriation of or
conflict with asserted rights of others with respect to any
Patent and Proprietary Rights, or of any facts which would
render any Patent and Proprietary Rights invalid or inadequate
to protect the interest of the Company or and of the
Subsidiaries therein, and which infringement, misappropriation
or conflict or invalidity or inadequacy, individually or in
the aggregate, could reasonably be expected to result in a
material adverse effect on the condition (financial or other),
earnings, business, prospects or properties of the Company and
its subsidiaries.
(xxi) The Company has complied with all provisions
of Section 1 of Laws of Florida, Chapter 92-198 Securities-
Business with Cuba.
2. Purchase and Sale. (a) Subject to the terms and
conditions and in reliance upon the representations and warranties herein set
forth, the Company agrees to sell to each Underwriter, and each Underwriter
agrees, severally and not jointly, to purchase from the Company, at a purchase
price of $ per share, the amount of the Underwritten Securities set forth
opposite such Underwriter's name in Schedule I hereto.
(b) Subject to the terms and conditions and in reliance
upon the representations and warranties herein set forth, the Company hereby
grants an option to the several Underwriters to purchase, severally and not
jointly, up to shares of the Option Securities at the same purchase price per
share as the Underwriters shall pay for the Underwritten Securities. Said
option may be exercised only to cover over-allotments in the sale of the
Underwritten Securities by the Underwriters. Said option may be exercised in
whole or in part
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at any time on or before the 30th day after the date of the Prospectus upon
written notice by the Representatives to the Company setting forth the number
of shares of the Option Securities as to which the several Underwriters are
exercising the option and the settlement date. The number of shares of the
Option Securities to be purchased by each Underwriter shall be the same
percentage of the total number of shares of the Option Securities to be
purchased by the several Underwriters as such Underwriter is purchasing of the
Underwritten Securities, subject to such adjustments as the Representatives in
their absolute discretion shall make to eliminate any fractional shares.
3. Delivery and Payment. Delivery of and payment for
the Underwritten Securities and the Option Securities (if the option provided
for in Section 2(b) hereof shall have been exercised on or before the third
business day prior to the Closing Date) shall be made at 10:00 AM, New York
City time, on , 1996, or such later date (not later than
, 1996) as the Representatives shall designate, which date and time may be
postponed by agreement among the Representatives and the Company or as provided
in Section 9 hereof (such date and time of delivery and payment for the
Securities being herein called the "Closing Date"). Delivery of the Securities
shall be made to the Representatives for the respective accounts of the several
Underwriters against payment by the several Underwriters through the
Representatives of the respective aggregate purchase prices of the Securities
being sold by the Company to or upon the order of the Company by Federal Funds
check or checks and payable in same day funds. Delivery of the Securities
shall be made at such location as the Representatives shall reasonably
designate at least one business day in advance of the Closing Date and payment
for such Securities shall be made at the office of Mayer, Brown & Platt, 1675
Broadway, New York, New York 10019-5820. Certificates for the Securities shall
be registered in such names and in such denominations as the Representatives
may request not less than three full business days in advance of the Closing
Date.
The Company agrees to have the certificates for the Securities
available for inspection, checking and packaging by the Representatives in New
York, New York, not later than 1:00 PM on the business day prior to the Closing
Date.
If the option provided for in Section 2(b) hereof is exercised
after the third business day prior to the Closing Date, the Company will
deliver (at the expense of the Company) to the Representatives, at One New York
Plaza, New York, New York, on the date specified by the Representatives (which
shall be within three business days after exercise of said option),
certificates
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for the Option Securities in such names and denominations as the
Representatives shall have requested at least three full business days in
advance of the settlement date against payment of the purchase price thereof to
or upon the order of the Company by certified or official bank check or checks
drawn on or by a New York Clearing House bank and payable in next day funds.
The Company agrees to have the certificates for the Option Securities available
for inspection, checking and packaging by the Representatives in New York, New
York, not later than 1:00 p.m. on the business day prior to the settlement
date. If settlement for the Option Securities occurs after the Closing Date,
the Company will deliver to the Representatives on the settlement date for the
Option Securities, and the obligation of the Underwriters to purchase the
Option Securities shall be conditioned upon receipt of, supplemental opinions,
certificates and letters confirming as of such date the opinions, certificates
and letters delivered on the Closing Date pursuant to Section 6 hereof.
4. Offering by Underwriters. It is understood that the
several Underwriters propose to offer the Securities for sale to the public as
set forth in the Prospectus.
5. Agreements.
(a) The Company agrees with the several Underwriters
that:
(i) The Company will use its best efforts to
cause the Registration Statement, if not effective at the
Execution Time, and any amendment thereof to become effective.
Prior to the termination of the offering of the Securities,
the Company will not file any amendment of the Registration
Statement or supplement to the Prospectus without the prior
consent of the Representatives (which consent shall not be
unreasonably delayed or withheld). Subject to the foregoing
sentence, if the Registration Statement has become or becomes
effective pursuant to Rule 430A, or filing of the Prospectus
is otherwise required under Rule 424(b), the Company will
cause the Prospectus, properly completed, and any supplement
thereto to be filed with the Commission pursuant to the
applicable paragraph of Rule 424(b) within the time period
prescribed and will provide evidence satisfactory to the
Representatives of such timely filing. The Company will
promptly advise the Representatives (A) when the Registration
Statement, if not effective at the Execution Time, and any
amendment thereto, shall have
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become effective, (B) when the Prospectus, and any supplement
thereto, shall have been filed (if required) with the
Commission pursuant to Rule 424(b), (C) when, prior to
termination of the offering of the Securities, any amendment
to the Registration Statement shall have been filed or become
effective, (D) of any request by the Commission for any
amendment of the Registration Statement or supplement to the
Prospectus or for any additional information with respect to
the Registration Statement or the Prospectus, (E) of the
issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the institution
or threatening of any proceeding for that purpose and (F) of
the receipt by the Company of any notification with respect to
the suspension of the qualification of the Securities for sale
in any jurisdiction or the initiation or threatening of any
proceeding for such purpose. The Company will use its best
efforts to prevent the issuance of any such stop order and, if
issued, to obtain as soon as possible the withdrawal thereof.
(ii) If, at any time when a prospectus relating to
the Securities is required to be delivered under the Act, any
event occurs as a result of which the Prospectus as then
supplemented would include any untrue statement of a material
fact or omit to state any material fact necessary to make the
statements therein in the light of the circumstances under
which they were made not misleading, or if it shall be
necessary to amend the Registration Statement or supplement
the Prospectus to comply with the Act or the rules thereunder,
the Company promptly will prepare and file with the
Commission, subject to the second sentence of paragraph (a)
(i) of this Section 5, an amendment or supplement which will
correct such statement or omission or effect such compliance.
(iii) As soon as reasonably practicable, the Company
will make generally available to its security holders and to
the Representatives an earnings statement or statements of the
Company and its subsidiaries which will satisfy the provisions
of Section 11(a) of the Act and Rule 158 under the Act.
(iv) The Company will furnish to the
Representatives and counsel for the Underwriters, without
charge, signed copies of the Registration Statement (including
exhibits thereto) and to each
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other Underwriter a copy of the Registration Statement
(without exhibits thereto) and, so long as delivery of a
prospectus by an Underwriter or dealer may be required by the
Act, as many copies of each Preliminary Prospectus and the
Prospectus and any supplement thereto as the Representatives
may reasonably request. The Company will furnish or cause to
be furnished to the Representatives copies of all reports on
Form SR required by Rule 463 under the Act. The Company will
pay the expenses of printing or other production of all
documents relating to the offering.
(v) The Company will cooperate with the
Representatives and counsel for the Underwriters in order to
register or qualify the Securities for sale under the laws of
such jurisdictions as the Representatives may designate, will
maintain such registrations or qualifications in effect so
long as required for the distribution of the Securities and
will pay the fee of the National Association of Securities
Dealers, Inc., in connection with its review of the offering;
provided, however, that in no event shall the Company be
obligated to register or qualify as a foreign corporation or
to take any action that would subject it to general service of
process in any jurisdiction where it is not now so subject.
(vi) The Company will not, for a period of 180 days
following the Execution Time, without the prior written
consent of the Representatives, offer, sell or contract to
sell, or otherwise dispose of, directly or indirectly, or
announce the offering of, any other shares of Common Stock or
any securities convertible into, or exchangeable for, shares
of Common Stock; provided, however, that the Company may grant
options and issue and sell Common Stock pursuant to any
employee stock option plan, stock ownership plan or stock
purchase plan of the Company in effect at the Execution Time
and the Company may issue Common Stock issuable upon the
conversion of securities or the exercise of warrants
outstanding at the Execution Time.
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6. Conditions to the Obligations of the Underwriters.
The obligations of the Underwriters to purchase the Underwritten Securities and
the Option Securities, as the case may be, shall be subject to the accuracy of
the representations and warranties on the part of the Company contained herein
as of the Execution Time, the Closing Date and any settlement date pursuant to
Section 3 hereof, to the accuracy of the statements of the Company made in any
certificates pursuant to the provisions hereof, to the performance by the
Company of its obligations hereunder and to the following additional
conditions:
(a) If the Registration Statement has not become
effective prior to the Execution Time, unless the Representatives agree in
writing to a later time, the Registration Statement will become effective not
later than (i) 6:00 PM New York City time on the date of determination of the
public offering price, if such determination occurred at or prior to 3:00 PM
New York City time on such date or (ii) 12:00 Noon on the business day
following the day on which the public offering price was determined, if such
determination occurred after 3:00 PM New York City time on such date; if filing
of the Prospectus, or any supplement thereto, is required pursuant to Rule
424(b), the Prospectus, and any such supplement, will be filed in the manner
and within the time period required by Rule 424(b); and no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that purpose shall have been instituted or
threatened.
(b) The Company shall have furnished to the
Representatives the opinion of counsel for the Company, dated the Closing Date,
substantially in the form of Exhibit A.
(c) The Company shall have furnished to the
Representatives the opinion of Swidler & Berlin, special counsel
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to the Company on regulatory matters, dated the Closing Date, to the effect
that:
(i) the statements in the Prospectus under the
headings "Risk Factors - Competition," "Risk Factors -
Regulation," "Business-Market Potential" "Business -
Competition" and "Business - Regulation" fairly and accurately
summarize the laws, rules and regulations of the Federal
Communications Commission ("FCC") and the comparable state
regulatory agencies or bodies with direct regulatory
jurisdiction over telecommunications matters in the states in
which the Company and any of the Subsidiaries provide
intrastate services (the "State Regulatory Agencies") and, to
the best knowledge of such counsel, the statements in the
Prospectus under the heading "Business - Legal Proceedings"
fairly and accurately summarize the legal proceedings set
forth therein that concern the provision of telecommunications
services;
(ii) the Company and the Subsidiaries possess all
telecommunic material certificates, authorities or permits
required by the FCC and State Regulatory Agencies for the
provision of the telecommunications services currently
provided by the Company and the Subsidiaries, except where the
failure to possess such certificates, authorities or permits
could not reasonably be expected to have a material adverse
effect in the Company and its subsidiaries; and the Company
and the Subsidiaries are in compliance in all material
respects with such certificates, authorities and permits;
(iii) to the best knowledge of such counsel, neither
the Company nor any of the Subsidiaries is subject to any
pending or threatened action, suit or proceeding before the
FCC or any State Regulatory Agency or (with respect to federal
or state telecommunications laws) any court of a character
required to be disclosed in the Registration Statement, which
is not described as required;
(iv) no consent, approval, authorization or order of
the FCC or any State Regulatory Agency is required for the
issuance and sale of the Securities or the consummation of the
transactions contemplated hereby; and
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(v) neither the issuance and sale of the Securities
nor the consummation of the transactions contemplated hereby
will result in a breach or violation of any law, rule,
regulation, judgment, order or decree of the FCC or any State
Regulatory Agency applicable to the Company or any of the
Subsidiaries.
In rendering such opinion, such counsel may rely as to matters of fact, to the
extent they deem proper and reasonable, on certificates of public officials and
responsible officers of the Company, including certificates that define the
scope of the telecommunications services provided by the Company and the
Subsidiaries.
(d) The Representatives shall have received from Mayer,
Brown & Platt, counsel for the Underwriters, such opinion or opinions, dated
the Closing Date, with respect to the issuance and sale of the Securities, the
Registration Statement, the Prospectus (together with any supplement thereto)
and other related matters as the Representatives may reasonably require, and
the Company shall have furnished to such counsel such documents as they request
for the purpose of enabling them to pass upon such matters.
(e) The Company shall have furnished to the
Representatives a certificate of the Company, signed by the Chairman of the
Board or the President and the principal financial or accounting officer of the
Company, dated the Closing Date, to the effect that the signers of such
certificate have carefully examined the Registration Statement, the Prospectus,
any supplements to the Prospectus and this Agreement and that:
(i) the representations and warranties of the
Company in this Agreement are true and correct in all material
respects on and as of the Closing Date with the same effect as
if made on the Closing Date and the Company has complied in
all material respects with all the agreements and satisfied
all the conditions on its part to be performed or satisfied at
or prior to the Closing Date;
(ii) the Registration Statement has become effective
under the Act; any required filing of the Prospectus, and any
supplement thereto, pursuant to Rule 424(b) has been made in
the manner and within the time period required by Rule 424(b);
and no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for
that
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purpose have been instituted or, to the Company's knowledge,
threatened; and
(iii) since the date of the most recent audited
financial statements included in the Prospectus (exclusive of
any supplement thereto), there has been no material adverse
change in the condition (financial or other), earnings,
business, prospects or properties of the Company and its
subsidiaries, whether or not arising from transactions in the
ordinary course of business, except as set forth in or
contemplated in the Prospectus (exclusive of any supplement
thereto).
(f) At the Execution Time and at the Closing Date, McGladrey
& Pullen, LLP shall have furnished to the Representatives a letter or letters,
dated respectively as of the Execution Time and as of the Closing Date, in form
and substance satisfactory to the Representatives, confirming that they are
independent accountants within the meaning of the Act and the applicable
published rules and regulations thereunder and stating in effect that:
(i) in their opinion the audited financial
statements and financial statement schedule and unaudited pro
forma financial statement included in the Registration
Statement and the Prospectus and reported on by them, as
applicable, comply in form in all material respects with the
applicable accounting requirements of the Act and the related
published rules and regulations;
(ii) on the basis of a reading of the latest
unaudited financial statements made available by the Company
and its subsidiaries; carrying out certain specified
procedures (but not an examination in accordance with
generally accepted auditing standards) which would not
necessarily reveal matters of significance with respect to the
comments set forth in such letter; a reading of the minutes of
the meetings of the stockholders and directors of the Company;
and inquiries of certain officials of the Company who have
responsibility for financial and accounting matters of the
Company and its subsidiaries as to transactions and events
subsequent to December 31, 1995, nothing came to their
attention which caused them to believe that:
(1) any unaudited financial statements included
in the Registration Statement and the Prospectus do not comply
in form in all material respects with applicable
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accounting requirements of the Act and with the published
rules and regulations of the Commission with respect to
registration statements on Form S-1; and said unaudited
financial statements are not in conformity with generally
accepted accounting principles applied on a basis
substantially consistent with that of the audited financial
statements included in the Registration Statement and the
Prospectus; or
(2) with respect to the period subsequent to
March 31, 1996, there were any changes, at a specified date
not more than five business days prior to the date of the
letter, in the long-term debt of the Company and its
subsidiaries or capital stock of the Company or decreases in
the stockholders' equity of the Company and its subsidiaries
as compared with the amounts shown on the March 31, 1996
consolidated balance sheet included in the Registration
Statement and the Prospectus, or for the period from April 1,
1996 to such specified date as compared with the corresponding
period in the preceding year, there were any decreases in
telecommunications revenue or increases in operating loss or
net loss of the Company and its subsidiaries, except in all
instances for such changes, decreases or increases set forth
in such letter, in which case the letter shall be accompanied
by an explanation by the Company as to the significance
thereof unless said explanation is not deemed necessary by the
Representatives; or
(iii) they have performed certain other specified
procedures as a result of which they determined that certain
information of an accounting, financial or statistical nature
(which is limited to accounting, financial or statistical
information derived from the general accounting records of the
Company and its subsidiaries) set forth in the Registration
Statement and the Prospectus agrees with the accounting
records of the Company and its subsidiaries, excluding any
questions of legal interpretation; and
(iv) the unaudited amounts of [describe the
financial information more recent than unaudited financials
and its location] do not agree with the amounts set forth in
the unaudited financial statements for the same periods or
were not determined on a basis substantially consistent with
that of the corresponding amounts in the audited financial
statements included in the Registration Statement and the
Prospectus.
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References to the Prospectus in this paragraph (f) includes
any supplement thereto at the date of the letter.
(g) Subsequent to the Execution Time or, if earlier, the
dates as of which information is given in the Registration Statement (exclusive
of any amendment thereof) and the Prospectus (exclusive of any supplement
thereto), there shall not have been (i) any change, decrease or increase
specified in the letter or letters referred to in paragraph (f)(ii)(2) of this
Section 6 or (ii) any change, or any development involving a prospective
change, in or affecting the business, prospects or properties of the Company
and its subsidiaries the effect of which, in any case referred to in clause (i)
or (ii) above, is, in the judgment of the Representatives, so material and
adverse as to make it impractical or inadvisable to proceed with the offering
or delivery of the Securities as contemplated by the Registration Statement
(exclusive of any amendment thereof) and the Prospectus (exclusive of any
supplement thereto).
(h) At the Execution Time, the Company shall have furnished
to the Representatives a letter substantially in the form of Exhibit A hereto
from Clark E. McLeod, Mary E. McLeod, IES Investments Inc. and MWR Investments
Inc., addressed to the Representatives, in which each such person or entity
agrees not to offer, sell or contract to sell, or otherwise dispose of,
directly or indirectly, or announce an offering of, any shares of Common Stock
beneficially owned by such person or entity or any securities convertible into,
or exchangeable for, shares of Common Stock for a period of one year following
the Execution Time without the prior written consent of the Representatives,
except in the case of each of such persons and entities, shares of Common Stock
disposed of as bona fide gifts or pledges where the recipients of such gifts or
the pledgees, as the case may be, agree in writing with the Underwriters to be
bound by the terms of this paragraph (h).
(i) At the Execution Time, the Company shall have furnished
to the Representatives a letter substantially in the form of Exhibit B hereto
from Allsop Venture Partners III L.P. and each director and officer of the
Company (other than those covered by paragraph (h) above), addressed to the
Representatives, in which each such person or entity agrees not to offer, sell
or contract to sell or otherwise dispose of, directly or indirectly, or
announce an offering of, any shares of Common Stock beneficially owned by such
person or entity or any securities convertible into, or exchangeable for,
shares of Common Stock for a period of 180 days following the Execution
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Time without the prior written consent of the Representatives, except (1) in
the case of each of such persons and entities, shares of Common Stock disposed
of as bona fide gifts or pledges where the recipients of such gifts or the
pledgees, as the case may be, agree in writing with the Underwriters to be
bound by the terms of this paragraph (h) and (2) in the case of Allsop Venture
Partners III, registered shares of Common Stock acquired in the public market.
(j) Prior to the Closing Date, the Company shall have
furnished to the Representatives such further information, certificates and
documents as the Representatives may reasonably request.
If any of the conditions specified in this Section 6 shall not
have been fulfilled in all material respects when and as provided in this
Agreement, or if any of the opinions and certificates mentioned above or
elsewhere in this Agreement shall not be in all material respects reasonably
satisfactory in form and substance to the Representatives and counsel for the
Underwriters, this Agreement and all obligations of the Underwriters hereunder
may be canceled at, or at any time prior to, the Closing Date by the
Representatives. Notice of such cancellation shall be given to the Company in
writing or by telephone confirmed in writing.
7. Reimbursement of Underwriters' Expenses. If the sale
of the Securities provided for herein is not consummated because any condition
to the obligations of the Underwriters set forth in Section 6 hereof is not
satisfied, or because of any refusal, inability or failure on the part of the
Company to perform any agreement herein or comply with any provision hereof
other than by reason of a default by any of the Underwriters, the Company will
reimburse the Underwriters severally upon demand for all reasonable
out-of-pocket expenses (including reasonable fees and disbursements of counsel)
that shall have been incurred by them in connection with the proposed purchase
and sale of the Securities.
8. Indemnification and Contribution. (a) The Company
agrees to indemnify and hold harmless each Underwriter, the directors,
officers, employees and agents of each Underwriter and each person who controls
any Underwriter within the meaning of either the Act or the Securities Exchange
Act of 1934 (the "Exchange Act") against any and all losses, claims, damages or
liabilities, joint or several, to which they or any of them may become subject
under the Act, the Exchange Act or other Federal or state statutory law or
regulation, at common law or otherwise,
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insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the registration statement for the
registration of the Securities as originally filed or in any amendment thereof,
or in any Preliminary Prospectus or the Prospectus, or in any amendment thereof
or supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and agrees to
reimburse each such indemnified party, as incurred, for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the Company will not be liable in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon any such
untrue statement or alleged untrue statement or omission or alleged omission
made therein in reliance upon and in conformity with written information
furnished to the Company by or on behalf of any Underwriter through the
Representatives specifically for inclusion therein; and provided, further, that
the foregoing indemnity agreement with respect to any Preliminary Prospectus or
Prospectus shall not inure to the benefit of any Underwriter from whom the
person asserting or causing any such losses, claims, damages or liabilities
purchased Securities (or to the benefit of any person controlling such
Underwriter or any directors, officers, employees and agents of each
Underwriter), if a copy of the Prospectus or the Prospectus (as amended or
supplemented, if the Company shall have timely furnished the Underwriters with
sufficient copies thereof was not sent or given by or on behalf of such
Underwriter to such person, if required by law so to have been delivered, at or
prior to the written confirmation of the sale of the Securities to such person
and if the Prospectus or the Prospectus (as so amended or supplemented) would
have cured the defect giving rise to such loss, claim, damage or liability.
This indemnity agreement will be in addition to any liability which the Company
may otherwise have.
(b) Each Underwriter severally agrees to indemnify and
hold harmless the Company, each of its directors and each of its officers who
signs the Registration Statement, and each person who controls the Company
within the meaning of either the Act or the Exchange Act, to the same extent as
the foregoing indemnity from the Company to each Underwriter, but only with
reference to written information relating to such Underwriter furnished to the
Company by or on behalf of such Underwriter through the Representatives
specifically for inclusion in the documents
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referred to in the foregoing indemnity. This indemnity agreement will be in
addition to any liability which any Underwriter may otherwise have. The
Company acknowledges that the statements set forth in the last paragraph of the
cover page and in the first through sixth paragraphs under the heading
"Underwriting" in any Preliminary Prospectus and the Prospectus constitute the
only information furnished in writing by or on behalf of the several
Underwriters for inclusion in any Preliminary Prospectus or the Prospectus, and
you, as the Representatives, confirm that such statements are correct.
(c) Promptly after receipt by an indemnified party under
this Section 8 of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against the
indemnifying party under this Section 8, notify the indemnifying party in
writing of the commencement thereof; but the failure so to notify the
indemnifying party (i) will not relieve it from liability under paragraph (a)
or (b) above unless and to the extent it did not otherwise learn of such action
and such failure results in the forfeiture by the indemnifying party of
substantial rights and defenses and (ii) will not, in any event, relieve the
indemnifying party from any obligations to any indemnified party other than the
indemnification obligation provided in paragraph (a) or (b) above. The
indemnifying party shall be entitled to appoint counsel of the indemnifying
party's choice at the indemnifying party's expense to represent the indemnified
party in any action for which indemnification is sought (in which case the
indemnifying party shall not thereafter be responsible for the fees and
expenses of any separate counsel retained by the indemnified party or parties
except as set forth below); provided, however, that such counsel shall be
reasonably satisfactory to the indemnified party. Notwithstanding the
indemnifying party's election to appoint counsel to represent the indemnified
party in an action, the indemnified party shall have the right to employ
separate counsel (including local counsel), and the indemnifying party shall
bear the reasonable fees, costs and expenses of such separate counsel if (i)
the use of counsel chosen by the indemnifying party to represent the
indemnified party would present such counsel with a conflict of interest, (ii)
the actual or potential defendants in, or targets of, any such action include
both the indemnified party and the indemnifying party and the indemnified party
shall have reasonably concluded that there may be legal defenses available to
it and/or other indemnified parties which are different from or additional to
those available to the indemnifying party, (iii) the indemnifying party shall
not have employed counsel satisfactory to the indemnified party to represent
the indemnified party within a reasonable time after notice of the
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institution of such action or (iv) the indemnifying party shall authorize the
indemnified party to employ separate counsel at the expense of the indemnifying
party. An indemnifying party will not, without the prior written consent of
the indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action) unless such settlement, compromise or consent
includes an unconditional release of each indemnified party from all liability
arising out of such claim, action, suit or proceeding.
(d) In the event that the indemnity provided in paragraph
(a) or (b) of this Section 8 is unavailable to or insufficient to hold harmless
an indemnified party for any reason, the Company and the Underwriters agree to
contribute to the aggregate losses, claims, damages and liabilities (including
legal or other expenses reasonably incurred in connection with investigating or
defending same) (collectively "Losses") to which the Company and one or more of
the Underwriters may be subject in such proportion as is appropriate to reflect
the relative benefits received by the Company and by the Underwriters from the
offering of the Securities; provided, however, that in no case shall any
Underwriter (except as may be provided in any agreement among underwriters
relating to the offering of the Securities) be responsible for any amount in
excess of the underwriting discount or commission applicable to the Securities
purchased by such Underwriter hereunder. If the allocation provided by the
immediately preceding sentence is unavailable for any reason, the Company and
the Underwriters shall contribute in such proportion as is appropriate to
reflect not only such relative benefits but also the relative fault of the
Company and of the Underwriters in connection with the statements or omissions
which resulted in such Losses as well as any other relevant equitable
considerations. Benefits received by the Company shall be deemed to be equal
to the total net proceeds from the offering (before deducting expenses), and
benefits received by the Underwriters shall be deemed to be equal to the total
underwriting discounts and commissions, in each case as set forth on the cover
page of the Prospectus. Relative fault shall be determined by reference to
whether any alleged untrue statement or omission relates to information
provided by the Company or the Underwriters. The Company and the Underwriters
agree that it would not be just and equitable if contribution were determined
by pro rata allocation or any other method of allocation which does not take
account of the equitable considerations referred to above. Notwithstanding the
provisions of this paragraph (d), no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f)
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of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section 8,
each person who controls an Underwriter within the meaning of either the Act or
the Exchange Act and each director, officer, employee and agent of an
Underwriter shall have the same rights to contribution as such Underwriter, and
each person who controls the Company within the meaning of either the Act or
the Exchange Act, each director of the Company and each officer who shall have
signed the Registration Statement shall have the same rights to contribution as
the Company, subject in each case to the applicable terms and conditions of
this paragraph (d).
9. Default by an Underwriter. If any one or more
Underwriters shall fail to purchase and pay for any of the Securities agreed to
be purchased by such Underwriter or Underwriters hereunder and such failure to
purchase shall constitute a default in the performance of its or their
obligations under this Agreement, the remaining Underwriters shall be obligated
severally to take up and pay for (in the respective proportions which the
amount of Underwritten Securities set forth opposite their names in Schedule I
hereto bears to the aggregate amount of Underwritten Securities set forth
opposite the names of all the remaining Underwriters) the Securities which the
defaulting Underwriter or Underwriters agreed but failed to purchase; provided,
however, that in the event that the aggregate amount of Underwritten Securities
which the defaulting Underwriter or Underwriters agreed but failed to purchase
shall exceed 10% of the aggregate amount of Underwritten Securities set forth
in Schedule I hereto, the remaining Underwriters shall have the right to
purchase all, but shall not be under any obligation to purchase any, of such
Securities, and if such nondefaulting Underwriters do not purchase all such
Securities, this Agreement will terminate without liability to any
nondefaulting Underwriter or the Company. In the event of a default by any
Underwriter as set forth in this Section 9, the Closing Date shall be postponed
for such period, not exceeding seven days, as the Representatives shall
determine in order that the required changes in the Registration Statement and
the Prospectus or in any other documents or arrangements may be effected.
Nothing contained in this Agreement shall relieve any defaulting Underwriter of
its liability, if any, to the Company and any nondefaulting Underwriter for
damages occasioned by its default hereunder.
10. Termination. This Agreement shall be subject to
termination in the absolute discretion of the Representatives, by notice given
to the Company prior to delivery of and payment for the Securities, if prior to
such time (i) trading in the
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Company's Common Stock shall have been suspended by the Commission or the
Nasdaq National Market or trading in securities generally on the New York Stock
Exchange or the Nasdaq National Market shall have been suspended or limited or
minimum prices shall have been established on either of such Exchange or
Market, (ii) a banking moratorium shall have been declared either by Federal or
New York State authorities or (iii) there shall have occurred any outbreak or
escalation of hostilities, declaration by the United States of a national
emergency or war or other calamity or crisis the effect of which on financial
markets is such as to make it, in the judgment of the Representatives,
impracticable or inadvisable to proceed with the offering or delivery of the
Securities as contemplated by the Prospectus (exclusive of any supplement
thereto).
11. Representations and Indemnities to Survive. The
respective agreements, representations, warranties, indemnities and other
statements of the Company or its officers and of the Underwriters set forth in
or made pursuant to this Agreement will remain in full force and effect,
regardless of any investigation made by or on behalf of any Underwriter or the
Company or any of the officers, directors or controlling persons referred to in
Section 8 hereof, and will survive delivery of and payment for the Securities.
The provisions of Sections 7 and 8 hereof shall survive the termination or
cancellation of this Agreement.
12. Notices. All communications hereunder will be in
writing and effective only on receipt, and, if sent to the Representatives,
will be mailed, delivered or sent by facsimile transmission and confirmed to
them, care of Salomon Brothers Inc, at Seven World Trade Center, New York, New
York, 10048; or, if sent to the Company, will be mailed, delivered or sent by
facsimile transmission and confirmed to it at McLeod, Inc., Town Centre, 221
Third Avenue, S.E., Suite 500, Cedar Rapids, Iowa 52401, attention of the legal
department.
13. Successors. This Agreement will inure to the benefit
of and be binding upon the parties hereto and their respective successors and
the officers and directors and controlling persons referred to in Section 8
hereof, and no other person will have any right or obligation hereunder.
14. Applicable Law. This Agreement will be governed by
and construed in accordance with the laws of the State of New York.
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If the foregoing is in accordance with your understanding of
our agreement, please sign and return to us the enclosed duplicate hereof,
whereupon this letter and your acceptance shall represent a binding agreement
among the Company and the several Underwriters.
Very truly yours,
MCLEOD, INC.
By:..........................
[Title]
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The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
Salomon Brothers Inc
Morgan Stanley & Co.
Bear, Stearns & Co. Inc.
By: Salomon Brothers Inc
By: ..........................
Vice President
For themselves and the other
several Underwriters named in
Schedule I to the foregoing
Agreement.
28
SCHEDULE I
Number of Shares of
Underwritten Securities
Underwriters To Be Purchased
- ------------ -----------------------
Salomon Brothers Inc . . . . . . . . . . . .
Morgan Stanley & Co. . . . . . . . . . . . .
Bear, Stearns & Co. Inc. . . . . . . . . . .
------------------------
Total . . . . . . . . . . .
========================
29
EXHIBIT B
[Letterhead of Stockholder]
McLeod, Inc.
Public Offering of Class A Common Stock
, 1996
Salomon Brothers Inc
Morgan Stanley & Co.
Bear, Stearns & Co. Inc.
As Representatives of the several Underwriters,
c/o Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048
Dear Sirs:
This letter is being delivered to you in connection with the
proposed Underwriting Agreement (the "Underwriting Agreement"), between McLeod,
Inc., a Delaware corporation (the "Company"), and each of you as
representatives of a group of Underwriters named therein, relating to an
underwritten public offering of Class A Common Stock, $.01 par value (the
"Common Stock"), of the Company.
In order to induce you and the other Underwriters to enter
into the Underwriting Agreement, the undersigned agrees not to offer, sell or
contract to sell, or otherwise dispose of, directly or indirectly, or announce
an offering of, any shares of Common Stock beneficially owned by the
undersigned or any securities convertible into, or exchangeable for, shares of
Common Stock for a period of 180 days or one year following the day on which
the Underwriting Agreement is executed without the prior written consent of
the Representatives, except in the case of each of such persons and entities,
shares of Common Stock disposed of as bona fide gifts or pledges where the
recipients of such gifts or the pledgees, as the case may be, agree in writing
with the Underwriters to be bound by the terms of this letter.
If for any reason the Underwriting Agreement shall be
terminated prior to the Closing Date (as defined in the Underwriting
Agreement), the agreement set forth above shall likewise be terminated.
Yours very truly,