0000895345-01-500548.txt : 20011009 0000895345-01-500548.hdr.sgml : 20011009 ACCESSION NUMBER: 0000895345-01-500548 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 20011002 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: MCLEODUSA INC CENTRAL INDEX KEY: 0000919943 STANDARD INDUSTRIAL CLASSIFICATION: RADIO TELEPHONE COMMUNICATIONS [4812] IRS NUMBER: 421407240 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-46203 FILM NUMBER: 1750792 BUSINESS ADDRESS: STREET 1: 6400 C ST SW STREET 2: PO BOX 3177 CITY: CEDAR RAPIDS STATE: IA ZIP: 52406 BUSINESS PHONE: 3193640000 MAIL ADDRESS: STREET 1: 6400 C ST SW STREET 2: PO BOX 3177 CITY: CEDAR RAPIDS STATE: IA ZIP: 52406 FORMER COMPANY: FORMER CONFORMED NAME: MCLEOD INC DATE OF NAME CHANGE: 19960403 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: FORSTMANN LITTLE & CO SUB DEBT & EQ MGMT BUYOUT PAR VII LP CENTRAL INDEX KEY: 0001095466 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 134002846 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: WINSTON HUTCHINS STREET 2: 767 FIFTH AVE CITY: NEW YORK STATE: NY ZIP: 10153 BUSINESS PHONE: 2123555656 MAIL ADDRESS: STREET 1: WINSTON HUTCHINS STREET 2: 767 FIFTH AVE CITY: NEW YORK STATE: NY ZIP: 10153 SC 13D/A 1 rs13da.txt SCHEDULE 13D (AMENDMENT 1) UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 13D UNDER THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. 1)* MCLEODUSA INCORPORATED ------------------------------------------------------------------------------- (Name of Issuer) CLASS A COMMON STOCK, PAR VALUE $0.01 PER SHARE ------------------------------------------------------------------------------- (Title of Class of Securities) 582266 10 2 ------------------------------------------------------------------------------- (CUSIP Number)

FRIED, FRANK, HARRIS, SHRIVER & JACOBSON FORSTMANN LITTLE & CO. SUBORDINATED DEBT ONE NEW YORK PLAZA & EQUITY MANAGEMENT BUYOUT PARTNERSHIP-VI, L.P. NEW YORK, NY 10004 FORSTMANN LITTLE & CO. SUBORDINATED DEBT & EQUITY ATTN: ROBERT C. SCHWENKEL, ESQ. MANAGEMENT BUYOUT PARTNERSHIP-VII, L.P. (212) 859-8000 FORSTMANN LITTLE & CO. EQUITY PARTNERSHIP-V, L.P. C/O FORSTMANN LITTLE & CO. 767 FIFTH AVENUE NEW YORK, NY 10153 ATTN: WINSTON W. HUTCHINS (212) 355-5656 (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications)

SEPTEMBER 30, 2001 ------------------------------------------------------------------- (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box. [ ] Note. Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule 13d-7 for other parties to whom copies are to be sent. *The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). SCHEDULE 13D CUSIP No. 582266102 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON FORSTMANN LITTLE & CO. SUBORDINATED DEBT AND EQUITY MANAGEMENT BUYOUT PARTNERSHIP-VI, L.P. 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ] (b) [X] 3 SEC USE ONLY 4 SOURCE OF FUNDS* 00 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ] 6 CITIZENSHIP OR PLACE OF ORGANIZATION DELAWARE NUMBER OF 7 SOLE VOTING POWER SHARES 35,144,582* BENEFICIALLY 8 SHARED VOTING POWER OWNED BY EACH 0 REPORTING 9 SOLE DISPOSITIVE POWER PERSON WITH 35,144,582* 10 SHARED DISPOSITIVE POWER 0 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 35,144,582* 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) [ ] EXCLUDES CERTAIN SHARES* 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 5.3% 14 TYPE OF REPORTING PERSON* PN * Section 7(a)(ii) of the Certificate of Designation of the Powers, Preferences and Relative, Participating, Optional and Other Special Rights of Series D Convertible Preferred Stock (the "Series D Preferred") and Qualifications, Limitations and Restrictions Thereof (the "Series D Certificate of Designation") sets forth a formula for determining the number of shares of Class A Common Stock issuable, as at any date, upon conversion of the Series D Preferred. The number of shares referred to in items 7, 9 and 11 above was calculated in accordance with such formula assuming that the Conversion Price and the Net Realizable FMV (each such term as defined in the Series D Certificate of Designation) equal $6.10. *SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION. SCHEDULE 13D CUSIP No. 582266102 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON FORSTMANN LITTLE & CO. SUBORDINATED DEBT AND EQUITY MANAGEMENT BUYOUT PARTNERSHIP-VII, L.P. 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ] (b) [X] 3 SEC USE ONLY 4 SOURCE OF FUNDS* 00 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ] 6 CITIZENSHIP OR PLACE OF ORGANIZATION DELAWARE NUMBER OF 7 SOLE VOTING POWER SHARES 77,560,336* BENEFICIALLY 8 SHARED VOTING POWER OWNED BY EACH 0 REPORTING 9 SOLE DISPOSITIVE POWER PERSON WITH 77,560,336* 10 SHARED DISPOSITIVE POWER 0 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 77,560,336* 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) [ ] EXCLUDES CERTAIN SHARES* 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 11.0% 14 TYPE OF REPORTING PERSON* PN * Section 7(a)(ii) of the Series D Certificate of Designation sets forth a formula for determining the number of shares of Class A Common Stock issuable, as at any date, upon conversion of the Series D Preferred. The number of shares referred to in items 7, 9 and 11 above was calculated in accordance with such formula assuming that the Conversion Price and the Net Realizable FMV (each such term as defined in the Series D Certificate of Designation) equal $6.10. *SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION. SCHEDULE 13D CUSIP No. 582266102 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON FORSTMANN LITTLE & CO. EQUITY PARTNERSHIP-V, L.P. 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ] (b) [X] 3 SEC USE ONLY 4 SOURCE OF FUNDS* 00 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ] 6 CITIZENSHIP OR PLACE OF ORGANIZATION DELAWARE NUMBER OF 7 SOLE VOTING POWER SHARES 51,229,508* BENEFICIALLY 8 SHARED VOTING POWER OWNED BY EACH 0 REPORTING 9 SOLE DISPOSITIVE POWER PERSON WITH 51,229,508* 10 SHARED DISPOSITIVE POWER 0 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 51,229,508* 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) [ ] EXCLUDES CERTAIN SHARES* 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 7.6% 14 TYPE OF REPORTING PERSON* PN * Section 7(a)(ii) of the Certificate of Designation of the Powers, Preferences and Relative, Participating, Optional and Other Special Rights of Series E Convertible Preferred Stock (the "Series E Preferred") and Qualifications, Limitations and Restrictions Thereof (the "Series E Certificate of Designation") sets forth a formula for determining the number of shares of Class A Common Stock issuable, as at any date, upon conversion of the Series E Preferred. The number of shares referred to in items 7, 9 and 11 above was calculated in accordance with such formula assuming that the Conversion Price and the Net Realizable FMV (each such term as defined in the Series E Certificate of Designation) equal $6.10. *SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION. This Amendment No. 1, filed on behalf of the FL Partnerships, amends and supplements the Schedule 13D filed on behalf of the FL Partnerships with the Securities and Exchange Commission on September 22, 1999 (the "Schedule 13D"), relating to the Class A Common Stock, par value $0.01 per share (the "Common Stock"), of McLeodUSA Incorporated, a Delaware corporation. Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Schedule 13D. ITEM 3. Source and Amount of Funds or Other Consideration ------------------------------------------------- Item 3 is hereby amended to add the following: As more fully described in Item 6 below, on September 30, 2001, the FL Partnerships and McLeodUSA entered into an Exchange Agreement (the "Exchange Agreement") pursuant to which (i) MBO-VI and MBO-VII delivered to McLeodUSA an aggregate of 275,000 shares of Series B Preferred owned by MBO-VI and MBO-VII in exchange for the issuance by McLeodUSA to MBO-VI and MBO-VII of an aggregate of 275,000 shares of McLeodUSA's Series D Preferred Stock, par value $0.01 per share (the "Series D Preferred"), and (ii) Equity-V delivered to McLeodUSA an aggregate of 125,000 shares of Series C Preferred owned by Equity-V in exchange for the issuance by McLeodUSA to Equity-V of an aggregate of 125,000 shares of McLeodUSA's Series E Preferred Stock, par value $0.01 per share (the "Series E Preferred" and, collectively with the Series D Preferred, the "New Preferred Shares"). ITEM 4. Purpose of Transaction ---------------------- Item 4 is hereby amended in its entirety as follows: The FL Partnerships consummated the transactions described herein in order to acquire an equity interest in McLeodUSA for investment purposes. The FL Partnerships intend to review continuously their position in McLeodUSA. Depending upon future evaluations of the business prospects of McLeodUSA and upon other developments, including, but not limited to, general economic and business conditions and stock market conditions, the FL Partnerships may retain or from time to time increase their holdings or dispose of all or a portion of their holdings, subject to any applicable legal and contractual restrictions on their ability to do so, including the terms and conditions of the Exchange Agreement. On August 1, 2001, Theodore J. Forstmann, a director of McLeodUSA and designee of the holders of the Series B Preferred to the Board of Directors, was appointed Chairman of the Executive Committee of the Board of Directors. In addition, the matters set forth in Item 6 below are incorporated in this Item 4 by reference as if fully set forth herein. Except as set forth above, none of the FL Partnerships nor, to the knowledge of any of the FL Partnerships, any person identified in Schedule I, has any plans or proposals which relate to or would result in the types of transactions set forth in subparagraphs (a) through (j) of Item 4 of Schedule 13D. ITEM 5. Interest in Securities of the Issuer ------------------------------------ Item 5 is hereby amended in its entirety as follows: The following information is as of September 30, 2001: (i) MBO-VI: (a) Amount Beneficially Owned: MBO-VI directly owns 85,752.78 shares of Series D Preferred, which are convertible into 35,144,582 shares of Common Stock, assuming the conversion of all New Preferred Shares pursuant to Section 7(a)(ii) of the Certificate of Designation of the Powers, Preferences and Relative, Participating, Optional and Other Special Rights of the Series D Preferred (the "Series D Certificate of Designation"), which sets forth a formula for determining the number of shares of Class A Common Stock issuable, as at any date, upon conversion of the Series D Preferred. The number of shares of Common Stock referred to above was calculated in accordance with such formula assuming that the Conversion Price and the Net Realizable FMV (each such term as defined in the Series D Certificate of Designation) equal $6.10. FLC XXIX Partnership, L.P. ("FLC XXIX"), a New York limited partnership having its principal business office at the address set forth in response to Item 2(b) of this statement, is the general partner of MBO-VI. Theodore J. Forstmann, Sandra J. Horbach, Erskine B. Bowles, Thomas H. Lister, Winston W. Hutchins, Jamie C. Nicholls (each a United States citizen with his or her principal place of business being at the address set forth in response to Item 2(b) of this statement), and Tywana LLC, a North Carolina limited liability company having its principal business office at 201 North Tryon Street, Suite 2450, Charlotte, N.C. 28202, are the general partners of FLC XXIX. The shares of Series D Preferred owned by MBO-VI are convertible into approximately 5.3% of the Common Stock outstanding, based on calculations made in accordance with Rule 13d-3(d) of the Securities and Exchange Act of 1934, as amended, and there being 626,950,228 shares of Common Stock outstanding as of September 25, 2001, based on a representation and warranty of McLeodUSA in the Exchange Agreement. (b) Assuming conversion of all New Preferred Shares, number of shares as to which MBO-VI has: (i) sole power to vote or to direct the vote - 35,144,582. (ii) shared power to vote or to direct the vote -- None. (iii) sole power to dispose or to direct the disposition of - 35,144,582. (iv) shared power to dispose or to direct the disposition of -- None. (ii) MBO-VII: (a) Amount Beneficially Owned: MBO-VII directly owns 189,247.22 shares of Series D Preferred, which are convertible into 77,560,336 shares of Common Stock, assuming the conversion of all New Preferred Shares pursuant to Section 7(a)(ii) of the Series D Certificate of Designation, which sets forth a formula for determining the number of shares of Class A Common Stock issuable, as at any date, upon conversion of the Series D Preferred. The number of shares of Common Stock referred to above was calculated in accordance with such formula assuming that the Conversion Price and the Net Realizable FMV (each such term as defined in the Series D Certificate of Designation) equal $6.10. FLC XXXIII Partnership, L.P. ("FLC XXXIII"), a New York limited partnership having its principal business office at the address set forth in response to Item 2(b) of this statement, is the general partner of MBO-VII. Theodore J. Forstmann, Sandra J. Horbach, Erskine B. Bowles, Thomas H. Lister, Winston W. Hutchins, Jamie C. Nicholls (each a United States citizen with his or her principal place of business being at the address set forth in response to Item 2(b) of this statement) and Tywana LLC, a North Carolina limited liability company having its principal business office at the address set forth in Item 5(i)(a) of this statement, are the general partners of FLC XXXIII. The shares of Series D Preferred owned by MBO-VII are convertible into approximately 11.0% of the Common Stock outstanding, based on calculations made in accordance with Rule 13d-3(d) of the Exchange Act and there being 626,950,228 shares of Common Stock outstanding as of September 25, 2001, based on a representation and warranty of McLeodUSA in the Exchange Agreement. (b) Assuming conversion of all New Preferred Shares, number of shares as to which MBO-VII has: (i) sole power to vote or to direct the vote - 77,560,336. (ii) shared power to vote or to direct the vote -- None. (iii) sole power to dispose or to direct the disposition of - 77,560,336. (iv) shared power to dispose or to direct the disposition of -- None. (iii) Equity-V: (a) Amount Beneficially Owned: Equity-V directly owns 125,000 shares of Series E Preferred, which are convertible into 51,229,508 shares of Common Stock, assuming the conversion of all New Preferred Shares pursuant to Section 7(a)(ii) of the Certificate of Designation of the Powers, Preferences and Relative, Participating, Optional and Other Special Rights of the Series E Preferred (the "Series E Certificate of Designation"), which sets forth a formula for determining the number of shares of Class A Common Stock issuable, as at any date, upon conversion of the Series E Preferred. The number of shares of Common Stock referred to above was calculated in accordance with such formula assuming that the Conversion Price and the Net Realizable FMV (each such term as defined in the Series E Certificate of Designation) equal $6.10. FLC XXX Partnership, L.P. ("FLC XXX"), a New York limited partnership having its principal business office at the address set forth in response to Item 2(b) of this statement, is the general partner of Equity-V. Theodore J. Forstmann, Sandra J. Horbach, Thomas H. Lister, Winston W. Hutchins (each a United States citizen with his or her principal place of business being at the address set forth in response to Item 2(b) of this statement), and Tywana LLC, a North Carolina limited liability company having its principal business office at the address set forth in Item 5(i)(a) of this statement, are the general partners of FLC XXX. The shares of Series E Preferred owned by Equity-V are convertible into approximately 7.6% of the Common Stock outstanding, based on calculations made in accordance with Rule 13d-3(d) of the Exchange Act and there being 626,950,228 shares of Common Stock outstanding as of September 25, 2001, based on a representation and warranty of McLeodUSA in the Exchange Agreement. (b) Assuming conversion of all New Preferred Shares, number of shares as to which Equity-V has: (i) sole power to vote or to direct the vote - 51,229,508. (ii) shared power to vote or to direct the vote -- None. (iii) sole power to dispose or to direct the disposition of - 51,229,508. (iv) shared power to dispose or to direct the disposition of -- None. (iv) Except as set forth above, none of the FL Partnerships nor, to the knowledge of any of the FL Partnerships, any person identified in Schedule I, beneficially owns any shares of Common Stock or has effected any transactions in shares of Common Stock during the preceding 60 days. (v) The right to receive dividends on, and proceeds from the sale of, the shares of Common Stock beneficially owned by the FL Partnerships is governed by the limited partnership agreements of each such entities, and such dividends or proceeds may be distributed with respect to numerous general and limited partnership interests. ITEM 6. Contracts, Arrangements, Understandings or Relationships with Respect to Securities of the Issuer ----------------------------------- Item 6 is hereby amended to replace the ultimate paragraph thereof with the following: Exchange Agreement ------------------ Pursuant to the Exchange Agreement, (i) MBO-VI and MBO-VII delivered to McLeodUSA an aggregate of 275,000 shares of Series B Preferred owned by MBO-VI and MBO-VII in exchange for the issuance by McLeodUSA to MBO-VI and MBO-VII of an aggregate of 275,000 shares of Series D Preferred and (ii) Equity-V delivered to McLeodUSA an aggregate of 125,000 shares of Series C Preferred owned by Equity-V in exchange for the issuance by McLeodUSA to Equity-V of an aggregate of 125,000 shares of Series E Preferred Stock. In connection with the consummation of the transactions contemplated by the Exchange Agreement (i) McLeodUSA and the FL Partnerships executed and delivered a registration rights agreement, dated as of September 30, 2001 (the "2001 Registration Rights Agreement"), (ii) McLeodUSA and the FL Partnerships executed and delivered a termination agreement, dated as of September 30, 2001 (the "Termination Agreement"), and (iii) McLeodUSA filed the Series D Certificate of Designation and the Series E Certificate of Designation with the Secretary of State of the State of Delaware and, upon such filings, the Series D Certificate of Designation and the Series E Certificate of Designation became effective. Voting Rights. Pursuant to the Exchange Agreement, MBO-VI and MBO-VII are entitled, subject to the Series D Certificate of Designation, to designate for election to the Board of Directors of McLeodUSA (the "Board of Directors") two persons. Pursuant to this contractual right, MBO-VI and MBO-VII designated Theodore J. Forstmann and Erskine B. Bowles, each of whom served on the Board of Directors as a director designee of the holders of the Series B Preferred, for election to the Board of Directors. In addition, pursuant to the Exchange Agreement, Equity-V is entitled, subject to the Series E Certificate of Designation, to designate one non-voting observer, who will have the same access to information concerning the business and operations of McLeodUSA and its subsidiaries as directors of McLeodUSA, and will be entitled to participate in discussions and consult with the Board of Directors of McLeodUSA without voting. Pursuant to this contractual right, Equity-V has designated Thomas H. Lister, who served as the non-voting observer for the holders of the Series C Preferred, to be the non-voting observer for the holders of the Series E Preferred. Standstill Provisions. Pursuant to the Exchange Agreement, until the earlier of September 15, 2009 or the occurrence of certain events, the FL Partnerships may not, subject to certain exceptions, (i) acquire or become the beneficial owner of or obtain any rights in respect of any capital stock of McLeodUSA, (ii) solicit proxies or become a "participant" in a "solicitation" (as such terms are defined in Regulation 14A under the Exchange Act) of proxies with respect to any voting securities of McLeodUSA, (iii) initiate or become a participant in any stockholder proposal or election contest with respect to McLeodUSA or induce others to initiate the same, (iv) propose, solicit or participate in the solicitation of any person to acquire McLeodUSA or a substantial portion of its assets or more than 5% of its outstanding capital stock, or (v) join in or in any way participate in a pooling agreement or other arrangement with respect to McLeodUSA's voting securities. Lock-Up Provisions. Pursuant to the Exchange Agreement, until the earlier of September 15, 2004 or the occurrence of certain events, the FL Partnerships may not, subject to certain exceptions, sell, transfer, assign, convey or otherwise dispose of any of the New Preferred Shares or Common Stock. In addition, the FL Partnerships may not exercise any conversion rights with respect to the New Preferred Shares until September 15, 2004. Nothing contained in the Exchange Agreement, however, will be deemed to limit the ability of the limited partners in the FL Partnerships from transferring, directly or indirectly, their limited partnership interests in the FL Partnerships or the general partners of the FL Partnerships from transferring, directly or indirectly, up to 15% of the equity interests in the FL Partnerships at any time or from time to time. The foregoing description of the Exchange Agreement is not intended to be complete and is qualified in its entirety by the complete text of the Exchange Agreement, all of which is incorporated herein by reference. The Exchange Agreement is filed as Exhibit 6 hereto. Termination Agreement --------------------- In connection with the consummation of the transactions contemplated by the Exchange Agreement, McLeodUSA and the FL Partnerships entered into the Termination Agreement, pursuant to which McLeodUSA and the FL Partnerships agreed to terminate the Stock Purchase Agreement. The foregoing description of the Termination Agreement is not intended to be complete and is qualified in its entirety by the complete text of the Termination Agreement, all of which is incorporated herein by reference. The Termination Agreement is filed as Exhibit 7 hereto. 2001 Registration Rights Agreement ---------------------------------- In connection with the consummation of the transactions contemplated by the Exchange Agreement, McLeodUSA and the FL Partnerships entered into the 2001 Registration Rights Agreement, which replaces and supersedes the Registration Rights Agreement. Pursuant to the 2001 Registration Rights Agreement, McLeodUSA granted to the FL Partnerships three demand rights to cause McLeodUSA to register under the Securities Act of 1933, as amended, all or part of the Registrable Securities (as defined below) held by the FL Partnerships. McLeodUSA has the right to delay any such registration once in any six-month period for a reasonable period of time (but not exceeding 60 days) under certain circumstances. In addition, if McLeodUSA proposes to register any of its securities for the account of any other stockholder (other than in connection with an employee benefit plan, dividend reinvestment plan, merger or consolidation), the FL Partnerships may require McLeodUSA to include all or a portion of their Registrable Securities in such registration, subject to certain priorities among them and to certain limitations. All expenses incurred in connection with such registrations (other than underwriting discounts and commissions) will be borne by McLeodUSA. "Registrable Securities" means (i) any shares of common stock of McLeodUSA owned by the FL Partnerships, (ii) any shares of common stock of McLeodUSA issued or issuable upon the conversion, exercise or exchange of any New Preferred Shares or of any other common stock equivalents at any time held by the FL Partnerships, and (iii) any shares of common stock of McLeodUSA issued with respect to the common stock referred to in clauses (i) or (ii) by way of a stock dividend, stock split or reverse stock split or in connection with a combination of shares, recapitalization, merger, consolidation or otherwise. The foregoing description of the 2001 Registration Rights Agreement is not intended to be complete and is qualified in its entirety by the complete text of the 2001 Registration Rights Agreement, all of which is incorporated herein by reference. The 2001 Registration Rights Agreement is filed as Exhibit 8 hereto. Series D Certificate of Designation ----------------------------------- As contemplated by the Exchange Agreement, McLeodUSA filed the Series D Certificate of Designation to create the Series D Preferred. Rank. Pursuant to the Series D Certificate of Designation, the Series D Preferred and the Series E Preferred taken together, with respect to dividend rights and rights on liquidation and dissolution, rank (i) senior to all classes of capital stock or series of preferred stock of McLeodUSA established by the Board of Directors, the terms of which do not expressly provide that such class or series ranks senior to, or on a parity with, the Series D Preferred and Series E Preferred (collectively referred to, together with all classes of Common Stock, as "Junior Securities"), (ii) on a parity with the Series A Preferred and with each class of capital stock or series of preferred stock of McLeodUSA established by the Board, the terms of which expressly provide that such class or series will rank on a parity with the New Preferred Shares (collectively referred to as "Parity Securities"), and (iii) junior as to each class of capital stock or series of preferred stock of McLeodUSA established by the Board, the terms of which expressly provide that such class or series will rank senior to the New Preferred Shares (collectively referred to as "Senior Securities"). Creation by McLeodUSA of Senior Securities requires the vote of holders of a majority of the outstanding shares of the Series D Preferred. Dividends. Pursuant to the Series D Certificate of Designation, if at any time from the original date of issuance of shares of Series D Preferred (the "Issue Date") through the date ending five years thereafter, McLeodUSA pays a dividend in cash or property other than in shares of capital stock on the Common Stock, then each share of Series D Preferred will be entitled to receive an amount equal to the Series D Per Share Participation Amount. The "Series D Per Share Participation Amount" means, as at any date, 56% of the amount of dividends that would be paid with respect to the Series D Preferred and Series E Preferred taken together if converted into Common Stock on the date established as the record date with respect to such dividend on the Common Stock divided by the number of shares of Series D Preferred then outstanding. Except for the foregoing, the holders of shares of Series D Preferred are not entitled to receive any dividends in respect of their shares of Series D Preferred. Liquidation. Pursuant to the Series D Certificate of Designation, in the event of any liquidation, dissolution or winding-up (a "liquidation") of McLeodUSA, before any payment or distribution of the assets of McLeodUSA may be made to or set apart for the holders of Junior Securities, the holders of the shares of Series D Preferred and Series E Preferred taken together are entitled to receive an amount in cash equal to the greater of (x) the aggregate Liquidation Preferences (as defined below) of the outstanding shares of Series D Preferred and Series E Preferred, or (y) the aggregate amount that would have been received with respect to the outstanding shares of Series D Preferred and Series E Preferred if such shares had been converted to Common Stock immediately prior to the earliest event comprising the liquidation. If, upon any liquidation of McLeodUSA, the assets of McLeodUSA, or proceeds thereof, are insufficient to pay in full the amounts under clause (x) of the preceding sentence and liquidating payments on all Parity Securities, then such assets, or proceeds thereof, will be distributed among the shares of Series D Preferred and the Series E Preferred taken together and all such other Parity Securities ratably in accordance with the respective amounts that would be payable on such shares of Series D Preferred and Series E Preferred and any such other Parity Securities if all amounts payable thereon were paid in full. Any proceeds distributed among the outstanding shares of Series D Preferred and Series E Preferred under clause (x) of the first sentence, or pursuant to the preceding sentence, of this paragraph upon a liquidation will be distributed (a) first, to the Series D Preferred until it has received an amount equal to the aggregate Preference Amounts (as defined in the Series D Certificate of Designation) as of the date of liquidation of the outstanding Series D Preferred, (b) second, 37.5% to the Series D Preferred and 62.5% to the Series E Preferred until the Series D Preferred has received an amount equal to the Outstanding Series D Capital Amount (as defined in the Series D Certificate of Designation) as of the date of liquidation (in addition to any amount received pursuant to clause (a) above) and the Series E Preferred has received an amount equal to the Outstanding Series E Capital Amount (as defined in the Series D Certificate of Designation) as of the date of liquidation, and (c) thereafter, 56% to the Series D Preferred and 44% to the Series E Preferred. "Liquidation Preference" with respect to a share of Series D Preferred means $2500.00. Redemption. Pursuant to the Series D Certificate of Designation, subject to applicable legal requirements and the Company's existing Credit Agreement (as defined in the Series D Certificate of Designation), to the extent McLeodUSA has funds legally available therefor, during the 180-day period commencing on the eighth anniversary of the Issue Date, the holders of the Series D Preferred will have the right to cause McLeodUSA to redeem at any time (the date of any such redemption, the "Redemption Date") outstanding shares of Series D Preferred (the "Mandatory Redemption Obligation"). Upon any such election McLeodUSA will be required to redeem a proportional amount of the Series E Preferred. On any Redemption Date, the holders of shares of Series D Preferred and Series E Preferred being redeemed on such date, taken together, will be entitled to receive an amount in cash equal to the aggregate Liquidation Preferences of such shares of Series D Preferred and Series E Preferred as of such Redemption Date (the "Aggregate Redemption Amount"). The Aggregate Redemption Amount will be allocated between the shares of Series D Preferred and Series E Preferred being redeemed on any Redemption Date as follows: (x) the holders of shares of Series D Preferred being redeemed will be entitled to receive an amount equal to the sum of (A) the aggregate Preference Amounts of the shares of Series D Preferred being redeemed as of such Redemption Date plus (B) 37.5% of the difference between (i) the Aggregate Redemption Amount and (ii) the amount payable pursuant to clause (A) above (such difference, the "Excess Amount"), and (y) the holders of shares of Series E Preferred being redeemed will be entitled to receive an amount equal to 62.5% of the Excess Amount. The amount payable with respect to each share of Series D Preferred being redeemed on any Redemption Date is an amount in cash (the "Series D Redemption Amount") equal to (x) the aggregate amount payable to the shares of Series D Preferred being redeemed as calculated pursuant to the previous sentence divided by (y) the number of shares of Series D Preferred being redeemed on such Redemption Date. On any Redemption Date, McLeodUSA will pay, in cash or by wire transfer to an account designated by the holder of Series D Preferred, the Series D Redemption Amount for each share of Series D Preferred being redeemed. Conversion. Pursuant to the Series D Certificate of Designation, the holders of shares of Series D Preferred have the right, generally, at any time, to convert any or all outstanding shares of Series D Preferred into fully paid and non-assessable shares of Common Stock ("Optional Conversion"). Upon any Optional Conversion, a proportional amount, based on the percentage of each series of shares outstanding, of the Series E Preferred will automatically convert. In addition, if, at any time on or after the fifth anniversary of the Issue Date, the Sixty Trading Day Average (as defined in the Series D Certificate of Designation) is equal to or greater than the product of (x) 1.01 and (y) the Conversion Price (as defined below), then McLeodUSA will have the right to declare, during the 30-day period following the last trading day used in the calculation of the Sixty Trading Day Average, that all outstanding shares of Series D Preferred will be automatically converted into fully paid and non-assessable shares of Common Stock ("Mandatory Conversion"). Upon any Optional Conversion or Mandatory Conversion, the outstanding shares of Series D Preferred and Series E Preferred taken together will be convertible into a number of shares of Common Stock (the "Aggregate Conversion Shares") equal to (x) the aggregate Liquidation Preferences of the outstanding shares of Series D Preferred and Series E Preferred divided by (y) $6.10 (subject to adjustment pursuant to the Series D Certificate of Designation, the "Conversion Price"). The Series D Preferred is convertible into a number of shares of Common Stock equal to the sum of (A) the aggregate Preference Amounts as of the date of conversion of the outstanding shares of Series D Preferred divided by the Net Realizable FMV (as defined in the Series D Certificate of Designation) of a share of Common Stock as of the date of conversion, plus (B) the Series D Capital Share Number (as defined in the Series D Certificate of Designation), plus (C) the product of (x) .560 and (y) the excess, if any, of the Aggregate Conversion Shares over the sum of (i) the number determined pursuant to clause (A), (ii) the Series D Capital Share Number and (iii) the Series E Capital Share Number (as defined in the Series D Certificate of Designation). Voting Rights. Pursuant to the Series D Certificate of Designation, so long as at least 40% of the shares of Series D Preferred issued on the Issue Date remain outstanding, the holders of the Series D Preferred are entitled to collectively elect two directors to the Board of Directors; so long as at least 20%, but less than 40%, of the shares of Series D Preferred issued on the Issue Date remain outstanding, the holders are entitled to collectively elect one director to the Board and to designate a person as a non-voting observer (a "Board Observer") to attend all meetings of the Board of Directors; and so long as 20% or less (but at least one) of the shares of Series D Preferred issued on the Issue Date remain outstanding, the holders are entitled to designate two Board Observers. If McLeodUSA fails to discharge its Mandatory Redemption Obligation or if it issues securities senior to the Series D Preferred without the requisite consent of the holders of Series D Preferred, the total number of directors then constituting the whole Board automatically will be increased by one and the holders of outstanding shares of Series D Preferred, voting separately as a single series, will be entitled to elect one additional director to serve on the Board. Whenever McLeodUSA fulfills its Mandatory Redemption Obligation, the right of the holders of shares of Series D Preferred to elect the additional director will cease. Without the written consent of holders of a majority of the outstanding shares of Series D Preferred or the affirmative vote of holders of a majority of the outstanding shares of Series D Preferred at a meeting of such holders called for such purpose, McLeodUSA may not (i) create, authorize or issue any Senior Securities, (ii) declare, pay or set apart for payment any dividends in cash on Junior Securities (other than dividends on Common Stock which are, at the same time, also declared and paid on shares of Series D Preferred pursuant to the Series D Certificate of Designation), (iii) declare or make a distribution in cash upon Junior Securities (other than distributions on Common Stock which are, at the same time, also declared and made on shares of Series D Preferred pursuant to the Series D Certificate of Designation) or (iv) redeem, purchase or otherwise acquire in exchange for cash any Junior Securities. The foregoing description of the Series D Certificate of Designation is not intended to be complete and is qualified in its entirety by the complete text of the Series D Certificate of Designation, all of which is incorporated herein by reference. The Series D Certificate of Designation is filed as Exhibit 9 hereto. Series E Certificate of Designation ----------------------------------- As contemplated by the Exchange Agreement, McLeodUSA filed the Series E Certificate of Designation to create the Series E Preferred. Rank. Pursuant to the Series E Certificate of Designation, the Series D Preferred and the Series E Preferred taken together, with respect to dividend rights and rights on liquidation and dissolution, rank (i) senior to all Junior Securities, (ii) on a parity with the Series A Preferred and with the Parity Securities, and (iii) junior to all Senior Securities. Creation by McLeodUSA of Senior Securities requires the vote of holders of a majority of the outstanding shares of the Series E Preferred. Dividends. Pursuant to the Series E Certificate of Designation, if at any time from the Issue Date through the date ending five years thereafter, McLeodUSA pays a dividend in cash or property other than in shares of capital stock on the Common Stock, then each share of Series E Preferred will be entitled to receive an amount equal to the Series E Per Share Participation Amount. The "Series E Per Share Participation Amount" means, as at any date, 44% of the amount of dividends that would be paid with respect to the Series D Preferred and Series E Preferred taken together if converted into Common Stock on the dividend record date divided by the number of shares of Series E Preferred then outstanding. Except for the foregoing, the holders of shares of Series E Preferred are not entitled to receive any dividends in respect of their shares of Series E Preferred. Liquidation. Pursuant to the Series E Certificate of Designation, in the event of any liquidation of McLeodUSA, before any payment or distribution of the assets of McLeodUSA may be made to or set apart for the holders of Junior Securities, the holders of the shares of Series D Preferred and Series E Preferred taken together are entitled to receive an amount in cash equal to the greater of (x) the aggregate Liquidation Preferences (as defined below) of the outstanding shares of Series D Preferred and Series E Preferred, or (y) the aggregate amount that would have been received with respect to the outstanding shares of Series D Preferred and Series E Preferred if such shares had been converted to Common Stock immediately prior to the earliest event comprising the liquidation. If, upon any liquidation of McLeodUSA, the assets of McLeodUSA, or proceeds thereof, are insufficient to pay in full the amounts under clause (x) of the preceding sentence and liquidating payments on all Parity Securities, then such assets, or proceeds thereof, will be distributed among the shares of Series D Preferred and the Series E Preferred taken together and all such other Parity Securities ratably in accordance with the respective amounts that would be payable on such shares of Series D Preferred and Series E Preferred and any such other Parity Securities if all amounts payable thereon were paid in full. Any proceeds distributed among the outstanding shares of Series D Preferred and Series E Preferred under clause (x) of the first sentence or pursuant to the preceding sentence of this paragraph upon a liquidation will be distributed (a) first, to the Series D Preferred until it has received an amount equal to the aggregate Preference Amounts as of the date of liquidation of the outstanding Series D Preferred, (b) second, 37.5% to the Series D Preferred and 62.5% to the Series E Preferred until the Series D Preferred has received an amount equal to the Outstanding Series D Capital Amount as of the date of liquidation (in addition to any amount received pursuant to clause (a) above) and the Series E Preferred has received an amount equal to the Outstanding Series E Capital Amount as of the date of liquidation, and (c) thereafter, 56% to the Series D Preferred and 44% to the Series E Preferred. "Liquidation Preference" with respect to a share of Series E Preferred means $2500.00. Redemption. Pursuant to the Series D Certificate of Designation, subject to applicable legal requirements and the Company's existing Credit Agreement (as defined in the Series D Certificate of Designation), to the extent the holders of Series D Preferred choose to exercise their right to cause McLeodUSA to redeem their shares pursuant to the Mandatory Redemption Obligation, McLeodUSA will be required to redeem a proportional amount of the Series E Preferred. On any Redemption Date, the holders of shares of Series D Preferred and Series E Preferred being redeemed on such date, taken together, will be entitled to receive an amount in cash equal to the Aggregate Redemption Amount. The Aggregate Redemption Amount will be allocated between the shares of Series D Preferred and Series E Preferred being redeemed on any Redemption Date as follows: (x) the holders of shares of Series D Preferred being redeemed will be entitled to receive an amount equal to the sum of (A) the aggregate Preference Amounts of the shares of Series D Preferred being redeemed as of such Redemption Date plus (B) 37.5% of the Excess Amount, and (y) the holders of shares of Series E Preferred being redeemed will be entitled to receive an amount equal to 62.5% of the Excess Amount. The amount payable with respect to each share of Series E Preferred being redeemed on any Redemption Date is an amount in cash (the "Series E Redemption Amount") equal to (x) the aggregate amount payable to the shares of Series E Preferred being redeemed as calculated pursuant to the previous sentence divided by (y) the number of shares of Series E Preferred being redeemed on such Redemption Date. On any Redemption Date, McLeodUSA will pay, in cash or by wire transfer to an account designated by the holder of Series E Preferred, the Series E Redemption Amount for each share of Series E Preferred being redeemed. Conversion. Pursuant to the Series E Certificate of Designation, upon any Optional Conversion, a proportional amount, based on the percentage of each series of shares outstanding, of the Series E Preferred and, upon a Mandatory Conversion, all of the Series E Preferred, will automatically convert. Upon any Optional Conversion or Mandatory Conversion, the outstanding shares of Series D Preferred and Series E Preferred taken together will be convertible into the Aggregate Conversion Shares. The Series E Preferred is convertible into a number of shares of Common Stock equal to the sum of (A) the Series E Capital Share Number, plus (B) the product of (x) .440 and (y) the excess, if any, of the Aggregate Conversion Shares over the sum of (i) the aggregate Preference Amounts as of the date of conversion of the outstanding shares of Series D Preferred divided by the Net Realizable FMV of a share of Common Stock as of the date of conversion, (ii) the Series D Capital Share Number and (iii) the Series E Capital Share Number. Voting Rights. Pursuant to the Series D Certificate of Designation, so long as any shares of Series E Preferred are outstanding, the holders of the Series E Preferred are entitled to designate one Board Observer to the Board of Directors. If McLeodUSA fails to discharge its Mandatory Redemption Obligation or if it issues securities senior to the Series E Preferred without the requisite consent of the holders of Series E Preferred, the total number of directors then constituting the whole Board automatically will be increased by one and the holders of outstanding shares of Series E Preferred, voting separately as a single series, will be entitled to elect one additional director to serve on the Board. Whenever McLeodUSA fulfills its Mandatory Redemption Obligation, the right of the holders of shares of Series E Preferred to elect the additional director will cease. Without the written consent of holders of a majority of the outstanding shares of Series E Preferred or the affirmative vote of holders of a majority of the outstanding shares of Series E Preferred at a meeting of such holders called for such purpose, McLeodUSA may not (i) create, authorize or issue any Senior Securities, (ii) declare, pay or set apart for payment any dividends in cash on Junior Securities (other than dividends on Common Stock which are, at the same time, also declared and paid on shares of Series E Preferred pursuant to the Series E Certificate of Designation), (iii) declare or make a distribution in cash upon Junior Securities (other than distributions on Common Stock which are, at the same time, also declared and made on shares of Series E Preferred pursuant to the Series E Certificate of Designation) or (iv) redeem, purchase or otherwise acquire in exchange for cash any Junior Securities. The foregoing description of the Series E Certificate of Designation is not intended to be complete and is qualified in its entirety by the complete text of the Series E Certificate of Designation, all of which is incorporated herein by reference. The Series E Certificate of Designation is filed as Exhibit 10 hereto. Except as set forth or incorporated by reference herein, none of the FL Partnerships, nor to the knowledge of any of the FL Partnerships, any person identified in Schedule I, has any contracts, arrangements, understandings or relationships (legal or otherwise) with any person with respect to any securities of McLeodUSA. ITEM 7. Material to be Filed as Exhibits -------------------------------- Item 7 is hereby amended as follows: 1. Stock Purchase Agreement, dated August 30, 1999, among McLeodUSA and the FL Partnerships.* 2. Registration Rights Agreement, dated as of September 15, 1999, among McLeodUSA and the FL Partnerships.* 3. Certificate of Designation of the Powers, Preferences and Relative, Participating, Optional and Other Special Rights of Series B Cumulative Convertible Preferred Stock and Qualifications, Limitations and Restrictions Thereof.* 4. Certificate of Designation of the Powers, Preferences and Relative, Participating, Optional and Other Special Rights of Series C Convertible Preferred Stock and Qualifications, Limitations and Restrictions Thereof.* 5. Joint Filing Agreement.* 6. Exchange Agreement, dated as of September 30, 2001, by and between McLeodUSA and the FL Partnerships. 7. Termination Agreement, dated as of September 30, 2001, by and between McLeodUSA and the FL Partnerships. 8. Registration Rights Agreement, dated as of September 30, 2001, by and between McLeodUSA and the FL Partnerships. 9. Certificate of Designation of the Powers, Preferences and Relative, Participating, Optional and Other Special Rights of Series D Convertible Preferred Stock and Qualifications, Limitations and Restrictions Thereof. 10. Certificate of Designation of the Powers, Preferences and Relative, Participating, Optional and Other Special Rights of Series E Convertible Preferred Stock and Qualifications, Limitations and Restrictions Thereof. -------- * Previously filed. SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Dated: October 2, 2001 FORSTMANN LITTLE & CO. SUBORDINATED DEBT AND EQUITY MANAGEMENT BUYOUT PARTNERSHIP-VI, L.P. By: FLC XXIX Partnership, L.P. its general partner By: /s/ Winston W. Hutchins ----------------------------------- Winston W. Hutchins, a general partner FORSTMANN LITTLE & CO. SUBORDINATED DEBT AND EQUITY MANAGEMENT BUYOUT PARTNERSHIP-VII, L.P. By: FLC XXXIII Partnership, L.P. its general partner By: /s/ Winston W. Hutchins ----------------------------------- Winston W. Hutchins, a general partner FORSTMANN LITTLE & CO. EQUITY PARTNERSHIP- V, L.P. By: FLC XXX Partnership, L.P. its general partner By: /s/ Winston W. Hutchins ----------------------------------- Winston W. Hutchins, a general partner Schedule I ---------- FLC XXIX Partnership, L.P.: General Partner of MBO-VI ------ FLC XXIX Partnership, L.P., a New York limited partnership ("FLC XXIX"), is the general partner of MBO-VI. Its purpose is to act as general partner of MBO-VI and other limited partnerships affiliated with MBO-VI. The address of the principal office of MBO-VI is c/o Forstmann Little & Co., 767 Fifth Avenue, New York, NY 10153. General Partners of FLC XXIX -------- The following are the general partners of FLC XXIX, the general partner of MBO-VI. All of the following are general partners of partnerships affiliated with Forstmann Little & Co., a private investment firm. The business address of each is 767 Fifth Avenue, New York, NY 10153 and each is a citizen of the United States. Theodore J. Forstmann Sandra J. Horbach Erskine B. Bowles Thomas H. Lister Winston W. Hutchins Tywana LLC Jamie C. Nicholls FLC XXXIII Partnership, L.P.: General Partner of MBO-VII ------- FLC XXXIII Partnership, L.P., a New York limited partnership ("FLC XXXIII"), is the general partner of MBO-VII. Its purpose is to act as general partner of MBO-VII and other limited partnerships affiliated with MBO-VII. The address of the principal office of FLC XXXIII is c/o Forstmann Little & Co., 767 Fifth Avenue, New York, NY 10153. General Partners of FLC XXXIII ---------- The following are the general partners of FLC XXXIII, the general partner of MBO-VII. All of the following are general partners of partnerships affiliated with Forstmann Little & Co., a private investment firm. The business address of each of the following persons is 767 Fifth Avenue, New York, NY 10153 and each is a citizen of the United States. Theodore J. Forstmann Sandra J. Horbach Erskine B. Bowles Thomas H. Lister Winston W. Hutchins Tywana LLC Jamie C. Nicholls FLC XXX Partnership, L.P.: General Partner of Equity-V -------- FLC XXX Partnership, L.P., a New York limited partnership ("FLC XXX"), is the general partner of Equity-V. Its purpose is to act as general partner of Equity-V and other limited partnerships affiliated with Equity-V. The address of the principal office of Equity-V is c/o Forstmann Little & Co., 767 Fifth Avenue, New York, NY 10153. General Partners of FLC XXX ------- The following are the general partners of FLC XXX, the general partner of Equity-V. All of the following are general partners of partnerships affiliated with Forstmann Little & Co., a private investment firm. The business address of each is 767 Fifth Avenue, New York, NY 10153 and each is a citizen of the United States. Theodore J. Forstmann Sandra J. Horbach Thomas H. Lister Winston W. Hutchins Tywana LLC EX-99.6 3 ex99_6.txt EXHIBIT 99.6 EXHIBIT 99.6 EXCHANGE AGREEMENT dated as of September 30, 2001 by and between McLeodUSA Incorporated and The Purchasers Listed on the Signature Pages Hereto EXCHANGE AGREEMENT EXCHANGE AGREEMENT (this "Agreement"), dated as of September 30, 2001, by and between McLeodUSA Incorporated, a Delaware corporation (the "Company"), and the entities listed on the signature page hereto under the caption "Purchasers" (each such entity, a "Purchaser" and collectively, the "Purchasers"). W I T N E S S E T H : WHEREAS, pursuant to that certain Stock Purchase Agreement, dated as of August 30, 1999, by and between the Company and the entities listed on the signature page thereto, the Company sold to the Purchasers and the Purchasers purchased from the Company (i) an aggregate of 275,000 shares of the Company's Series B Preferred Stock, par value $.01 per share (the "Series B Preferred Stock") and (ii) an aggregate of 125,000 shares of the Company's Series C Preferred Stock, par value $.01 per share (the "Series C Preferred Stock" and, collectively with the Series B Preferred Stock, the "1999 Preferred Shares"); WHEREAS, upon the terms and subject to the conditions set forth in this Agreement, (i) the Company wishes to issue to the Purchasers (x) an aggregate of 275,000 shares of the Company's Series D Preferred Stock, par value $.01 per share (the "Series D Preferred Stock"), in exchange for all of the outstanding shares of Series B Preferred Stock held by the Purchasers and (y) an aggregate of 125,000 shares of the Company's Series E Preferred Stock, par value $.01 per share (the "Series E Preferred Stock" and, collectively with the Series D Preferred Stock, the "New Preferred Shares"), in exchange for all of the outstanding shares of the Series C Preferred Stock held by the Purchasers (each of the foregoing exchanges, an "Exchange" and, collectively, the "Exchanges"), and (ii) the Purchasers desire to consummate the Exchanges. WHEREAS, the Purchasers and the Company desire to provide for the Exchanges and to establish certain rights and obligations in connection therewith. NOW, THEREFORE, in consideration of the premises and the mutual representations, warranties, covenants and agreements set forth in this Agreement and in the Termination Agreement, the parties hereto agree as follows: ARTICLE I EXCHANGES 1.1. Exchanges. Upon the terms and subject to the conditions set forth herein, at the Closing (as defined below), (a) the Company shall issue to the Purchasers (i) an aggregate of 275,000 shares of Series D Preferred Stock and (ii) an aggregate of 125,000 shares of Series E Preferred Stock, and (b) the Purchasers shall surrender to the Company, in exchange therefor, all of the outstanding 1999 Preferred Shares held by the Purchasers. The number of shares of Series D Preferred Stock and the number of shares of Series E Preferred Stock issued to each Purchaser, and the 1999 Preferred Shares being surrendered in exchange therefor by each Purchaser are set forth below such Purchaser's name on the signature page hereto; provided, that the Purchasers shall have the right to reallocate among the Purchasers the New Preferred Shares to be issued to each Purchaser by delivering written notice of such reallocation to the Company not less than three days prior to the Closing so long as such reallocation does not change the total number of New Preferred Shares being issued hereunder. 1.2. The Closing; Deliveries. (a) The closing of the Exchanges (the "Closing") shall take place at the offices of Fried, Frank, Harris, Shriver & Jacobson, One New York Plaza, New York, New York 10004 at 9:00 a.m. on the fifth business day following the satisfaction or waiver of the conditions set forth in Article V (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction or waiver of those conditions) or at such other place, time and/or date as shall be mutually agreed by the Company and the Purchasers (the date of the Closing, the "Closing Date"). (b) As promptly as practicable after the filing of the Certificates of Designation with the Secretary of State of the State of Delaware, the Company shall deliver to each Purchaser certificates representing the New Preferred Shares, each registered in the name of such Purchaser in the respective amounts set forth on the signature pages hereto or the reallocation notice referred to in Section 1.1, as applicable. Delivery of such certificates shall be made against receipt by the Company of the stock certificates representing the 1999 Preferred Shares. 1.3. Cancellation of the 1999 Preferred Shares. The Company shall take all actions necessary so that, upon receipt of the stock certificates representing the 1999 Preferred Shares, the 1999 Preferred Shares shall be retired and assume the status of authorized and unissued shares of the class of preferred stock undesignated as to series. 1.4. Capitalized Terms. Capitalized terms not otherwise defined herein shall have the meanings ascribed to such terms in Section 8.1. ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby represents and warrants to each Purchaser, as of the date hereof and as of the Closing, as follows: 2.1. Organization; Subsidiaries. (a) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has the requisite corporate power and authority to carry on its business as it is now being conducted. The Company is duly qualified and licensed as a foreign corporation to do business, and is in good standing (and has paid all relevant franchise or analogous taxes), in each jurisdiction where the character of its assets owned or held under lease or the nature of its business makes such qualification necessary, except where the failure to so qualify or be licensed would not individually or in the aggregate have a Material Adverse Effect. (b) Except as set forth on Schedule 2.1(b), (i) the Company owns, either directly or indirectly through one or more Subsidiaries, all of the capital stock or other equity interests of the Significant Subsidiaries free and clear of all liens, charges, claims, security interests, restrictions, options, proxies, voting trusts or other encumbrances ("Encumbrances") and (ii) there are no outstanding subscription rights, options, warrants, convertible or exchangeable securities or other rights of any character whatsoever relating to issued or unissued capital stock or other equity interests of any Significant Subsidiary, or any Commitments of any character whatsoever relating to issued or unissued capital stock or other equity interests of any Significant Subsidiary or pursuant to which any Significant Subsidiary is or may become bound to issue or grant additional shares of its capital stock or other equity interests or related subscription rights, options, warrants, convertible or exchangeable securities or other rights, or to grant preemptive rights. Except for the Subsidiaries and except as set forth on Schedule 2.1(b), the Company does not own, directly or indirectly, any interest in any corporation, limited liability company, partnership, business association or other Person in excess of 9.9% of the outstanding equity. 2.2. Due Authorization. The Company has all right, corporate power and authority to enter into this Agreement and each of the other Transaction Documents to which it is a party and to consummate the transactions contemplated hereby and thereby. The execution and delivery by the Company of this Agreement and each of the other Transaction Documents to which it is a party, the issuance and delivery of the New Preferred Shares by the Company and the compliance by the Company with each of the provisions of this Agreement and each of the other Transaction Documents to which it is a party (including the reservation and issuance of the Conversion Shares and the consummation by the Company of the transactions contemplated hereby and thereby) (a) are within the corporate power and authority of the Company, and (b) have been duly authorized by all necessary corporate action of the Company. This Agreement has been, and each of the other Transaction Documents to which the Company is a party when executed and delivered by the Company will be, duly and validly executed and delivered by the Company, and this Agreement constitutes, and each of such other Transaction Documents when executed and delivered by the Company will constitute, a valid and binding agreement of the Company enforceable against the Company in accordance with its terms except as such enforcement is limited by bankruptcy, insolvency and other similar laws affecting the enforcement of creditors' rights generally and for limitations imposed by general principles of equity. The Conversion Shares have been validly reserved for issuance, and upon issuance, will be duly and validly issued and outstanding, fully paid, and nonassessable. The terms, designations, powers, preferences and relative participation, optional and other special rights, qualifications, limitations and restrictions of the Series D Preferred Stock and the Series E Preferred Stock will be as set forth in the Certificate of Designation for the Series D Preferred Stock and the Certificate of Designation for the Series E Preferred Stock (collectively, the "Certificates of Designation"), the forms of which are attached to this Agreement as Exhibits 2.2A and 2.2B. The New Preferred Shares issued to the Purchasers in accordance with the terms of the Certificates of Designation, when issued and delivered in accordance with the terms of this Agreement, will be validly issued and outstanding, fully paid and non-assessable, free and clear of any Encumbrances and not subject to the preemptive or other similar rights of the stockholders of the Company. 2.3. Capitalization. As of the date hereof, the authorized capital stock of the Company consists of (i) 2,000,000,000 shares of the Company's Class A Common Stock, par value $.01 per share ("Class A Common Stock"), of which, as of September 25, 2001, 626,950,228 shares were issued and outstanding and of which no more than 1,000,000 additional shares (excluding any shares issued upon exercise of outstanding options disclosed on Schedule 2.3) have been issued between September 25, 2001 and the date hereof; (ii) 22,000,000 shares of Class B Common Stock, par value $0.01 per share (the "Class B Common Stock" and, together with the Class A Common Stock, the "Common Stock"), of which, as of the date hereof, no shares are issued and outstanding; (iii) 2,000,000 shares of serial preferred stock, par value $0.01 per share, of which as of the date hereof 1,149,375 shares are issued and outstanding as 6.75% Series A Cumulative Convertible Preferred Stock (the "Series A Preferred Stock") and 400,000 are issued and outstanding as the 1999 Preferred Shares; and (iv) 10,000,000 shares of Class II serial preferred stock, par value $.001 per share, of which, as of the date hereof, no shares are issued and outstanding. All of the issued and outstanding shares of Class A Common Stock, Series A Preferred Stock and the 1999 Preferred Shares have been duly authorized and are validly issued, fully paid and nonassessable. Except as set forth on Schedule 2.3, no shares of capital stock of the Company are entitled to preemptive rights. Except as set forth on Schedule 2.3 or as otherwise contemplated by this Agreement, there are no other outstanding subscription rights, options, warrants, convertible or exchangeable securities or other rights of any character whatsoever relating to issued or unissued capital stock of the Company, or any Commitments of any character whatsoever relating to issued or unissued capital stock of the Company or pursuant to which the Company is or may become bound to issue or grant additional shares of its capital stock or related subscription rights, options, warrants, convertible or exchangeable securities or other rights, or to grant preemptive rights. Except as set forth on Schedule 2.3 or as otherwise contemplated by this Agreement, (i) the Company has not agreed to register any securities under the Securities Act or under any state securities law or granted registration rights to any Person or entity and (ii) there are no voting trusts, stockholders agreements, proxies or other Commitments or understandings in effect to which the Company is a party or of which it has Knowledge with respect to the voting or transfer of any of the outstanding shares of Class A Common Stock, Series A Preferred Stock or 1999 Preferred Shares. To the extent that any options, warrants or any of the other rights described above are outstanding, the issuance of the New Preferred Shares and any future issuance of Conversion Shares will not result in an adjustment of the exercise or conversion price or number of shares issuable upon the exercise or conversion of any such options, warrants or other rights. 2.4. SEC Reports. The Company has timely filed all proxy statements, reports and other documents required to be filed by it under the Exchange Act and made available to the Purchasers complete copies of all annual reports, quarterly reports, proxy statements and other reports filed by the Company under the Exchange Act, each as filed with the SEC (collectively, the "SEC Reports"). Each SEC Report was, on the date of its filing, in compliance in all material respects with the requirements of its respective report form and the Exchange Act and did not, on the date of its filing, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. 2.5. Financial Statements. The consolidated financial statements of the Company (including any related schedules and/or notes) included in the SEC Reports have been prepared in accordance with United States generally accepted accounting principles ("GAAP") consistently followed throughout the periods involved (except as may be indicated in the notes thereto) and fairly present in accordance with GAAP the consolidated financial condition, results of operations, cash flows and changes in stockholders' equity of the Company and the Subsidiaries as of the respective dates thereof and for the respective periods then ended (except as may be indicated in the notes thereto and except, in the case of interim statements, for the absence of footnotes and as permitted by Form 10-Q and subject to changes resulting from year-end adjustments, none of which are material in amount or effect). Except as set forth on Schedule 2.5 or disclosed in the SEC Reports, neither the Company nor any Subsidiary has any liability or obligation (whether accrued, absolute, contingent, unliquidated or otherwise, whether known or unknown, whether due or to become due and regardless of when asserted), except (i) liabilities and obligations in the respective amounts reflected or reserved against in the audited consolidated balance sheet of the Company and the Subsidiaries as of December 31, 2000, (ii) liabilities and obligations incurred in the ordinary course of business since December 31, 2000 or (iii) liabilities and obligations which individually or in the aggregate would not reasonably be expected to have or result in a Material Adverse Effect. 2.6. Absence of Certain Changes. Except as set forth on Schedule 2.6 or as disclosed in the SEC Reports, since December 31, 2000 neither the Company nor any of the Subsidiaries has suffered any change, event or development or series of changes, events or developments which individually or in the aggregate has had or would reasonably be expected to have a Material Adverse Effect or, to the Knowledge of the Company, an adverse effect on the ability of the Company to perform its obligations under this Agreement or any of the Transaction Documents to which it is a party. 2.7. Litigation. (a) Except as set forth on Schedule 2.7(a) or as disclosed in the SEC Reports, there is no claim, action, suit, investigation or proceeding ("Litigation") pending or, to the Knowledge of the Company, threatened against the Company or any of the Subsidiaries or involving any of their respective properties or assets by or before any court, arbitrator or other Governmental Entity which (i) in any manner challenges or seeks to prevent, enjoin, alter or materially delay the transactions contemplated by this Agreement or (ii) if resolved adversely to the Company or a Subsidiary would reasonably be expected to have a Material Adverse Effect. (b) Except as set forth on Schedule 2.7(b) or as disclosed in the SEC Reports, neither the Company nor any of the Subsidiaries is in default under or in breach of any order, judgment or decree of any court, arbitrator or other Governmental Entity, except for defaults or breaches, which individually or in the aggregate would not reasonably be expected to have a Material Adverse Effect. 2.8. Consents, No Violations. Except as set forth on Schedule 2.8, neither the execution, delivery or performance by the Company of this Agreement or any of the other Transaction Documents to which it is a party nor the consummation of the transactions contemplated hereby or thereby will (a) conflict with, or result in a breach or a violation of, any provision of the certificate of incorporation or by-laws or other organizational documents of the Company or any of the Subsidiaries including, without limitation, any of the provisions of the Certificate of Designation for the Series A Preferred Stock; (b) constitute, with or without notice or the passage of time or both, a breach, violation or default, create an Encumbrance, or give rise to any right of termination, modification, cancellation, prepayment, suspension, limitation, revocation or acceleration, under (i) any Law or (ii) any provision of any agreement or other instrument to which the Company or any of the Subsidiaries is a party or pursuant to which any of them or any of their assets or properties is subject, except, with respect to the matters set forth in this clause (ii), for breaches, violations, defaults, Encumbrances, or rights of termination, modification, cancellation, prepayment, suspension, limitation, revocation or acceleration, which, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect or, to the Knowledge of the Company, adversely affect the ability of the Company to consummate the transactions contemplated by this Agreement or any Transaction Document to which it is a party; or (c) except for the filings of the Certificates of Designation with the Secretary of State of the State of Delaware, any required filing under the HSR Act, the Exchange Act, the Securities Act and other filings or notifications that are immaterial to the consummation of the transactions contemplated hereby, require any consent, approval or authorization of, notification to, filing with, or exemption or waiver by, any Governmental Entity or any other Person on the part of the Company or any of the Subsidiaries. Without limiting the generality of the foregoing (i) no consent or other approval of the holders of the Series A Preferred Stock is required in connection with the consummation of the transactions contemplated hereby or the performance by the Company of any of its obligations under this Agreement or any Transaction Document to which it is a party, (ii) the issuance of the New Preferred Shares and any future issuance of Conversion Shares will not result in any anti-dilution or other adjustment to the conversion price or the number of shares of Class A Common Stock issuable upon conversion of the Series A Preferred Stock or (iii) the holders of the Series A Preferred Stock will not be entitled to exercise any voting rights as a result of any of the provisions contained in this Agreement or any other Transaction Documents. 2.9. Compliance with Laws. Except as set forth on Schedule 2.9 or as disclosed in the SEC Reports, the Company and the Subsidiaries are in compliance in all material respects with all Laws and the Company and the Subsidiaries possess all material licenses, franchise permits, consents, registrations, certificates, and other governmental or regulatory permits, authorizations or approvals required for the operation of the business as presently conducted and for the ownership, lease or operation of the Company's and its Subsidiaries' properties (collectively, "Licenses"). Except as set forth on Schedule 2.9, the Company and the Subsidiaries have all Licenses, and all of such Licenses are valid and in full force and effect, and the Company and the Subsidiaries have duly performed and are in compliance in all material respects with all of their obligations under such Licenses. 2.10. Commitments. Schedule 2.10 sets forth a complete and correct list of each contract, agreement, understanding, arrangement and commitment of any nature whatsoever, whether written or oral, including all amendments thereof and supplements thereto ("Commitments") of the following types to which the Company or any Subsidiary is a party or by or to which the Company or any Subsidiary or any of their properties may be bound or subject, (i) Commitments, to the Knowledge of the Company, containing covenants purporting to limit the freedom of the Company or any Subsidiary to compete in any line of business in any geographic area or to hire any individual or group of individuals, except in connection with or resulting from acquisitions or potential acquisitions, (ii) Commitments relating to capital expenditures in excess of $10,000,000, (iii) Commitments relating to indentures, mortgages, promissory notes, loan agreements, guarantees, letters of credit or other agreements or instruments of the Company or any Subsidiary involving amounts in excess of $5,000,000, (iv) Commitments in respect of any joint venture, partnership or other similar arrangement, (v) Commitments with any Governmental Entity involving payments in excess of $5,000,000 and (vi) Commitments relating to interconnection agreements with local carriers, Commitments with resellers and material Commitments with customers in each case involving payments in excess of $5,000,000 per year. 2.11. Brokers or Finders. Except for Goldman, Sachs & Co., whose fees will be paid by the Company, upon the consummation of the transactions contemplated by this Agreement, no agent, broker, investment banker or other Person is or will be entitled to any broker's or finder's fee or any other commission or similar fee from the Company or any of the Subsidiaries in connection with any of the transactions contemplated by this Agreement or the other Transaction Documents. 2.12. Section 203 of the DGCL; Takeover Statute. The Board of Directors has taken all actions necessary or advisable so that the restrictions contained in Section 203 of the DGCL applicable to a "business combination" (as defined in such Section) will not apply to the execution, delivery or performance of this Agreement or any of the other Transaction Documents or the consummation of the transactions contemplated hereby or thereby. The execution, delivery and performance of this Agreement or any of the other Transaction Documents and the consummation of the transactions contemplated hereby or thereby will not cause to be applicable to the Company any "fair price," "moratorium," "control share acquisition" or other similar antitakeover statute or regulation enacted under state or federal laws. 2.13. Offering of the New Preferred Shares. Neither the Company nor any Person acting on its behalf has taken or will take any action (including, without limitation, any offering of any securities of the Company under circumstances which would require, under the Securities Act, the integration of such offering with the offering of the New Preferred Shares) which might reasonably be expected to subject the offering or issuance of the New Preferred Shares to the registration requirements of Section 5 of the Securities Act. 2.14. Disclosure. Neither this Agreement nor any other Transaction Document, nor any schedule or exhibit hereto or thereto, nor any certificate furnished to the Purchasers by or on behalf of the Company in connection with the transactions contemplated hereby and thereby, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein not misleading (for purposes of the preceding sentence, any preliminary document or written information shall be disregarded if a final or updated version of such document or written information was delivered to the Purchasers by the Company prior to the date hereof). To the Company's Knowledge the financial forecasts furnished by the Company to the Purchasers have been reasonably prepared and reflect the best currently available estimates and judgment of the Company's management as to the expected future financial performance of the Company and the Subsidiaries. There is no fact or information relating to the Company and/or any of its Subsidiaries that, to the Company's Knowledge, would reasonably be expected to be material to the Company and its Subsidiaries taken as a whole and that has not been disclosed to the Purchasers. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS Each Purchaser hereby represents and warrants to the Company, severally and not jointly, as of the date hereof and as of the Closing, as follows: 3.1. Acquisition for Investment. Such Purchaser is acquiring the New Preferred Shares, for its own account, for investment and not with a view to, or for sale in connection with, the distribution thereof within the meaning of the Securities Act. 3.2. Restricted Securities. Such Purchaser understands that (i) except as provided in the Registration Rights Agreement, the New Preferred Shares and any Conversion Shares that may be issued will not be registered under the Securities Act or any state securities laws by reason of their issuance by the Company in a transaction exempt from the registration requirements thereof and (ii) the New Preferred Shares and any Conversion Shares that may be issued may not be sold unless such disposition is registered under the Securities Act and applicable state securities laws or is exempt from registration thereunder. 3.3. No Brokers or Finders. No agent, broker, investment banker or other Person is or will be entitled to any broker's or finder's fee or any other commission or similar fee from the Purchasers in connection with the transactions contemplated by this Agreement or the other Transaction Documents. 3.4. Accredited Investor. Such Purchaser is an "accredited investor" (as defined in Rule 501(a) under the Securities Act). Such Purchaser has sufficient knowledge and experience in financial and business matters so as to be capable of evaluating the merits and risks of its investment in the New Preferred Shares and is capable of bearing the economic risks of such investment. 3.5 Organization. Such Purchaser is a limited partnership duly organized, validly existing and in good standing under the laws of the State of Delaware and has the requisite power and authority to carry on its business as it is now being conducted. 3.6. Due Authorization. Such Purchaser has all right, power and authority to enter into this Agreement and each of the other Transaction Documents to which it is a party and to consummate the transactions contemplated hereby and thereby. The execution and delivery by such Purchaser of this Agreement and each of the other Transaction Documents to which it is a party and the compliance by such Purchaser with each of the provisions of this Agreement and each of the Transaction Documents to which it is a party (including the consummation by such Purchaser of the transactions contemplated hereby and thereby) (a) are within the power and authority of such Purchaser and (b) have been duly authorized by all necessary action on the part of such Purchaser. This Agreement has been, and each of the other Transaction Documents to which it is a party when executed and delivered by such Purchaser will be, duly and validly executed and delivered by such Purchaser, and this Agreement constitutes, and each of such other Transaction Documents when executed and delivered by such Purchaser will constitute, a valid and binding agreement of such Purchaser enforceable against such Purchaser in accordance with its respective terms except as such enforcement is limited by bankruptcy, insolvency and other similar laws affecting the enforcement of creditors' rights generally and for limitations imposed by general principles of equity. 3.7. Consents, No Violations. Neither the execution, delivery or performance by such Purchaser of this Agreement or any of the other Transaction Documents to which it is a party nor the consummation of the transactions contemplated hereby or thereby will (a) conflict with, or result in a breach or a violation of, any provision of the organizational documents of such Purchaser; (b) constitute, with or without notice or the passage of time or both, a breach, violation or default, create an Encumbrance, or give rise to any right of termination, modification, cancellation, prepayment, suspension, limitation, revocation or acceleration, under (i) any Law, or (ii) any provision of any agreement or other instrument to which such Purchaser is a party or pursuant to which the Purchaser or its assets or properties is subject, except, with respect to the matters set forth in clause (ii), for breaches, violations, defaults, Encumbrances, or rights of termination, modification, cancellation, prepayment, suspension, limitation, revocation or acceleration, which, individually or in the aggregate, would not materially adversely affect the ability of such Purchaser to consummate the transactions contemplated by this Agreement or any Transaction Document to which it is a party; or (c) except for any required filing under the HSR Act and the filings set forth on Schedule 3.7, require any consent, approval or authorization of, notification to, filing with, or exemption or waiver by, any Governmental Entity or any other Person on the part of the Purchaser. 3.8. Ownership of the 1999 Preferred Shares. Such Purchaser is the lawful owner of the 1999 Preferred Shares set forth opposite such Purchaser's name on the signature page hereto, which shares are to be delivered and sold to the Company, and upon delivery and sale of, and payment for, such shares, as provided for in this Agreement, such Purchaser will convey to the Company good and marketable title to such shares, free and clear of all Encumbrances. 3.9. Litigation. There is no Litigation pending or, to the knowledge of such Purchaser, threatened against such Purchaser or any of its Affiliates or involving any of its properties or assets by or before any court, arbitrator or other Governmental Entity which in any manner challenges or seeks to prevent, enjoin, alter or materially delay the transactions contemplated by this Agreement. ARTICLE IV COVENANTS 4.1. Conduct of Business by the Company Pending the Closing. The Company covenants and agrees that, during the period from the date of this Agreement and continuing until the earlier of the termination of this Agreement or the Closing, except for actions unanimously approved by the Company's Board of Directors at a duly called and held meeting or unless the Purchasers otherwise agree in writing, the Company shall, and shall cause each of the Subsidiaries to, (i) conduct its business only in the ordinary course and consistent with past practice; (ii) use reasonable best efforts to preserve and maintain its assets and properties and its relationships with its customers, suppliers, advertisers, distributors, agents, officers and employees and other Persons with which it has significant business relationships; (iii) use reasonable best efforts to maintain all of the material assets it owns or uses in the ordinary course of business consistent with past practice; (iv) use reasonable best efforts to preserve the goodwill and ongoing operations of its business; (v) maintain its books and records in the usual, regular and ordinary manner, on a basis consistent with past practice; and (vi) comply in all material respects with applicable Laws. Except as expressly contemplated by this Agreement or as set forth on Schedule 4.1, between the date of this Agreement and the Closing, the Company shall not, and shall cause each of the Subsidiaries not to, do any of the following without the prior written consent of the Purchaser, which consent shall not be unreasonably withheld or delayed: (a) (i) issue any debt securities, (ii) incur any additional indebtedness (other than indebtedness pursuant to the Company's Senior Secured Credit Facilities), (iii) assume, grant, guarantee or endorse, or make any other accommodation or arrangement making the Company or any Subsidiary responsible for, any liabilities or other obligations of any other Person or (iv) make any loans, advances or capital contributions to, or investments in, any Person; (b) change any method of accounting or accounting practice used by the Company or any Subsidiary, other than such changes required by GAAP; (c) repurchase, redeem (except pursuant to Section 4.5 of the Company's Certificate of Incorporation) or otherwise acquire or exchange any share of Common Stock or other equity interests; except for issuances of Class A Common Stock pursuant to the exercise of options to purchase Class A Common Stock outstanding on the date hereof and other issuances of Class A Common Stock, in each case as listed on Schedule 2.3, issue or sell any additional shares of the capital stock of, or other equity interests in, the Company or any Subsidiary, or securities convertible into or exchangeable for such shares or other equity interests, or issue or grant any subscription rights, options, warrants or other rights of any character relating to shares of such capital stock, such other equity interests or such securities; or declare, set aside, make or pay any dividend, or make any distribution, in respect of any shares of capital stock of the Company other than as required with respect to the Series A Preferred Stock; (d) amend the Company's or any Subsidiary's charter or by-laws or other organizational documents except with respect to the filing of the Certificates of Designation; (e) take any action that is reasonably likely to result in (i) any of the representations and warranties set forth in Article II becoming false or inaccurate in any material respect as of the Closing Date or (ii) any of the conditions to the obligations of the Purchasers set forth in Section 5.2 not being satisfied; or (f) agree to take any of the actions restricted by this Section 4.1. 4.2. Press Releases; Interim Public Filings. The Company shall, and shall cause each Subsidiary to, deliver to the Purchasers complete and correct copies of all press releases and public filings made between the date hereof and the Closing Date, and, to the extent any such press releases and public filings refer in any way to the Purchasers and/or their Affiliates, shall give the Purchasers the reasonable opportunity to review and comment on such releases and filings, in each case prior to release in the form in which it will be issued. 4.3. HSR Act. Each of the Purchasers and the Company shall cooperate in making filings under the HSR Act and shall use its reasonable best efforts to take, or cause to be taken, all actions necessary, proper or advisable to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement, including using its reasonable best efforts to resolve such objections, if any, as the Antitrust Division of the Department of Justice or the Federal Trade Commission or state antitrust enforcement or other Governmental Entities may assert under antitrust Laws with respect to the transactions contemplated hereby. 4.4. Consents; Approvals. The Company shall use its reasonable best efforts to obtain all consents, waivers, exemptions, approvals, authorizations or orders (collectively, "Consents") (including, without limitation (i) Consents required to avoid any breach, violation, default, encumbrance or right of termination, modification, cancellation, prepayment, suspension, limitation, revocation or acceleration of any material agreement or instrument to which the Company is a party or its properties or assets are bound, (ii) all Consents pursuant to the Company's or any Subsidiary's financing documents, including without limitation, all indentures and credit agreements of the Company or any Subsidiary, and (iii) all United States and foreign governmental and regulatory rulings and approvals). The Company also shall use its reasonable best efforts to obtain all necessary state securities laws or blue sky permits and approvals required to carry out the transactions contemplated hereby and shall furnish all information as may be reasonably requested in connection with any such action. 4.5. Listing. The Company shall use its reasonable best efforts to continue to have its Class A Common Stock listed on the NASDAQ National Market System (the "NMS") or a national securities exchange for so long as any New Preferred Shares or any shares of Class A Common Stock are outstanding. Prior to the Closing, the Company shall prepare and submit to the NMS a listing application covering the Conversion Shares and shall obtain approval for the listing of such shares, subject to, in the case of the Conversion Shares, official notice of issuance. 4.6. Board Representation; Observers, VCOC. (a) Section 8(b)(i) of the Certificate of Designation for the Series D Preferred Stock provides that the holders of Series D Preferred Stock shall be entitled to elect two directors to the Board of Directors subject to the terms set forth therein. In addition, Section 8(b)(i) of the Certificate of Designation for the Series E Preferred Stock provides that the holders of Series E Preferred Stock shall be entitled to designate one non-voting observer to attend and participate in (but not vote at) all meetings of the Board of Directors (the "Series E Non-Voting Observer"). Accordingly, subject to the Certificate of Designation for the Series D Preferred Stock, the Purchasers set forth on Schedule 4.6(a)(1), as holders of Series D Preferred Stock, shall be entitled to designate for election to the Board of Directors two directors (the "Purchasers' Directors") and subject to the Certificate of Designation for the Series E Preferred Stock, the Purchasers set forth on Schedule 4.6(a)(2), as holders of Series E Preferred Stock, shall be entitled to designate the one Series E Non-Voting Observer, in each case as set forth on the applicable schedule. Theodore J. Forstmann and Erskine B. Bowles, each of whom currently serves on the Board of Directors as a director designee of the Series B Preferred Stock, shall serve as the initial Purchasers' Directors for purposes of the Series D Preferred Stock, and Thomas H. Lister, who currently serves as the non-voting observer for the Series C Preferred Stock, shall serve as the initial Series E Non-Voting Observer. Thereafter, in connection with any annual meeting of stockholders at which the term of a Purchasers' Director is to expire, the Company will take all necessary action to cause a Purchasers' Director to be nominated and use its reasonable best efforts to cause such Purchasers' Director to be elected to the Board of Directors. In the event a vacancy shall exist in the office of a Purchasers' Director, the Purchasers shall be entitled to designate a successor and the Board of Directors shall elect such successor and, in connection with the meeting of stockholders of the Company next following such election, nominate such successor for election as director by the stockholders and use its reasonable best efforts to cause the successor to be elected. The Series E Non-Voting Observer shall have the same access to information concerning the business and operations of the Company and its Subsidiaries and at the same time as directors of the Company, and shall be entitled to participate in discussions and consult with the Board of Directors without voting. Without limiting the generality of the foregoing, the Purchasers' Directors and the Series E Non-Voting Observer may inspect all contracts, books, records, personnel, offices and other facilities and properties of the Company and, to the extent available to the Company after the Company uses reasonable efforts to obtain them, the accountants' work papers, and the Purchasers' Directors and the Series E Non-Voting Observer may make such copies and inspections thereof as the Purchasers' Directors and the Series E Non-Voting Observer may request. The Company shall furnish the Purchasers' Directors and the Series E Non-Voting Observer with such financial and operating data and other information with respect to the business and properties of the Company as the Purchasers' Directors and the Series E Non-Voting Observer may request. The Company shall permit each of the Purchasers' Directors and the Series E Non-Voting Observer to discuss the affairs, finances and accounts of the Company with, and to make proposals and furnish advice with respect thereto, the principal officers of the Company. The provision of any such information to the Series E Non-Voting Observer shall be subject to the receipt by the Company of a confidentiality agreement covering such information and reasonably acceptable to the Company and the Series E Non-Voting Observer. Notwithstanding anything contained in this Section 4.6 to the contrary, the provisions of the Certificates of Designation shall govern the rights of holders of New Preferred Shares to elect directors (including any Purchasers' Directors). (b) The rights set forth in Section 4.6(a) are intended to satisfy the requirement of contractual management rights for purposes of qualifying each of the Purchaser's ownership interests in the Company as venture capital investments for purposes of the Department of Labor's "plan assets" regulations, and in the event such rights are not satisfactory for such purpose as to any such Purchaser, the Company and such Purchaser shall reasonably cooperate in good faith to agree upon mutually satisfactory management rights which satisfy such regulations. (c) The Company shall promptly reimburse the Purchasers' Directors and the Series E Non-Voting Observer for all reasonable expenses incurred by them in connection with their attendance at meetings and any other activities undertaken in their capacity as directors or an observer consistent with the policies of the Company in effect on the date hereof or as such policies may be modified and generally applied to the Company's Board of Directors. 4.7. Certificates of Designation. The Company shall, as promptly as practicable, and in any case no later than 10:00 a.m., on October 1, 2001, cause the Certificates of Designation to be filed with the Secretary of State of the State of Delaware. 4.8. Cooperation. Each of the Purchasers and the Company agrees to use its reasonable best efforts to take, or cause to be taken, all such further actions as shall be necessary to make effective and consummate the transactions contemplated by this Agreement. 4.9. Access to Property; Records. Between the date hereof and the Closing the Company shall afford the Purchasers and their employees, counsel, accountants, partners, investors, and other authorized representatives reasonable access upon notice, during normal business hours, to the assets, properties, offices and other facilities, Commitments and books and records of the Company and of the Subsidiaries, and to the outside auditors of the Company and their work papers relating to the Company and the Subsidiaries. The parties hereto agree that no investigation by the Purchasers or their representatives shall affect or limit the scope of the representations and warranties of the Company contained in this Agreement or in any other Transaction Document delivered pursuant hereto or limit the liability for breach of any such representation or warranty. 4.10. Reserve Shares. The Company will at all times reserve and keep available, solely for issuance and delivery upon conversion of the New Preferred Shares, the number of shares of Class A Common Stock from time to time issuable upon conversion of all shares of the New Preferred Shares at the time outstanding. All shares of Class A Common Stock issuable upon conversion of the New Preferred Shares shall be duly authorized and, when issued upon such conversion or exercise, shall be validly issued, fully paid and nonassessable. 4.11. [INTENTIONALLY OMITTED] 4.12 Restrictions on Transfer. The Purchasers will not, prior to the earlier of (a) September 15, 2004 or (b) the occurrence of a Termination Event (as defined below), sell, transfer, assign, convey, gift, mortgage, pledge, encumber, hypothecate, or otherwise dispose of, directly or indirectly, ("Transfer") any of the New Preferred Shares or the Conversion Shares except for (i) Transfers between and among the Purchasers and their Affiliates provided such Transfer is done in accordance with the transfer restrictions applicable to the New Preferred Shares or the Conversion Shares under federal and state securities laws and the Affiliate transferee agrees to be bound by the restrictions applicable to such New Preferred Shares or Conversion Shares, including without limitation the agreements set forth in this Section 4.12, and (ii) Transfers (w) required to comply with applicable Law provided that the general partners of the Purchasers shall not be the party that institutes any proceeding out of which such Transfer is required by Law, (x) pursuant to a bona fide tender or exchange offer made pursuant to a merger or other agreement approved by the Board of Directors to acquire securities of the Company; provided, that the Purchasers may not tender or exchange in such offer unless at least 50% of the outstanding securities of the Company have previously been tendered or exchanged by other holders of the Company's securities in connection therewith, (y) following any stock merger or other stock business combination transaction to which the Company is a party if Clark and Mary McLeod sell any of the securities beneficially owned and received by them in such transaction following such transaction and then only in an amount equal to the product of (A) the percentage that the securities beneficially owned and sold by Clark and Mary McLeod represents of the total number of securities beneficially owned by Clark and Mary McLeod and (B) the total number of securities beneficially owned by such Purchasers (determined in all cases on an as converted basis) and (z) pursuant to any cash merger, or other business combination transaction to which the Company is a party or involved in which the Class A Common Stock of the Company's stockholders is exchanged for cash upon consummation of such merger or other business combination. Notwithstanding any other provision of this Section 4.12, no Purchaser shall avoid the provisions of this Section 4.12 by making one or more Transfers to one or more Affiliates and then disposing of all or any portion of such Purchaser's interest in any such Affiliate. For purposes of this Section 4.12, a "Termination Event" shall occur if at any time the position of Chief Executive Officer of the Company (or any higher position within the Company) is not occupied by either Clark McLeod or Stephen Gray. Each Purchaser agrees that it may not exercise any conversion rights with respect to the New Preferred Shares until September 15, 2004; provided that nothing contained herein shall be deemed to prevent the Purchasers from exercising their conversion rights with respect to the New Preferred Shares at any time after September 15, 2004 or at any time prior thereto in connection with a Termination Event or in connection with a Transfer permitted pursuant to Section 4.12(b)(ii). Nothing contained herein shall be deemed to limit the ability of the limited partners in the Purchasers from transferring, directly or indirectly, their limited partnership interests in the Purchasers or the general partners of the Purchasers from transferring, directly or indirectly, up to 15% of the equity interests in the Purchasers at any time or from time to time. 4.13 Standstill Agreement. (a) During the period commencing on the date hereof and ending on the earlier of (i) September 15, 2009 (the "Standstill Period") or (ii) the date these provisions terminate as provided herein, except as (x) specifically permitted by this Agreement or (y) specifically approved in writing in advance by the Board of Directors of the Company, the Purchasers shall not, and shall cause any Affiliates controlled by them to not, in any manner, directly or indirectly: (i) acquire, or offer or agree to acquire, or become the beneficial owner of or obtain any rights in respect of any capital stock of the Company, except, for any shares of Class A Common Stock that may be issuable upon the conversion of the New Preferred Shares or otherwise as permitted pursuant to this Agreement, provided, that the foregoing limitation shall not prohibit the acquisition of securities of the Company or any of its successors issued as dividends or as a result of stock splits and similar reclassifications or received in a merger or other business combination involving the New Preferred Shares or shares of Class A Common Stock (including any Conversion Shares) held by the Purchasers or any of their Affiliates at the time of such dividend, split or reclassification or merger or business combination; (ii) solicit proxies or consents or become a "participant" in a "solicitation" (as such terms are defined or used in Regulation 14A under the Exchange Act) of proxies or consents with respect to any voting securities of the Company or any of its successors or initiate or become a participant in any stockholder proposal or "election contest" (as such term is defined or used in Rule 14a-11 under the Exchange Act) with respect to the Company or any of its successors or induce others to initiate the same, or otherwise seek to advise or influence any person with respect to the voting of any voting securities of the Company or any of its successors (except for activities undertaken by the Purchasers or the Purchasers' Directors in connection with solicitations by the Board of Directors); (iii) publicly or privately propose, encourage, solicit or participate in the solicitation of any person or entity to acquire, offer to acquire or agree to acquire, by merger, tender offer, purchase or otherwise, the Company or a substantial portion of its assets or more than 5% of the outstanding capital stock (except in connection with the registration of securities pursuant to the Registration Rights Agreement); and (iv) directly or indirectly join in or in any way participate in a pooling agreement, syndicate, voting trust or other arrangement with respect to the Company's voting securities or otherwise act in concert with any other Person (other than Affiliates), for the purpose of acquiring, holding, voting or disposing of the Company's securities. (b) Nothing contained in this Section 4.13 shall be deemed to restrict the manner in which the Purchasers' Directors or the Series E Non-Voting Observer participate in deliberations or discussions of the Board of Directors. (c) The standstill provisions set forth herein shall terminate on the earliest of (i) the last day of the Standstill Period, (ii) the date that the position of Chief Executive Officer of the Company (or any higher position within the Company) is not occupied by either Clark McLeod or Stephen Gray, (iii) upon any breach by the Company in any material respect of any covenant or agreement contained in this Agreement or in any Transaction Document, (iv) upon the filing of a voluntary bankruptcy petition by the Company or on the 60th day following the filing of an involuntary bankruptcy petition against the Company if such petition is not discharged with prejudice during such 60-day period or (v) upon the occurrence of a change in control of the Company if the Purchasers are permitted to effect a Transfer in accordance with the provisions of Section 4.12(b)(ii)(x), (y) and (z) hereof. ARTICLE V CONDITIONS 5.1. Conditions to Obligations of the Purchasers and the Company. The respective obligations of the Purchasers and the Company to consummate the transactions contemplated hereby are subject to the satisfaction or waiver at or prior to the Closing of each of the following conditions: (a) No statute, rule or regulation or order of any court or administrative agency shall be in effect which prohibits the consummation of the transactions contemplated hereby; (b) Any waiting period (and any extension thereof) under the HSR Act applicable to this Agreement and the transactions contemplated hereby shall have expired or been terminated; and (c) Any material required filings or other consents, if any, of state regulatory bodies shall have been made or obtained. 5.2. Conditions to Obligations of the Purchasers. The obligations of the Purchasers to consummate the transactions contemplated hereby shall be subject to the satisfaction or waiver at or prior to the Closing of each of the following conditions: (a) Each of the representations and warranties of the Company contained in this Agreement shall be true and correct when made and as of the Closing (except to the extent such representations and warranties are made as of a particular date, in which case such representations and warranties shall have been true and correct in all material respects as of such date), except for failures to be true and correct which individually or in the aggregate would not reasonably be expected to have a Material Adverse Effect; (b) The Company shall have performed, satisfied and complied in all material respects with all of its covenants and agreements set forth in this Agreement to be performed, satisfied and complied with prior to or at the Closing; (c) The Company shall have delivered to the Purchasers an officer's certificate certifying as to the Company's compliance with the conditions set forth in clauses (a) and (b) of this Section 5.2; (d) The Company shall have executed and delivered a Registration Rights Agreement in the form of Exhibit 5.2(d) hereto (the "Registration Rights Agreement"), and the Registration Rights Agreement shall be in full force and effect; (e) The Company shall have executed and delivered a Termination Agreement in the form of Exhibit 5.2(e) hereto (the "Termination Agreement"), and the Termination Agreement shall be in full force and effect; (f) The Certificates of Designation shall have been duly filed with the Secretary of State of the State of Delaware in accordance with the laws of the State of Delaware and the Certificates of Designation shall be in full force and effect; (g) The Conversion Shares shall have been duly authorized and reserved for issuance and such Conversion Shares shall have been approved for listing on the NMS, subject to official notice of issuance; (h) The Purchasers shall have received an opinion from (i) the General Counsel of the Company, with respect to good standing, non-contravention and the capitalization of the Company and (ii) Hogan & Hartson L.L.P., outside counsel to the Company, with respect to the due incorporation, due authorization, validity of the New Preferred Shares, Securities Act of 1933 exemption and the valid and binding nature of this Agreement, the Termination Agreement and the Registration Rights Agreement, in the form of Exhibit 5.2(h)(i) and Exhibit 5.2(h)(ii), respectively; (i) The Purchasers shall have received an opinion from Willkie Farr & Gallagher, outside counsel to the Company, in the form of Exhibit 5.2(i) hereto; (j) There shall not have occurred any event, circumstances, condition, fact, effect or other matter which has had or would reasonably be expected to have a material adverse effect (x) on the business, assets, financial condition, prospects, or results of operations of the Company and its Subsidiaries taken as a whole or (y) on the ability of the Company and such Subsidiaries to perform any material obligation under this Agreement or to consummate the transactions contemplated hereby. 5.3. Conditions to Obligations of the Company. The obligations of the Company to consummate the transactions contemplated hereby shall be subject to the satisfaction or waiver at or prior to the Closing of each of the following conditions: (a) Each of the representations and warranties of the Purchasers contained in this Agreement shall be true and correct when made and as of the Closing (except to the extent such representations and warranties are made as of a particular date, in which case such representations and warranties shall have been true and correct in all material respects as of such date), except for failures to be true and correct which individually or in the aggregate would not reasonably be expected to have a material adverse effect on the Purchasers' ability to perform its obligations under this Agreement; (b) The Purchasers shall have performed, satisfied and complied in all material respects with all of their covenants and agreements set forth in this Agreement to be performed, satisfied and complied with prior to or at the Closing Date; (c) The Purchasers shall have delivered to the Company an officer's certificate certifying as to the Purchasers' compliance with the conditions set forth in clauses (a) and (b) of this Section 5.3; (d) The Company shall have received an opinion from Fried, Frank, Harris, Shriver & Jacobson, outside counsel to the Purchasers, with respect to non-contravention, due formation, due authorization, and the valid and binding nature of this Agreement, the Termination Agreement and the Registration Rights Agreement in the form of Exhibit 5.3(d) hereto; and (e) The Purchasers shall have executed and delivered the Termination Agreement, and the Termination Agreement shall be in full force and effect. ARTICLE VI TERMINATION 6.1. Termination. This Agreement may be terminated at any time prior to the Closing: (a) by mutual written agreement of the Company and the Purchasers; or (b) by either the Purchasers or the Company if the Closing shall not have been consummated on or before October 31, 2001 (provided that the right to terminate this Agreement under this Section 6.1(b) shall not be available to any party whose failure to fulfill any obligation under this Agreement has been the cause of or resulted in the failure of the Closing to occur on or before such date); or (c) by either the Purchasers or the Company if a court of competent jurisdiction or governmental, regulatory or administrative agency or commission shall have issued a nonappealable final order, decree or ruling or taken any other action having the effect of permanently restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement. 6.2. Effect of Termination. In the event of the termination of this Agreement pursuant to Section 6.1, this Agreement shall forthwith become void and there shall be no liability on the part of any party hereto (or any stockholder, director, officer, partner, employee, agent, consultant or representative of such party) except as set forth in this Section 6.2, provided that nothing contained in this Agreement shall relieve any party from liability for any breach of this Agreement and provided further that this Section 6.2 and Sections 8.2 (other than the second sentence thereof), 8.3, 8.13, 8.14 and 8.15 shall survive termination of this Agreement. ARTICLE VII INDEMNIFICATION 7.1. Survival. The representations and warranties of the parties hereto contained in this Agreement or in any of the other Transaction Documents shall expire on the 18-month anniversary of the Closing Date, except that the representations and warranties set forth in Sections 2.1(a), 2.2, 2.3, 3.5 and 3.6 shall survive until the expiration of the applicable statute of limitations (including any extensions thereof). After the expiration of such periods, any claim by a party hereto based upon any such representation or warranty shall be of no further force and effect, except to the extent a party has asserted a claim in accordance with this Article VII for breach of any such representation or warranty prior to the expiration of such period, in which event any representation or warranty to which such claim relates shall survive with respect to such claim until such claim is resolved as provided in this Article VII. The covenants and agreements of the parties hereto contained in this Agreement or in any of the other Transaction Documents shall survive the Closing until performed in accordance with their terms. 7.2. Indemnification. (a) The Company shall indemnify, defend and hold harmless the Purchasers, their Affiliates, and their respective officers, directors, partners, members, employees, agents, representatives, successors and assigns (each a "Purchasers Indemnified Person") from and against all Losses incurred or suffered by a Purchaser Indemnified Person arising from (i) the breach of any of the representations or warranties made by the Company in this Agreement or any other Transaction Document or (ii) the breach of any covenant or agreement made by the Company in this Agreement or any other Transaction Document. Notwithstanding the foregoing, (A) no claim may be made against the Company for indemnification pursuant to Section 7.2(a)(i) unless the aggregate liability of the Company exceeds $10 million, and the Company shall then only be liable for Losses in excess of such amount and (B) the Company's maximum liability for indemnification pursuant to Section 7.2(a)(i) shall not exceed $250,000,000. (b) The Purchasers shall indemnify, defend and hold harmless the Company, its Affiliates, and their respective officers, directors, partners, members, employees, agents, representatives, successors and assigns (each a "Company Indemnified Person") from and against all Losses incurred or suffered by a Company Indemnified Person arising from (i) the breach of any of the representations or warranties made by the Purchasers in this Agreement or any other Transaction Document or (ii) the breach of any covenant or agreement made by the Purchasers in this Agreement or any other Transaction Document. Notwithstanding the foregoing, (A) no claim may be made against the Purchasers for indemnification pursuant to Section 7.2(b)(i) unless the aggregate liability of the Purchasers exceeds $10 million, and the Purchasers shall then only be liable for Losses in excess of such amount and (B) the Purchasers' maximum liability for indemnification pursuant to Section 7.2(b)(i) shall not exceed $250,000,000. (c) A party seeking indemnification under this Section 7.2 shall, promptly upon becoming aware of the facts indicating that a claim for indemnification may be warranted, give to the party from whom indemnification is being sought a notice of claim relating to such Loss (a "Claim Notice"). Each Claim Notice shall specify the nature of the claim, the applicable provision(s) of this Agreement or other instrument under which the claim for indemnity arises, and, if possible, the amount or the estimated amount thereof. No failure or delay in giving a Claim Notice (so long as the same is given prior to expiration of the representation or warranty upon which the claim is based) and no failure to include any specific information relating to the claim (such as the amount or estimated amount thereof) or any reference to any provision of this Agreement or other instrument under which the claim arises shall affect the obligation of the party from whom indemnification is sought. 7.3. Inspections; No Other Representations. The Purchasers are informed and sophisticated purchasers, and have undertaken such investigation and have been provided with and have evaluated such documents and information as they deem necessary to enable them to make an informed decision with respect to the execution, delivery and performance of this Agreement. Each Purchaser will undertake prior to the Closing such further investigation and request such additional documents and information as it deems necessary. Each Purchaser agrees to accept the New Preferred Shares based upon its own inspection, examination and determination with respect thereto as to all matters, and without reliance upon any express or implied representations or warranties of any nature made by or on behalf of or imputed to the Company, except as expressly set forth in this Agreement. Without limiting the generality of the foregoing, each Purchaser acknowledges that the Company makes no representation or warranty with respect to any projections, estimates or budgets delivered to or made available to Purchasers of future revenues, future results of operations (or any component thereof), future cash flows or future financial condition (or any component thereof) of the Company and its Subsidiaries or the future business and operations of the Company and the Subsidiaries except as expressly set forth in this Agreement. 7.4. Exclusivity. Except as specifically set forth in this Agreement and except in the case of fraud, effective as of the Closing, each party hereby waives any rights and claims such party may have against the other party hereto, whether in law or in equity, relating to any breach of any representation or warranty by any party hereunder. After the Closing, Sections 7.1, 7.2(a) and 7.2(b) will provide the exclusive remedy for any misrepresentation or breach of warranty, except in the case of fraud. ARTICLE VIII MISCELLANEOUS 8.1. Defined Terms; Interpretations. The following terms, as used herein, shall have the following meanings: "Affiliate" shall have the meaning ascribed to such term in Rule 12b-2 of the General Rules and Regulations under the Exchange Act. "Agreement" shall have the meaning ascribed thereto in the preamble. "Board of Directors" shall mean the Board of Directors of the Company. "Certificates of Designation" shall have the meaning ascribed thereto in Section 2.2. "Claim Notice" shall have the meaning ascribed thereto in Section 7.2(c). "Class A Common Stock" shall have the meaning ascribed thereto in Section 2.3, which meaning shall include any and all securities of any kind whatsoever of the Company which may be exchanged for or converted into such Class A Common Stock, and any and all securities of any kind whatsoever of the Company which may be issued on or after the date hereof in respect of, in exchange for, or upon conversion of shares of Class A Common Stock pursuant to a merger, consolidation, stock split, stock dividend, recapitalization of the Company or otherwise. "Closing" shall have the meaning ascribed thereto in Section 1.2(a). "Closing Date" shall have the meaning ascribed thereto in Section 1.2(a). "Commitments" shall have the meaning ascribed thereto in Section 2.10. "Common Stock" shall have the meaning ascribed thereto in Section 2.3. "Company" shall have the meaning ascribed thereto in the preamble. "Company Indemnified Person" shall have the meaning ascribed thereto in Section 7.2(b). "Consents" shall have the meaning ascribed thereto in Section 4.4. "Conversion Shares" shall mean any shares of Class A Common Stock issued upon conversion of any New Preferred Shares, any and all securities of any kind whatsoever of the Company which may be exchanged for or converted into such Class A Common Stock, and any and all securities of any kind whatsoever of the Company which may be issued on or after the date hereof in respect of, in exchange for, or upon conversion of shares of Class A Common Stock pursuant to a merger, consolidation, stock split, stock dividend, recapitalization of the Company or otherwise. "DGCL" shall mean the Delaware General Corporation Law. "Encumbrances" shall have the meaning ascribed thereto in Section 2.1(b). "Exchange" shall have the meaning ascribed thereto in the recitals. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, or any successor federal statute, and the rules and regulations of the SEC thereunder, all as the same shall be in effect at the time. Reference to a particular section of the Securities Exchange Act of 1934, as amended, shall include reference to the comparable section, if any, of any such successor federal statute. "GAAP" shall have the meaning ascribed thereto in Section 2.5. "Governmental Entity" shall mean any supernational, national, foreign, federal, state or local judicial, legislative, executive, administrative or regulatory body or authority. "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations thereunder. "Knowledge", with respect to the Company, shall mean the knowledge of Clark McLeod, Stephen Gray, Blake O. Fisher, Jr. and Randall Rings. "Laws" shall include all foreign, federal, state, and local laws, statutes, ordinances, rules, regulations, orders, judgments, decrees and bodies of law. "Licenses" shall have the meaning ascribed thereto in Section 2.9. "Litigation" shall have the meaning ascribed thereto in Section 2.7(a). "Losses" shall mean each and all of the following items: claims, losses, liabilities, obligations, payments, damages (actual or punitive), charges, judgments, fines, penalties, amounts paid in settlement, costs and expenses (including, without limitation, interest which may be imposed in connection therewith, costs and expenses of investigation, actions, suits, proceedings, demands, assessments and fees, expenses and disbursements of counsel, consultants and other experts). "Material Adverse Effect" shall mean a material adverse effect on the properties, business, prospects, operations, results of operations, earnings, assets, liabilities or condition (financial or otherwise) of the Company and its Subsidiaries taken as a whole. "New Preferred Shares" shall have the meaning ascribed thereto in the recitals. "Person" shall mean any individual, firm, corporation, limited liability company, partnership, company or other entity, and shall include any successor (by merger or otherwise) of such entity. "Purchasers" shall have the meaning ascribed thereto in the preamble. "Purchasers Indemnified Person" shall have the meaning ascribed thereto in Section 7.2(a). "Registration Rights Agreement" shall have the meaning ascribed thereto in Section 5.2(d). "SEC" shall mean the Securities and Exchange Commission. "SEC Reports" shall have the meaning ascribed thereto in Section 2.4. "Securities Act" shall mean the Securities Act of 1933, as amended, or any successor federal statute, and the rules and regulations of the SEC thereunder, all as the same shall be in effect at the time. Reference to a particular section of the Securities Act shall include reference to the comparable section, if any, of such successor federal statute. "Senior Secured Credit Facilities" shall mean the Company's $1.3 billion of senior secured credit facilities that were entered into on May 31, 2000 with a syndicate of financial institutions, as currently in effect. "Series A Preferred Stock" shall have the meaning ascribed thereto in Section 2.3. "Series B Preferred Stock" shall have the meaning ascribed thereto in the recitals. "Series C Preferred Stock" shall have the meaning ascribed thereto in the recitals. "Series D Preferred Stock" shall have the meaning ascribed thereto in the recitals. "Series E Preferred Stock" shall have the meaning ascribed thereto in the recitals. "Significant Subsidiaries" shall mean the entities listed on Schedule 8.1. "Subsidiary" shall mean as to the Company, each corporation, partnership or other entity of which shares of capital stock or other equity interests having ordinary voting power (other than capital stock or other equity interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, directly or indirectly, or the management of which is otherwise controlled, directly or indirectly, or both, by the Company. "Termination Agreement" shall have the meaning ascribed thereto in Section 5.2(e). "Transaction Documents" shall mean this Agreement, the Termination Agreement, the Certificates of Designation, the Registration Rights Agreement and all other contracts, agreements, schedules, certificates and other documents being delivered pursuant to or in connection with this Agreement or such other documents or the transactions contemplated hereby or thereby. 8.2. Fees and Expenses. All costs and expenses incurred in connection with this Agreement shall be paid by the party incurring such costs or expense. 8.3. Public Announcements. The Purchasers and the Company have consulted with each other and issued a press release with respect to this Agreement and the transactions contemplated hereby and neither shall issue any further press release or make any further public statement without the prior consent of the other, which consent shall not be unreasonably withheld or delayed; provided, however, that a party may, without the prior consent of the other party, issue such press release or make such public statement as may upon the advice of counsel be required by Law, the NMS or any exchange on which the Company's securities are listed and, to the extent time permits, it has used all reasonable efforts to consult with the other party prior thereto. 8.4. Restrictive Legends. In addition to the restrictions set forth in Section 4.12, no New Preferred Shares may be transferred without registration under the Securities Act and applicable state securities laws unless counsel to the Company shall advise the Company that such transfer may be effected without such registration. Each certificate representing any of the foregoing shall bear legends in substantially the following form: THE COMPANY IS AUTHORIZED TO ISSUE MORE THAN ONE CLASS OR SERIES OF STOCK. AS REQUIRED UNDER DELAWARE LAW, THE COMPANY SHALL FURNISH TO ANY HOLDER UPON REQUEST AND WITHOUT CHARGE, A FULL SUMMARY STATEMENT OF THE DESIGNATIONS, VOTING RIGHTS, PREFERENCES, LIMITATIONS AND SPECIAL RIGHTS OF THE SHARES OF EACH CLASS OR SERIES AUTHORIZED TO BE ISSUED BY THE COMPANY SO FAR AS THEY HAVE BEEN FIXED AND DETERMINED AND THE AUTHORITY OF THE BOARD OF DIRECTORS TO FIX AND DETERMINE THE DESIGNATIONS, VOTING RIGHTS, PREFERENCES, LIMITATIONS AND SPECIAL RIGHTS OF THE CLASSES AND SERIES OF SECURITIES OF THE COMPANY. THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR UNDER ANY APPLICABLE STATE LAWS. THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED BY THE REGISTERED OWNER HEREOF FOR INVESTMENT AND NOT WITH A VIEW TO OR FOR SALE IN CONNECTION WITH ANY DISTRIBUTION THEREOF WITHIN THE MEANING OF THE 1933 ACT. THE SHARES MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR ASSIGNED EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER THE PROVISIONS OF THE 1933 ACT OR ANY APPLICABLE STATE SECURITIES LAWS, OR PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR IN A TRANSACTION OTHERWISE IN COMPLIANCE WITH APPLICABLE FEDERAL AND STATE SECURITIES LAWS. THE SALE, PLEDGE, TRANSFER, ASSIGNMENT OR OTHER DISPOSITION OF THE SHARES REPRESENTED BY THIS CERTIFICATE IS RESTRICTED BY AND SUBJECT TO THE PROVISIONS OF AN EXCHANGE AGREEMENT DATED AS OF SEPTEMBER 30, 2001, A COPY OF WHICH IS AVAILABLE UPON REQUEST FOR INSPECTION AT THE OFFICES OF THE COMPANY. ANY SUCH REQUEST SHOULD BE ADDRESSED TO THE SECRETARY OF THE COMPANY. In addition, each certificate representing New Preferred Shares shall bear a legend in substantially the following form: THE SECURITIES EVIDENCED BY THIS CERTIFICATE SHALL BE REDEEMABLE AS PROVIDED IN THE CERTIFICATE OF DESIGNATION AND THE COMPANY'S AMENDED AND RESTATED CERTIFICATE OF INCORPORATION. THE SECURITIES EVIDENCED BY THIS CERTIFICATE SHALL BE CONVERTIBLE INTO THE COMPANY'S CLASS A COMMON STOCK IN THE MANNER AND ACCORDING TO THE TERMS SET FORTH IN THE CERTIFICATE OF DESIGNATION. and each certificate representing Conversion Shares shall bear a legend in substantially the following form: THE SECURITIES EVIDENCED BY THIS CERTIFICATE SHALL BE REDEEMABLE AS PROVIDED IN THE COMPANY'S AMENDED AND RESTATED CERTIFICATE OF INCORPORATION. 8.5. Further Assurances. At any time or from time to time after the Closing, the Company, on the one hand, and the Purchasers, on the other hand, agree to cooperate with each other, and at the request of the other party, to execute and deliver any further instruments or documents and to take all such further action as the other party may reasonably request in order to evidence or effectuate the consummation of the transactions contemplated hereby or by the other Transaction Documents and to otherwise carry out the intent of the parties hereunder or thereunder. 8.6. Successors and Assigns. This Agreement shall bind and inure to the benefit of the Company and the Purchasers and the respective successors, permitted assigns, heirs and personal representatives of the Company and the Purchasers, provided that prior to the Closing the Company may not assign its rights or obligations under this Agreement to any Person without the prior written consent of the Purchasers, and provided further that the Purchasers may not assign their rights or obligations under this Agreement to any Person (other than an Affiliate) without the prior written consent of the Company. In addition, and whether or not any express assignment has been made, the provisions of this Agreement which are for the Purchasers' benefit as purchasers or holders of New Preferred Shares or Conversion Shares are also for the benefit of, and enforceable by, any Affiliates of the Purchasers who hold such New Preferred Shares or Conversion Shares and received such New Preferred Shares or Conversion Shares in accordance with the terms of this Agreement. 8.7. Entire Agreement. This Agreement and the other Transaction Documents contain the entire agreement between the parties with respect to the subject matter hereof and supersede all prior and contemporaneous arrangements or understandings with respect thereto. 8.8. Notices. All notices, requests, consents and other communications hereunder to any party shall be deemed to be sufficient if contained in a written instrument delivered in person or sent by telecopy, nationally recognized overnight courier or first class registered or certified mail, return receipt requested, postage prepaid, addressed to such party at the address set forth below or such other address as may hereafter be designated in writing by such party to the other parties: (i) if to the Company, to: McLeodUSA Incorporated McLeodUSA Technology Park 6400 C Street SW PO Box 3177 Cedar Rapids, Iowa 52406-3177 Telecopy No.: (319) 790-7901 Attention: Randall Rings, Esq. Group Vice President and Chief Legal Officer with a copy to (which shall not constitute notice): Hogan & Hartson L.L.P. Columbia Square 555 Thirteenth Street, N.W. Washington, D.C. 20004 Telecopy No.: (202) 637-5910 Attention: Joseph G. Connolly, Jr., Esq. (ii) if to the Purchasers, to: c/o Forstmann Little & Co. 767 Fifth Avenue New York, NY 10153 Telecopy No.: (212) 759-9059 Attention: Thomas H. Lister with a copy to: Fried, Frank, Harris, Shriver & Jacobson One New York Plaza New York, NY 10004 Telecopy No.: (212) 859-8587 Attention: Robert C. Schwenkel, Esq. All such notices, requests, consents and other communications shall be deemed to have been given or made if and when delivered personally or by overnight courier to the parties at the above addresses or sent by electronic transmission, with confirmation received, to the telecopy numbers specified above (or at such other address or telecopy number for a party as shall be specified by like notice). 8.9. Amendments. The terms and provisions of this Agreement may be modified or amended, or any of the provisions hereof waived, temporarily or permanently, in a writing executed and delivered by the Company and the Purchasers. No waiver of any of the provisions of this Agreement shall be deemed to or shall constitute a waiver of any other provision hereof (whether or not similar). No delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof. 8.10. Counterparts. This Agreement may be executed in any number of counterparts, and each such counterpart hereof shall be deemed to be an original instrument, but all such counterparts together shall constitute but one agreement. 8.11. Headings. The headings of the sections of this Agreement have been inserted for convenience of reference only and shall not be deemed to be a part of this Agreement. 8.12. Nouns and Pronouns. Whenever the context may require, any pronouns used herein shall include the corresponding masculine, feminine or neuter forms, and the singular form of names and pronouns shall include the plural and vice versa. 8.13. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAW. 8.14. Submission to Jurisdiction. Each of the parties hereto hereby irrevocably and unconditionally consents to submit to the exclusive jurisdiction of the courts of the State of New York and of the United States of America, in each case located in the County of New York, for any Litigation arising out of or relating to this Agreement or the other Transaction Documents and the transactions contemplated hereby and thereby (and agrees not to commence any Litigation relating hereto or thereto except in such courts), and further agrees that service of any process, summons, notice or document by U.S. registered mail to its respective address set forth in this Agreement shall be effective service of process for any Litigation brought against it in any such court. Each of the parties hereto hereby irrevocably and unconditionally waives any objection to the laying of venue of any Litigation arising out of this Agreement or the transactions contemplated hereby in the courts of the State of New York or the United States of America, in each case located in the County of New York, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such Litigation brought in any such court has been brought in an inconvenient forum. 8.15. WAIVER OF JURY TRIAL. THE COMPANY AND THE PURCHASERS HEREBY WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY ACTION, PROCEEDING OR LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTION DOCUMENTS. 8.16. Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid, but if any provision of this Agreement is held to be invalid or unenforceable in any respect, such invalidity or unenforceability shall not render invalid or unenforceable any other provision of this Agreement. * * * IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Agreement as of the date first above written. PURCHASERS FORSTMANN LITTLE & CO. EQUITY PARTNERSHIP-V, L.P. By: FLC XXX Partnership, L.P. its general partner By: /s/ Winston W. Hutchins ---------------------------------- Winston W. Hutchins, a general partner

SECURITIES TO BE SURRENDERED NEW SECURITIES TO BE ISSUED No. of Series B No. of Series C No. of Series D No. of Series E Preferred Shares Preferred Shares Preferred Shares Preferred Shares ------------------ ------------------ ------------------ ----------------- 0 125,000 0 125,000

FORSTMANN LITTLE & CO. SUBORDINATED DEBT AND EQUITY MANAGEMENT BUYOUT PARTNERSHIP-VI, L.P. By: FLC XXIX Partnership, L.P. its general partner By: /s/ Winston W. Hutchins ---------------------------------- Winston W. Hutchins, a general partner

SECURITIES TO BE SURRENDERED NEW SECURITIES TO BE ISSUED No. of Series B No. of Series C No. of Series D No. of Series E Preferred Shares Preferred Shares Preferred Shares Preferred Shares ------------------ ------------------ ------------------ ----------------- 85,752.78 0 85,752.78 0

FORSTMANN LITTLE & CO. SUBORDINATED DEBT AND EQUITY MANAGEMENT BUYOUT PARTNERSHIP-VII, L.P. By: FLC XXXIII Partnership, L.P. its general partner By: /s/ Winston W. Hutchins ---------------------------------- Winston W. Hutchins, a general partner

SECURITIES TO BE SURRENDERED NEW SECURITIES TO BE ISSUED No. of Series B No. of Series C No. of Series D No. of Series E Preferred Shares Preferred Shares Preferred Shares Preferred Shares ------------------ ------------------ ------------------ ----------------- 189,247.22 0 189,247.22 0

MCLEODUSA INCORPORATED By: /s/ Stephen C. Gray ---------------------------------------- Name: Stephen C. Gray Title: President and Chief Executive Officer EX-99.7 4 ex99_7.txt EXHIBIT 99.7 EXHIBIT 99.7 TERMINATION AGREEMENT THIS TERMINATION AGREEMENT (this "Termination Agreement") is entered into as of September 30, 2001, by and between McLeodUSA Incorporated, a Delaware corporation (the "Company"), and the entities listed on the signature page hereto under the caption "Purchasers" (each such entity, a "Purchaser" and collectively, the "Purchasers"). Capitalized terms used herein which are defined in the Exchange Agreement shall have the meanings set forth in the Exchange Agreement, unless otherwise defined herein. WHEREAS, the Company and the Purchasers (the Company and the Purchasers, collectively, the "Parties" and, individually, a "Party") entered into a Stock Purchase Agreement, dated as of August 30, 1999, as amended (the "1999 Stock Purchase Agreement"), pursuant to which the Company sold to the Purchasers and the Purchasers purchased from the Company (i) an aggregate of 275,000 shares of the Company's Series B Preferred Stock, par value $.01 per share, and (ii) an aggregate of 125,000 shares of the Company's Series C Preferred Stock, par value $.01 per share; WHEREAS, the Parties have agreed to enter into an Exchange Agreement, dated as of September 30, 2001 (the "Exchange Agreement"), and, upon the terms and subject to the conditions set forth in the Exchange Agreement, (i) the Company wishes to issue to the Purchasers (x) an aggregate of 275,000 shares of the Company's Series D Preferred Stock, par value $.01 per share, in exchange for all of the outstanding shares of the Company's Series B Preferred Stock, par value $.01 per share, held by the Purchasers and (y) an aggregate of 125,000 shares of the Company's Series E Preferred Stock, par value $.01 per share, in exchange for all of the outstanding shares of the Company's Series C Preferred Stock, par value $.01 per share, held by the Purchasers, and (ii) the Purchasers wish to consummate the foregoing exchanges; and WHEREAS, in connection with entering into the Exchange Agreement, the Parties wish to terminate the 1999 Stock Purchase Agreement and have agreed to enter into this Termination Agreement. NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements hereinafter set forth, and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto hereby agree as follows: 1. TERMINATION The 1999 Stock Purchase Agreement shall be terminated in its entirety upon consummation of the transaction contemplated by the Exchange Agreement (including, without limitation, the due filing of the Certificates of Designation with the Secretary of State of the State of Delaware in accordance with the laws of the State of Delaware and the delivery of certificates in accordance with Section 1.2(b) of the Exchange Agreement), and shall thereafter be of no further force and effect. The Parties agree and confirm that there are no unsatisfied obligations of any of the Parties under the 1999 Stock Purchase Agreement except as provided for in SECTION 2. 2. REMAINING OBLIGATIONS OF THE PARTIES 2.1. OBLIGATIONS PURSUANT TO THE 1999 STOCK PURCHASE AGREEMENT It is understood by the Parties that Sections 6.2, 8.2 (other than the second sentence therein), 8.3, 8.13, 8.14 and 8.15 of the 1999 Stock Purchase Agreement shall survive the termination of the 1999 Stock Purchase Agreement. 2.2. OBLIGATIONS REGARDING THE EXCHANGE AGREEMENT It is understood by the Parties that concurrently with the execution of this Termination Agreement the Parties will cause the execution of the Exchange Agreement. 3. MUTUAL RELEASE AND INDEMNITY Upon consummation of the transactions contemplated by the Exchange Agreement, each of the Parties hereby shall release and forever discharge the other Parties, and their heirs, successors and assigns, from any and all claims, obligations or liabilities, whether now or hereafter existing, relating to the 1999 Stock Purchase Agreement except as provided for in SECTION 2, and shall agree to indemnify and hold harmless the other Parties from any claim or assertion of obligations or liabilities made by or on behalf of such releasing and indemnifying Party. 4. MISCELLANEOUS 4.1. BINDING EFFECT This Termination Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective successors and permitted assigns. 4.2. GOVERNING LAW THIS TERMINATION AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAW. 4.3. SUBMISSION TO JURISDICTION Each of the Parties hereto hereby irrevocably and unconditionally consents to submit to the exclusive jurisdiction of the courts of the State of New York and of the United States of America, in each case located in the County of New York, for any litigation arising out of or relating to this Termination Agreement and the transactions contemplated hereby and thereby (and agrees not to commence any litigation relating hereto or thereto except in such courts), and further agrees that service of any process, summons, notice or document by U.S. registered mail to its respective address set forth in this Termination Agreement shall be effective service of process for any litigation brought against it in any such court. Each of the Parties hereto hereby irrevocably and unconditionally waives any objection to the laying of venue of any litigation arising out of this Termination Agreement or the transactions contemplated hereby in the courts of the State of New York or the United States of America, in each case located in the County of New York, hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such litigation brought in any such court has been brought in an inconvenient forum. 4.4. WAIVER OF JURY TRIAL THE COMPANY AND THE PURCHASERS HEREBY WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY ACTION, PROCEEDING OR LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS TERMINATION AGREEMENT. 4.5. NOTICES All notices, requests, consents and other communications hereunder to any Party shall be deemed to be sufficient if contained in a written instrument delivered in person or sent by telecopy, nationally recognized overnight courier or first class registered or certified mail, return receipt requested, postage prepaid, addressed to such Party at the address set forth below or such other address as may hereafter be designated in writing by such Party to the other Parties: (i) if to the Company, to: McLeodUSA Incorporated McLeodUSA Technology Park 6400 C Street SW PO Box 3177 Cedar Rapids, Iowa 52406-3177 Telecopy No.: (319) 790-7901 Attention: Randall Rings, Esq. Group Vice President and Chief Legal Officer with a copy to (which shall not constitute notice): Hogan & Hartson L.L.P. Columbia Square 555 Thirteenth Street, N.W. Washington, D.C. 20004 Telecopy No.: (202) 637-5910 Attention: Joseph G. Connolly, Jr., Esq. (ii) if to the Purchasers, to: c/o Forstmann Little & Co. 767 Fifth Avenue New York, NY 10153 Telecopy No.: (212) 759-9059 Attention: Thomas Lister with a copy to: Fried, Frank, Harris, Shriver & Jacobson One New York Plaza New York, NY 10004 Telecopy No.: (212) 859-8587 Attention: Robert C. Schwenkel, Esq. All such notices, requests, consents and other communications shall be deemed to have been given or made if and when delivered personally or by overnight courier to the parties at the above addresses or sent by electronic transmission, with confirmation received, to the telecopy numbers specified above (or at such other address or telecopy number for a party as shall be specified by like notice). 4.6. EXECUTION This Termination Agreement may be executed in any number of counterparts, and each such counterpart hereof shall be deemed to be an original instrument, but all such counterparts together shall constitute but one agreement. * * * IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Termination Agreement as of the date first above written. PURCHASERS FORSTMANN LITTLE & CO. EQUITY PARTNERSHIP-V, L.P. By: FLC XXX Partnership, L.P. its general partner By: /s/ Winston W. Hutchins ----------------------------------- Winston W. Hutchins, a general partner FORSTMANN LITTLE & CO. SUBORDINATED DEBT AND EQUITY MANAGEMENT BUYOUT PARTNERSHIP-VI, L.P. By: FLC XXIX Partnership, L.P. its general partner By: /s/ Winston W. Hutchins ----------------------------------- Winston W. Hutchins, a general partner FORSTMANN LITTLE & CO. SUBORDINATED DEBT AND EQUITY MANAGEMENT BUYOUT PARTNERSHIP-VII, L.P. By: FLC XXXIII Partnership, L.P. its general partner By: /s/ Winston W. Hutchins ----------------------------------- Winston W. Hutchins, a general partner MCLEODUSA INCORPORATED By: /s/ Stephen C. Gray ----------------------------------- Name: Stephen C. Gray Title: President and Chief Executive Officer EX-99.8 5 ex99_8.txt EXHIBIT 99.8 EXHIBIT 99.8 REGISTRATION RIGHTS AGREEMENT Dated as of September 30, 2001 between McLeodUSA INCORPORATED and The Purchasers Listed on the Signature Pages Hereto REGISTRATION RIGHTS AGREEMENT, dated as of September 30, 2001, between McLeodUSA Incorporated, a Delaware corporation (the "Company"), and Forstmann Little & Co. Subordinated Debt and Equity Management Buyout Partnership-VI, L.P., a Delaware limited partnership ("MBO-VI"), Forstmann Little & Co. Subordinated Debt and Equity Management Buyout Partnership-VII, L.P., a Delaware limited partnership ("MBO-VII"), and Forstmann Little & Co. Equity Partnership-V, L.P., a Delaware limited partnership ("Equity-V" and, collectively with MBO-VI and MBO-VII, the "Purchasers"). WHEREAS, the Company and the Purchasers have entered into an Exchange Agreement (the "Exchange Agreement"), dated as of September 30, 2001, pursuant to which simultaneously herewith, (i) MBO-VI and MBO-VII are exchanging an aggregate of 275,000 shares of the Company's Series B Preferred Stock, par value $0.01 per share (the "Series B Preferred Stock"), for an aggregate of 275,000 shares of the Company's Series D Preferred Stock, par value $0.01 per share (the "Series D Preferred Stock"), and (ii) Equity-V is exchanging an aggregate of 125,000 shares of the Company's Series C Preferred Stock, par value $0.01 per share (the "Series C Preferred Stock" and, collectively with the Series B Preferred Stock, the "Old Preferred Shares"), for an aggregate of 125,000 shares of the Company's Series E Preferred Stock, par value $0.01 per share (the "Series E Preferred Stock" and, collectively with the Series D Preferred Stock, the "Preferred Shares"). WHEREAS, as part of, and as consideration for, the exchange by the Purchasers of the Old Preferred Shares for the Preferred Shares on the date hereof and from time to time hereafter, the Company agrees to grant to the Purchasers certain registration and other rights with respect to their shares of Class A Common Stock. WHEREAS, in connection with the acquisition by the Purchasers of shares of Series B Preferred Stock and Series C Preferred Stock, the Company and the Purchasers entered into that certain Registration Rights Agreement, dated as of September 15, 1999 (the "Existing Agreement"). WHEREAS, the Company and the Purchasers are entering into this Agreement to replace and supersede the Existing Agreement in its entirety and to grant to the Purchasers certain registration and other rights with respect to their Preferred Shares and their shares of Class A Common Stock, as more fully set forth herein. NOW, THEREFORE, the parties hereto agree as follows: 1. Definitions. As used herein, unless the context otherwise requires, the following terms have the following respective meanings: "Affiliate" has the meaning ascribed to such term in Rule 12b-2 of the General Rules and Regulations under the Exchange Act. "Certificate of Incorporation" means the Restated Certificate of Incorporation of the Company, as amended, as it may be amended or restated hereafter from time to time. "Commission" means the Securities and Exchange Commission or any other Federal agency at the time administering the Securities Act. "Common Stock" means any shares of Class A Common Stock of the Company, now or hereafter authorized to be issued, and any and all securities of any kind whatsoever of the Company which may be exchanged for or converted into Class A Common Stock, any and all securities of any kind whatsoever of the Company which may be issued on or after the date hereof in respect of, in exchange for, or upon conversion of shares of Class A Common Stock pursuant to a merger, consolidation, stock split, stock dividend, recapitalization of the Company or otherwise. "Exchange Act" means the Securities Exchange Act of 1934, as amended, or any similar Federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. Reference to a particular section of the Exchange Act shall include a reference to the comparable section, if any, of any such similar Federal statute. "Person" means a corporation, an association, a partnership, an organization, a business, a trust, an individual, or any other entity or organization, including a government or political subdivision or an instrumentality or agency thereof. "Registrable Securities" means (i) any shares of Common Stock owned by the Purchasers, (ii) any shares of Common Stock issued or issuable upon the conversion, exercise or exchange of any Preferred Shares of or any other Common Stock equivalents at any time held by the Purchasers, and (iii) any shares of Common Stock issued with respect to the Common Stock referred to in clauses (i) or (ii) by way of a stock dividend, stock split or reverse stock split or in connection with a combination of shares, recapitalization, merger, consolidation or otherwise. As to any particular Registrable Securities, such securities shall cease to be Registrable Securities (a) when a registration statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement, (b) when such securities shall have been otherwise transferred or disposed of and new certificates for them not bearing a legend restricting further transfer shall have been delivered by the Company and subsequent transfer or distribution of them shall not require registration of them under the Securities Act, or (c) when such securities shall have been sold as permitted by, and in compliance with, the Securities Act. "Registration Expenses" means all expenses incident to the registration and disposition of the Registrable Securities pursuant to Section 2 hereof, including, without limitation, all registration, filing and applicable national securities exchange fees, all fees and expenses of complying with state securities or blue sky laws (including fees and disbursements of counsel to the underwriters or the Purchasers in connection with "blue sky" qualification of the Registrable Securities and determination of their eligibility for investment under the laws of the various jurisdictions), all word processing, duplicating and printing expenses, all messenger and delivery expenses, the fees and disbursements of counsel for the Company and of its independent public accountants, including the expenses of "cold comfort" letters or any special audits required by, or incident to, such registration, all fees and disbursements of underwriters (other than underwriting discounts and commissions), all transfer taxes, and all fees and expenses of counsel to the Purchasers; provided, however, that Registration Expenses shall exclude, and the Purchasers shall pay, underwriting discounts and commissions in respect of the Registrable Securities being registered. "Securities Act" means the Securities Act of 1933, as amended, or any similar Federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. References to a particular section of the Securities Act shall include a reference to the comparable section, if any, of any such similar Federal statute. 2. Registration Under Securities Act, etc. --------------------------------------- 2.1 Registration on Request. ----------------------- (a) Request. At any time or from time to time that the Purchasers are permitted to transfer Registrable Securities under Section 4.12 of the Exchange Agreement, the Purchasers shall have the right to require the Company to effect the registration under the Securities Act of all or part of the Registrable Securities, by delivering a written request therefor to the Company specifying the number of shares of Registrable Securities and the intended method of distribution. The Company shall (i) use its reasonable best efforts to effect the registration under the Securities Act (including by means of a shelf registration pursuant to Rule 415 under the Securities Act if so requested in such request and if the Company is then eligible to use such a registration) of the Registrable Securities which the Company has been so requested to register by the Purchasers, for distribution in accordance with the intended method of distribution set forth in the written request delivered by the Purchasers, such registration to be effected as expeditiously as possible (but in any event within 90 days of receipt of a written request), and (ii) if requested by the Purchasers, use its reasonable best efforts to obtain acceleration of the effective date of the registration statement relating to such registration. (b) Registration of Other Securities. Whenever the Company shall effect a registration pursuant to this Section 2.1 in connection with an underwritten offering by the Purchasers of Registrable Securities, no securities other than Registrable Securities shall be included among the securities covered by such registration if inclusion of such other securities would result in a request by the managing underwriters for a reduction in the number of Registrable Securities requested to be so registered. (c) Registration Statement Form. Registrations under this Section 2.1 shall be on such appropriate registration form of the Commission as, subject to clause (a)(i) above, shall be selected by the Company and as shall be reasonably acceptable to the Purchasers. The Company agrees to include in any such registration statement all information which, in the opinion of counsel to the Purchasers and counsel to the Company, is necessary or desirable to be included therein. (d) Expenses. The Company shall pay all Registration Expenses in connection with any registration requested pursuant to this Section 2.1. (e) Effective Registration Statement. A registration requested pursuant to this Section 2.1 shall not be deemed to have been effected (including for purposes of paragraph (h) of this Section 2.1) (i) unless a registration statement with respect thereto has become effective and has been kept continuously effective for a period of at least 365 days (or such shorter period which shall terminate when all the Registrable Securities covered by such registration statement have been sold pursuant thereto), (ii) if after it has become effective, such registration is interfered with by any stop order, injunction or other order or requirement of the Commission or other governmental agency or court for any reason not attributable to the Purchasers and has not thereafter become effective, or (iii) if the conditions to closing specified in the underwriting agreement, if any, entered into in connection with such registration are not satisfied or waived. (f) Selection of Underwriters. The managing underwriters of each underwritten offering of the Registrable Securities so to be registered shall be selected by the Purchasers, subject to the Company's approval, which approval shall not be unreasonably withheld. (g) Right to Withdraw. If the managing underwriter of any underwritten offering shall advise the Purchasers that the Registrable Securities covered by the registration statement cannot be sold in such offering within a price range acceptable to the Purchasers, then the Purchasers shall have the right to notify the Company in writing that they have determined to withdraw their shares from the registration statement. In the event of such withdrawal, the request for registration shall not be counted for purposes of the requests for registration to which the Purchasers are entitled pursuant to this Section 2.1. (h) Limitations on Registration on Request. The Purchasers shall be entitled to require the Company to effect, and the Company shall be required to effect, three registrations in the aggregate pursuant to this Section 2.1. (i) Postponement. The Company shall be entitled once in any six-month period to postpone for a reasonable period of time (but not exceeding 60 days) (the "Postponement Period") the filing of any registration statement required to be prepared and filed by it pursuant to this Section 2.1 if the Company determines, in its reasonable judgment, that such registration and offering would materially interfere with any material financing, corporate reorganization or other material transaction involving the Company or any subsidiary, or would require premature disclosure thereof, and promptly gives the Purchasers written notice of such determination, containing a general statement of the reasons for such postponement and an approximation of the anticipated delay. If the Company shall so postpone the filing of a registration statement, (i) the Company shall use its reasonable best efforts to limit the delay to as short a period as is practicable and (ii) the Purchasers shall have the right to withdraw the request for registration by giving written notice to the Company at any time and, in the event of such withdrawal, such request shall not be counted for purposes of the requests for registration to which the Purchasers are entitled pursuant to this Section 2.1. 2.2 Incidental Registration. ----------------------- (a) Right to Include Registrable Securities. If the Company at any time proposes to register any of its securities for the account of any other stockholder under the Securities Act by registration on Form S-1, S-2 or S-3 or any successor or similar form(s) (except registrations on any such Form or similar form(s) solely for registration of securities in connection with an employee benefit plan or dividend reinvestment plan or a merger or consolidation) and provided that the Purchasers are permitted to transfer Registrable Securities under Section 4.12 of the Exchange Agreement, the Company will each such time give prompt written notice to the Purchasers of its intention to do so and of the Purchasers' rights under this Section 2.2. Upon the written request of the Purchasers (which request shall specify the maximum number of Registrable Securities intended to be disposed of by the Purchasers), made as promptly as practicable and in any event within 30 days after the receipt of any such notice (10 days if the Company states in such written notice or gives telephonic notice to the Purchasers, with written confirmation to follow promptly thereafter, stating that (i) such registration will be on Form S-3 and (ii) such shorter period of time is required because of a planned filing date), the Company shall use its reasonable best efforts to effect the registration under the Securities Act of all Registrable Securities which the Company has been so requested to register by the Purchasers; provided, however, that if, at any time after giving written notice of its intention to register any securities and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to register or to delay registration of such securities, the Company shall give written notice of such determination and its reasons therefor to the Purchasers and (i) in the case of a determination not to register, shall be relieved of its obligation to register any Registrable Securities in connection with such registration (but not from any obligation of the Company to pay the Registration Expenses in connection therewith), without prejudice, however, to the rights of the Purchasers to request that such registration be effected as a registration under Section 2.1 and (ii) in the case of a determination to delay registering, shall be permitted to delay registering any Registrable Securities, for the same period as the delay in registering such other securities. No registration effected under this Section 2.2 shall relieve the Company of its obligation to effect any registration upon request under Section 2.1. The Company will pay all Registration Expenses in connection with any registration of Registrable Securities requested pursuant to this Section 2.2. (b) Right to Withdraw. The Purchasers shall have the right to withdraw its request for inclusion of its Registrable Securities in any registration statement pursuant to this Section 2.2 at any time prior to the execution of an underwriting agreement with respect thereto by giving written notice to the Company of its request to withdraw. (c) Priority in Incidental Registrations. If the managing underwriter of any underwritten offering shall inform the Company by letter of its belief that the number of Registrable Securities requested to be included in such registration, when added to the number of other securities to be offered in such registration, would materially adversely affect such offering, then the Company shall include in such registration, to the extent of the number and type which the Company is so advised can be sold in (or during the time of) such offering without so materially adversely affecting such offering (the "Section 2.2 Sale Amount"), (i) all of the securities proposed by the other stockholders triggering such incidental registration rights; and (ii) thereafter, to the extent the Section 2.2 Sale Amount is not exceeded, the Registrable Securities requested by the Purchasers to be included in such registration pursuant to Section 2.2(a) and any other securities of the Company requested to be included in such registration by any holder having the right to include securities on a pro rata basis, including, in the case where such registration is to be effected as a result of the exercise by a holder of the Company's securities of such holder's right to cause such securities to be so registered, the securities of such holder with the amount of securities of the Purchasers and each such holder to be included based on the pro rata amount of shares of Common Stock held, or obtainable by exercise or conversion of other securities of the Company, by the Purchasers or such holder. (d) Plan of Distribution. Any participation by holders of Registrable Securities in a registration by the Company shall be in accordance with the Company's plan of distribution, provided that the Purchasers shall have the right to select the co-managing underwriter. 2.3 Registration Procedures. If and whenever the Company is required to use its reasonable best efforts to effect the registration of any Registrable Securities under the Securities Act as provided in Sections 2.1 and 2.2 hereof, the Company shall as expeditiously as possible: (a) prepare and file with the Commission as soon as practicable the requisite registration statement to effect such registration (and shall include all financial statements required by the Commission to be filed therewith) and thereafter use its reasonable best efforts to cause such registration statement to become effective; provided, however, that before filing such registration statement (including all exhibits) or any amendment or supplement thereto or comparable statements under securities or blue sky laws of any jurisdiction, the Company shall as promptly as practicable furnish such documents to the Purchasers and each underwriter, if any, participating in the offering of the Registrable Securities and their respective counsel, which documents will be subject to the review and comments of the Purchasers, each underwriter and their respective counsel; and provided, further, however, that the Company may discontinue any registration of its securities which are not Registrable Securities at any time prior to the effective date of the registration statement relating thereto; (b) notify the Purchasers of the Commission's requests for amending or supplementing the registration statement and the prospectus, and prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities covered by such registration statement for such period as shall be required for the disposition of all of such Registrable Securities in accordance with the intended method of distribution thereof; provided, that except with respect to any such registration statement filed pursuant to Rule 415 under the Securities Act, such period need not exceed 365 days; (c) furnish, without charge, to the Purchasers and each underwriter such number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus contained in such registration statement (including each preliminary prospectus and any summary prospectus) and any other prospectus filed under Rule 424 under the Securities Act, in conformity with the requirements of the Securities Act, and such other documents, as the Purchasers and such underwriters may reasonably request; (d) use its reasonable best efforts (i) to register or qualify all Registrable Securities and other securities covered by such registration statement under such securities or blue sky laws of such States of the United States of America where an exemption is not available and as the Purchasers or any managing underwriter shall reasonably request, (ii) to keep such registration or qualification in effect for so long as such registration statement remains in effect, and (iii) to take any other action which may be reasonably necessary or advisable to enable the Purchasers to consummate the disposition in such jurisdictions of the securities to be sold by the Purchasers, except that the Company shall not for any such purpose be required to qualify generally to do business as a foreign corporation in any jurisdiction wherein it would not but for the requirements of this subsection (d) be obligated to be so qualified or to consent to general service of process in any such jurisdiction; (e) use its reasonable best efforts to cause all Registrable Securities covered by such registration statement to be registered with or approved by such other federal or state governmental agencies or authorities as may be necessary in the opinion of counsel to the Company and counsel to the Purchasers to consummate the disposition of such Registrable Securities; (f) furnish to the Purchasers and each underwriter, if any, participating in the offering of the securities covered by such registration statement, a signed counterpart of (i) an opinion of counsel for the Company, and (ii) a "comfort" letter signed by the independent public accountants who have certified the Company's or any other entity's financial statements included or incorporated by reference in such registration statement, covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of the accountants' comfort letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer's counsel and in accountants' comfort letters delivered to the underwriters in underwritten public offerings of securities (and dated the dates such opinions and comfort letters are customarily dated); (g) promptly notify the Purchasers and each managing underwriter, if any, participating in the offering of the securities covered by such registration statement (i) when such registration statement, any pre-effective amendment, the prospectus or any prospectus supplement related thereto or post-effective amendment to such registration statement has been filed, and, with respect to such registration statement or any post-effective amendment, when the same has become effective; (ii) of any request by the Commission for amendments or supplements to such registration statement or the prospectus related thereto or for additional information; (iii) of the issuance by the Commission of any stop order suspending the effectiveness of such registration statement or the initiation of any proceedings for that purpose; (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification of any of the Registrable Securities for sale under the securities or blue sky laws of any jurisdiction or the initiation of any proceeding for such purpose; (v) at any time when a prospectus relating thereto is required to be delivered under the Securities Act, upon discovery that, or upon the happening of any event as a result of which, the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading, in the light of the circumstances under which they were made, and in the case of this clause (v), at the request of the Purchasers promptly prepare and furnish to the Purchasers and each managing underwriter, if any, participating in the offering of the Registrable Securities, a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made; and (vi) at any time when the representations and warranties of the Company contemplated by Section 2.4(a) or (b) hereof cease to be true and correct; (h) otherwise comply with all applicable rules and regulations of the Commission, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months beginning with the first full calendar month after the effective date of such registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 promulgated thereunder, and promptly furnish to the Purchasers a copy of any amendment or supplement to such registration statement or prospectus; (i) provide and cause to be maintained a transfer agent and registrar (which, in each case, may be the Company) for all Registrable Securities covered by such registration statement from and after a date not later than the effective date of such registration; (j) (i) use its reasonable best efforts to cause all Registrable Securities covered by such registration statement to be listed on the NASDAQ "national market system" or the principal securities exchange on which similar securities issued by the Company are then listed (if any), if the listing of such Registrable Securities is then permitted under the rules of such exchange, or (ii) if no similar securities are then so listed, use its reasonable best efforts to (x) cause all such Registrable Securities to be listed on a national securities exchange or (y) failing that, secure designation of all such Registrable Securities as a NASDAQ "national market system security" within the meaning of Rule 11Aa2-1 of the Commission or (z) failing that, to secure NASDAQ authorization for such shares and, without limiting the generality of the foregoing, to arrange for at least two market makers to register as such with respect to such shares with the National Association of Securities Dealers, Inc.; (k) deliver promptly to counsel to the Purchasers and each underwriter, if any, participating in the offering of the Registrable Securities, copies of all correspondence between the Commission and the Company, its counsel or auditors and all memoranda relating to discussions with the Commission or its staff with respect to such registration statement; (l) use its reasonable best efforts to obtain the withdrawal of any order suspending the effectiveness of the registration statement; (m) provide a CUSIP number for all Registrable Securities, no later than the effective date of the registration statement; and (n) make available its senior executive officers and chairman and otherwise provide reasonable assistance to the underwriters (taking into account the needs of the Company's business) in their marketing of Registrable Securities. The Company may require the Purchasers to furnish the Company such information regarding the Purchasers and the distribution of the Registrable Securities as the Company may from time to time reasonably request in writing. The Purchasers agree that upon receipt of any notice from the Company of the happening of any event of the kind described in paragraph (g)(iii), (iv) or (v) of this Section 2.3, the Purchasers will, to the extent appropriate, discontinue their disposition of Registrable Securities pursuant to the registration statement relating to such Registrable Securities until, in the case of paragraph (g)(v) of this Section 2.3, their receipt of the copies of the supplemented or amended prospectus contemplated by paragraph (g)(v) of this Section 2.3 and, if so directed by the Company, will deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in its possession, of the prospectus relating to such Registrable Securities current at the time of receipt of such notice. If the disposition by the Purchasers of their securities is discontinued pursuant to the foregoing sentence, the Company shall extend the period of effectiveness of the registration statement by the number of days during the period from and including the date of the giving of notice to and including the date when the Purchasers shall have received copies of the supplemented or amended prospectus contemplated by paragraph (g)(v) of this Section 2.3; and, if the Company shall not so extend such period, the Purchasers' request pursuant to which such registration statement was filed shall not be counted for purposes of the requests for registration to which the Purchasers are entitled pursuant to Section 2.1 hereof. 2.4 Underwritten Offerings. ---------------------- (a) Requested Underwritten Offerings. If requested by the underwriters for any underwritten offering by the Purchasers pursuant to a registration requested under Section 2.1, the Company shall enter into a customary underwriting agreement (in the form of underwriting agreement used at such time by the managing underwriter(s)) with a managing underwriter or underwriters selected by the Purchasers. Such underwriting agreement shall be satisfactory in form and substance to the Purchasers and shall contain such representations and warranties by, and such other agreements on the part of, the Company and such other terms as are generally prevailing in agreements of the managing underwriter(s), including, without limitation, their customary provisions relating to indemnification and contribution. The Purchasers shall be party to such underwriting agreement and may, at their option, require that any or all of the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such underwriters shall also be made to and for the benefit of the Purchasers and that any or all of the conditions precedent to the obligations of such underwriters under such underwriting agreement be conditions precedent to the obligations of the Purchasers. The Purchasers shall not be required to make any representations or warranties to or agreements with the Company or the underwriters other than representations, warranties or agreements regarding the Purchasers, their ownership of and title to the Registrable Securities, and their intended method of distribution; and any liability of the Purchasers to any underwriter or other person under such underwriting agreement shall be limited to liability arising from breach of their representations and warranties and shall be limited to an amount equal to the proceeds (net of expenses and underwriting discounts and commissions) that they derive from such registration. (b) Incidental Underwritten Offerings. In the case of a registration pursuant to Section 2.2 hereof, if the Company shall have determined to enter into any underwriting agreements in connection therewith, all of the Registrable Securities to be included in such registration shall be subject to such underwriting agreements. The Purchasers may, at their option, require that any or all of the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such underwriters shall also be made to and for the benefit of the Purchasers and that any or all of the conditions precedent to the obligations of such underwriters under such underwriting agreement be conditions precedent to the obligations of the Purchasers. The Purchasers shall not be required to make any representations or warranties to or agreements with the Company or the underwriters other than representations, warranties or agreements regarding the Purchasers, their ownership of and title to the Registrable Securities, and their intended method of distribution; and any liability of the Purchasers to any underwriter or other Person under such underwriting agreement shall be limited to liability arising from breach of their representations and warranties and shall be limited to an amount equal to the proceeds (net of expenses and underwriting discounts and commissions) that they derive from such registration. 2.5 Preparation; Reasonable Investigation. In connection with the preparation and filing of each registration statement under the Securities Act pursuant to this Agreement, the Company will give the Purchasers, their underwriters, if any, and their respective counsel, accountants and other representatives and agents the opportunity to participate in the preparation of such registration statement, each prospectus included therein or filed with the Commission, and each amendment thereof or supplement thereto, and give each of them such access to its books and records and such opportunities to discuss the business of the Company with its officers and employees and the independent public accountants who have certified its financial statements, and supply all other information reasonably requested by each of them, as shall be necessary or appropriate, in the opinion of the Purchasers and such underwriters' respective counsel, to conduct a reasonable investigation within the meaning of the Securities Act. 2.6 Indemnification. --------------- (a) Indemnification by the Company. The Company agrees that in the event of any registration of any Registrable Securities of the Company under this Registration Rights Agreement the Company shall, and hereby does, indemnify and hold harmless the Purchasers, their respective directors, officers, members, partners, agents and affiliates and each other Person who participates as an underwriter in the offering or sale of such securities and each other Person, if any, who controls the Purchasers or any such underwriter within the meaning of the Securities Act, against any losses, claims, damages, or liabilities, joint or several, to which the Purchasers or any such director, officer, member, partner, agent or affiliate or underwriter or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities, joint or several (or actions or proceedings, whether commenced or threatened, in respect thereof), arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such securities were registered under the Securities Act, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, (ii) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein in light of the circumstances in which they were made not misleading, or (iii) any violation by the Company of any federal, state or common law rule or regulation applicable to the Company and relating to action required of or inaction by the Company in connection with any such registration, and the Company shall reimburse the Purchasers and each such director, officer, member, partner, agent or affiliate, underwriter and controlling Person for any legal or any other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, liability, action or proceeding; provided that the Company shall not be liable in any such case to the Purchasers or any such director, officer, member, partner, agent, affiliate, or controlling person to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, any such preliminary prospectus, final prospectus, summary prospectus, amendment or supplement in reliance upon and in conformity with written information furnished to the Company through an instrument duly executed by or on behalf of the Purchasers, specifically stating that it is for use in the preparation thereof. Such indemnity shall remain in full force regardless of any investigation made by or on behalf of the Purchasers or any such director, officer, member, partner, agent, affiliate, underwriter or controlling Person and shall survive the transfer of such securities by the Purchasers. (b) Indemnification by the Purchasers. As a condition to including any Registrable Securities in any registration statement, the Company shall have received an undertaking reasonably satisfactory to it from the Purchasers so including any Registrable Securities to indemnify and hold harmless (in the same manner and to the same extent as set forth in paragraph (a) of this Section 2.6) the Company, and each director of the Company, each officer of the Company and each other Person, if any, who controls the Company within the meaning of the Securities Act, with respect to any statement or alleged statement in or omission or alleged omission from such registration statement, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, but only to the extent such statement or alleged statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company through an instrument duly executed by the Purchasers specifically stating that it is for use in the preparation of such registration statement, preliminary prospectus, final prospectus, summary prospectus, amendment or supplement; provided, however, that the liability of any such indemnifying party under this Section 2.6(b) shall be limited to the amount of proceeds (net of expenses and underwriting discounts and commissions) received by such indemnifying party in the offering giving rise to such liability. Such indemnity shall remain in full force and effect, regardless of any investigation made by or on behalf of the Company or any such director, officer or controlling Person and shall survive the transfer of such securities by the Purchasers. (c) Notices of Claims, etc. Promptly after receipt by an indemnified party of notice of the commencement of any action or proceeding involving a claim referred to in the preceding subsections of this Section 2.6, such indemnified party shall, if a claim in respect thereof is to be made against an indemnifying party, give written notice to the latter of the commencement of such action or proceeding; provided, however, that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations under the preceding subsections of this Section 2.6, except to the extent that the indemnifying party is actually prejudiced by such failure to give notice, and shall not relieve the indemnifying party from any liability which it may have to the indemnified party otherwise than under this Section 2.6. In case any such action or proceeding is brought against an indemnified party, the indemnifying party shall be entitled to participate therein and, unless in the opinion of outside counsel to the indemnified party a conflict of interest between such indemnified and indemnifying parties may exist in respect of such claim, to assume the defense thereof, jointly with any other indemnifying party similarly notified to the extent that it may wish, with counsel reasonably satisfactory to such indemnified party; provided, however, that if the defendants in any such action or proceeding include both the indemnified party and the indemnifying party and if in the opinion of outside counsel to the indemnified party there may be legal defenses available to such indemnified party and/or other indemnified parties which are different from or in addition to those available to the indemnifying party, the indemnified party or parties shall have the right to select separate counsel to defend such action or proceeding on behalf of such indemnified party or parties, provided, however, that the indemnifying party shall be obligated to pay for only one counsel and one local counsel for all indemnified parties. After notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof and approval by the indemnified party of such counsel, the indemnifying party shall not be liable to such indemnified party for any legal expenses subsequently incurred by the latter in connection with the defense thereof other than reasonable costs of investigation (unless the first proviso in the preceding sentence shall be applicable). No indemnifying party shall be liable for any settlement of any action or proceeding effected without its written consent. No indemnifying party shall, without the consent of the indemnified party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation. (d) Contribution. If the indemnification provided for in this Section 2.6 shall for any reason be held by a court to be unavailable to an indemnified party under subsection (a) or (b) hereof in respect of any loss, claim, damage or liability, or any action in respect thereof, then, in lieu of the amount paid or payable under subsection (a) or (b) hereof, the indemnified party and the indemnifying party under subsection (a) or (b) hereof shall contribute to the aggregate losses, claims, damages and liabilities (including legal or other expenses reasonably incurred in connection with investigating the same), (i) in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand, and the indemnified party on the other, with respect to the statements or omissions which resulted in such loss, claim, damage or liability, or action in respect thereof, as well as any other relevant equitable considerations, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law or if the allocation provided in this clause (ii) provides a greater amount to the indemnified party than clause (i) above, in such proportion as shall be appropriate to reflect not only the relative fault but also the relative benefits received by the indemnifying party and the indemnified party from the offering of the securities covered by such registration statement as well as any other relevant equitable considerations. The parties hereto agree that it would not be just and equitable if contributions pursuant to this Section 2.6(d) were to be determined by pro rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to in the preceding sentence of this Section 2.6(d). No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. In addition, no Person shall be obligated to contribute hereunder any amounts in payment for any settlement of any action or claim effected without such Person's consent, which consent shall not be unreasonably withheld. Notwithstanding anything in this subsection (d) to the contrary, no indemnifying party (other than the Company) shall be required to contribute any amount in excess of the proceeds (net of expenses and underwriting discounts and commissions) received by such party from the sale of the Registrable Securities in the offering to which the losses, claims, damages or liabilities of the indemnified parties relate. (e) Other Indemnification. Indemnification and contribution similar to that specified in the preceding subsections of this Section 2.6 (with appropriate modifications) shall be given by the Company and the Purchasers with respect to any required registration or other qualification of securities under any federal, state or blue sky law or regulation of any governmental authority other than the Securities Act. The indemnification agreements contained in this Section 2.6 shall be in addition to any other rights to indemnification or contribution which any indemnified party may have pursuant to law or contract and shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any indemnified party and shall survive the transfer of any of the Registrable Securities by the Purchasers. (f) Indemnification Payments. The indemnification and contribution required by this Section 2.6 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or expense, loss, damage or liability is incurred. 2.7 Unlegended Certificates. In connection with the offering of any Registrable Securities registered pursuant to this Section 2, the Company shall (i) facilitate the timely preparation and delivery to the Purchasers and the underwriters, if any, participating in such offering, of unlegended certificates representing ownership of such Registrable Securities being sold in such denominations and registered in such names as requested by the Purchasers or such underwriters and (ii) instruct any transfer agent and registrar of such Registrable Securities to release any stop transfer orders with respect to any such Registrable Securities. 2.8 Limitation on Sale of Securities. The Company hereby agrees that if it shall previously have received a request for registration pursuant to Section 2.1 or 2.2 hereof, and if such previous registration shall not have been withdrawn or abandoned, the Company shall not effect any public or private offer, sale or distribution of its securities or effect any registration of any of its equity securities under the Securities Act whether or not for sale for its own account, until a period of 90 days (or such shorter period as the Purchasers shall be advised by their managing underwriter) shall have elapsed from the effective date of such previous registration, and the Company shall so provide in any registration rights agreements hereafter entered into with respect to any of its securities provided, however, that during this 90 day period the Company may (i) offer, sell and distribute its equity securities in connection with acquisitions or any Company employee or director benefit or stock purchase or stock option plans, (ii) grant or award Common Stock, options to purchase Common Stock in connection with acquisitions or under such Company plans and (iii) take any other actions necessary in connection with any of the foregoing in order to register such Common Stock with the Commission. 2.9 No Required Sale. Nothing in this Agreement shall be deemed to create an independent obligation on the part of the Purchasers to sell any Registrable Securities pursuant to any effective registration statement. 3. Rule 144. Without limiting in any way the provisions of Section 4.12 of the Exchange Agreement, the Company shall take all actions reasonably necessary to enable holders of Registrable Securities to sell such securities without registration under the Securities Act within the limitation of the exemptions provided by (i) Rule 144, or (ii) any similar rule or regulation hereafter adopted by the Commission including, without limiting the generality of the foregoing, filing on a timely basis all reports required to be filed by the Exchange Act. Upon the request of the Purchasers, the Company will deliver to such holder a written statement as to whether it has complied with such requirements. 4. Amendments and Waivers. This Agreement may be amended, modified or supplemented only by written agreement of the party against whom enforcement of such amendment, modification or supplement is sought. 5. [INTENTIONALLY OMITTED] 6. Notice. All notices and other communications hereunder shall be in writing and, unless otherwise provided herein, shall be deemed to have been given when received by the party to whom such notice is to be given at its address set forth below, or such other address for the party as shall be specified by notice given pursuant hereto: (a) If to the Purchasers, to: c/o Forstmann Little & Co. 767 Fifth Avenue New York, NY 10153 Attention: Thomas H. Lister With a copy to: Fried, Frank, Harris, Shriver & Jacobson One New York Plaza New York, New York 10004 Attention: Robert C. Schwenkel, Esq. (b) If to the Company, to it at: McLeodUSA Incorporated McLeodUSA Technology Park 6400 C Street SW PO Box 3177 Cedar Rapids, Iowa 52406-3177 Telecopy No.: (319) 790-7901 Attention: Randall Rings, Esq. Group Vice President and Chief Legal Officer with a copy to (which shall not constitute notice): Hogan & Hartson L.L.P. Columbia Square 555 Thirteenth Street, N.W. Washington, D.C. 20004 Telecopy No.: (202) 637-5910 Attention: Joseph G. Connolly, Jr., Esq. 7. Assignment; Third Party Beneficiaries. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors and permitted assigns. This Agreement may not be assigned by the Company, without the prior written consent of the Purchasers. This Agreement may not be assigned by any of the Purchasers, without the prior written consent of the Company; provided however, the Purchasers may, at their election, at any time or from time to time, assign their rights under this Agreement, in whole or in part, to any Affiliates of the Purchasers; provided further, however, that any rights to withdraw shares from inclusion in a registration statement pursuant to Section 2 shall be made only by the Purchasers for themselves and all such Affiliates. 8. Remedies. The parties hereto agree that money damages or other remedy at law would not be sufficient or adequate remedy for any breach or violation of, or a default under, this Agreement by them and that, in addition to all other remedies available to them, each of them shall be entitled to an injunction restraining such breach, violation or default or threatened breach, violation or default and to any other equitable relief, including without limitation specific performance, without bond or other security being required. In any action or proceeding brought to enforce any provision of this Agreement (including the indemnification provisions thereof), the successful party shall be entitled to recover reasonable attorneys' fees in addition to its costs and expenses and any other available remedy. 9. No Inconsistent Agreements. The Company will not, on or after the date of this Agreement, enter into any agreement with respect to its securities which is inconsistent with the rights granted to the Purchasers in this Agreement or otherwise conflicts with the provisions hereof. The Company further represents and warrants that the rights granted to the Purchasers hereunder do not in any way conflict with and are not inconsistent with any other agreements to which the Company is a party or by which it is bound. The Company further agrees that if any other registration rights agreement entered into after the date of this Agreement with respect to any of its securities contains terms which are more favorable to, or less restrictive on, the other party thereto than the terms and conditions contained in this Agreement are (insofar as they are applicable) with respect to the Purchasers, then the terms and conditions of this Agreement shall immediately be deemed to have been amended without further action by the Company or the Purchasers so that the Purchasers shall be entitled to the benefit of any such more favorable or less restrictive terms or conditions. 10. Descriptive Headings. The descriptive headings of the several sections and paragraphs of this Agreement are inserted for reference only and shall not control or otherwise affect the meaning hereof. 11. Governing Law. This Agreement shall be construed and enforced in accordance with, and the rights and obligations of the parties hereto shall be governed by, the laws of the State of New York, without giving effect to the conflicts of law principles thereof. Each of the parties hereto hereby irrevocably and unconditionally consents to submit to the exclusive jurisdiction of the courts of the State of New York and the United States of America located in the County of New York for any action or proceeding arising out of or relating to this Agreement and the transactions contemplated hereby (and agrees not to commence any action or proceeding 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 6 hereof shall be effective service of process for any action or proceeding brought against it in any such court. Each of the parties hereto hereby irrevocably and unconditionally waives any objection to the laying of venue of any action or proceeding arising out of this Agreement or the transactions contemplated hereby in the courts of the State of New York or the United States of America located in the County of New York, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum. 12. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts shall together constitute one and the same instrument. 13. Invalidity of Provision. The invalidity or unenforceability of any provision of this Agreement in any jurisdiction shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of this Agreement, including that provision, in any other jurisdiction. If any restriction or provision of this Agreement is held unreasonable, unlawful or unenforceable in any respect, such restriction or provision shall be interpreted, revised or applied in a manner that renders it lawful and enforceable to the fullest extent possible under law. 14. Further Assurances. Each party hereto shall do and perform or cause to be done and performed all further acts and things and shall execute and deliver all other agreements, certificates, instruments, and documents as any other party hereto reasonably may request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. 15. Termination of Existing Agreement; Entire Agreement; Effectiveness. This Agreement replaces and supersedes in its entirety the Existing Agreement. The Existing Agreement is hereby terminated and shall be of no further force and effect. Each party hereto agrees and confirms that there are no unsatisfied obligations of any of the parties hereto under the Existing Agreement. This Agreement constitutes the entire agreement, and supersedes all prior agreements and understandings, oral and written, between the parties hereto with respect to the subject matter hereof. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered by their respective officers thereunto duly authorized. McLEODUSA INCORPORATED By: /s/ Stephen C. Gray ---------------------------------- Name: Stephen C. Gray Title: President & Chief Executive Officer FORSTMANN LITTLE & CO. EQUITY PARTNERSHIP-V, L.P. By: FLC XXX Partnership, L.P. its general partner By: /s/ Winston W. Hutchins -------------------------------- Winston W. Hutchins, a general partner FORSTMANN LITTLE & CO. SUBORDINATED DEBT AND EQUITY MANAGEMENT BUYOUT PARTNERSHIP- VI, L.P. By: FLC XXIX Partnership, L.P. its general partner By: /s/ Winston W. Hutchins -------------------------------- Winston W. Hutchins, a general partner FORSTMANN LITTLE & CO. SUBORDINATED DEBT AND EQUITY MANAGEMENT BUYOUT PARTNERSHIP- VII, L.P. By: FLC XXXIII Partnership, L.P. its general partner By: /s/ Winston W. Hutchins -------------------------------- Winston W. Hutchins, a general partner EX-99.9 6 ex99_9.txt EXHIBIT 99.9 EXHIBIT 99.9 MCLEODUSA INCORPORATED CERTIFICATE OF DESIGNATION OF THE POWERS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL AND OTHER SPECIAL RIGHTS OF SERIES D CONVERTIBLE PREFERRED STOCK AND QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS THEREOF ------------------------------------------------------------------------------ Pursuant to Section 151 of the General Corporation Law of the State of Delaware ------------------------------------------------------------------------------ McLeodUSA Incorporated (the "Corporation"), a corporation organized and existing under the General Corporation Law of the State of Delaware, does hereby certify that, pursuant to authority conferred upon the board of directors of the Corporation (the "Board of Directors") by the Corporation's Amended and Restated Certificate of Incorporation, as amended (the "Restated Certificate of Incorporation"), and the authority delegated by the Board of Directors to a Special Committee of the Board of Directors in accordance with the provisions of Section 141(c) of the General Corporation Law of the State of Delaware and Section 3.7 of the Amended and Restated Bylaws of the Corporation and pursuant to the provisions of Section 151 of the General Corporation Law of the State of Delaware, said Special Committee of the Board of Directors is authorized to issue Preferred Stock of the Corporation in one or more series and the Special Committee of the Board of Directors has approved and adopted the following resolution on September 28, 2001 (the "Resolution"): RESOLVED that, the Special Committee of the Board of Directors hereby creates, authorizes and provides for the issuance of a series of the preferred stock of the Corporation, par value $.01 per share, designated as the "Series D Convertible Preferred Stock," consisting of 275,000 shares and having the powers, designation, preferences and relative, participating, optional and other special rights and the qualifications, limitations and restrictions thereof that are set forth in the Restated Certificate of Incorporation and in this Resolution as follows: 1. Number and Designation. 275,000 shares of the Preferred Stock of the Corporation shall constitute a series designated as "Series D Convertible Preferred Stock" (the "Series D Preferred Stock"). 2. Definitions. Unless the context otherwise requires, when used herein the following terms shall have the meaning indicated. "Board of Directors" means the Board of Directors of the Corporation. "Business Day" means any day except Saturday, Sunday and any day which shall be a legal holiday or a day on which banking institutions in New York City, New York generally are authorized or required by law or other governmental actions to close. "Capital Stock" means, with respect to any person, any and all shares, interests, participations, rights in, or other equivalents (however designated and whether voting and/or non-voting) of such person's capital stock, whether outstanding on the Issue Date or issued after the Issue Date, and any and all rights (other than any evidence of indebtedness), warrants or options exchangeable for or convertible into such capital stock. "Class A Common Stock" means any shares of the Corporation's Class A common stock, par value $.01 per share, now or hereafter authorized to be issued, any and all securities of any kind whatsoever of the Corporation which may be exchanged for or converted into Class A Common Stock, and any and all securities of any kind whatsoever of the Corporation which may be issued on or after the date hereof in respect of, in exchange for, or upon conversion of shares of Class A Common Stock pursuant to a merger, consolidation, stock split, stock dividend, recapitalization of the Corporation or otherwise. "Common Stock" means the Corporation's Class A Common Stock, and any other common stock of the Corporation. "Credit Agreement" means the Credit Agreement, dated as of May 31, 2000, as amended and in effect on the Issue Date, among the Corporation, the Lenders party thereto and The Chase Manhattan Bank, as Agent. "Current Market Price" means the average of the daily Market Prices of the Common Stock for ten consecutive trading days immediately preceding the date for which such value is to be computed. "Exchange Act" means the Securities Exchange Act of 1934, as amended, or any successor statute, and the rules and regulations promulgated thereunder. "Issue Date" means the original date of issuance of shares of Series D Preferred Stock. "Liquidation Preference" with respect to a share of Series D Preferred Stock or a share of Series E Preferred Stock means $2,500. "Market Price" means, with respect to the Common Stock, on any given day, (i) the price of the last trade, as reported on the Nasdaq National Market, not identified as having been reported late to such system, or (ii) if the Common Stock is so traded, but not so quoted, the average of the last bid and ask prices, as those prices are reported on the Nasdaq National Market, or (iii) if the Common Stock is not listed or authorized for trading on the Nasdaq National Market or any comparable system, the average of the closing bid and asked prices as furnished by two members of the National Association of Securities Dealers, Inc. selected from time to time by the Corporation for that purpose. If the Common Stock is not listed and traded in a manner that the quotations referred to above are available for the period required hereunder, the Market Price per share of Common Stock shall be deemed to be the fair value per share of such security as determined in good faith by the Board of Directors of the Corporation. "Net Realizable FMV" means, with respect to a share of Common Stock, if calculable, the amount of gross proceeds net of underwriters' discounts, commissions or other selling expenses received by or to be received by the holder in connection with the sale of such share of Common Stock on a when issued basis or immediately after the conversion or, in all other cases, an amount equal to 97% of the Current Market Price of the Common Stock. "Outstanding Series D Capital Amount" means the product of (x) 193,125,000 and (y) a fraction, the numerator of which is the number of outstanding shares of Series D Preferred Stock as of the date of liquidation or conversion, as the case may be, and the denominator of which is the number of shares of Series D Preferred Stock issued on the Issue Date, as adjusted, if appropriate, to reflect any event set forth in Section 7(f)(i). "Outstanding Series E Capital Amount" means the product of (x) 321,875,000 and (y) a fraction, the numerator of which is the number of outstanding shares of Series E Preferred Stock as of the date of liquidation or conversion, as the case may be, and the denominator of which is the number of shares of Series E Preferred Stock issued on the original date of issuance of the Series E Preferred Stock, as adjusted, if appropriate, to reflect any event set forth in Section 7(f)(i). "Preference Amount" with respect to a share of Series D Preferred Stock means, as at any date, the sum of (i) $1818.182 plus (ii) the Special Amount. "Series D Capital Share Number" means the lesser of (x) .375 times the excess, if any, of the Aggregate Conversion Shares over the number determined pursuant to clause (A) of Section 7(a)(ii) and (y) the number obtained by dividing (i) the Outstanding Series D Capital Amount as of the date of conversion by (ii) the Net Realizable FMV of a share of Class A Common Stock as of the date of conversion. "Series E Capital Share Number" means the lesser of (x) .625 times the excess, if any, of the Aggregate Conversion Shares over the number determined pursuant to clause (A) of Section 7(a)(ii) and (y) the number obtained by dividing (i) the Outstanding Series E Capital Amount as of the date of conversion by (ii) the Net Realizable FMV of a share of Class A Common Stock as of the date of conversion. "Series E Designation" means the Certificate of Designation for the Series E Preferred Stock. "Series E Preferred Stock" means the Series E Convertible Preferred Stock, par value $.01 per share, of the Corporation. "Sixty Trading Day Average" means the average of the daily Market Prices of the Common Stock for sixty consecutive trading days immediately preceding the date for which such value is to be computed, adjusted, if appropriate, to reflect any event set forth in Section 7(f)(i). "Special Amount" with respect to a share of Series D Preferred Stock shall mean, as at any date, a fraction, the numerator of which is equal to the product of (i) $1818.18, (ii) .07 and (iii) the Time Factor, and the denominator of which is equal to 12. "Time Factor" means, as at any date, the number of months (or the fraction of a month calculated to three decimal places) that have lapsed since the Issue Date. The Time Factor shall be calculated on the basis of a 30-day month. For example, if 16 days have lapsed since the Issue Date, the Time Factor equals 16/30 or .533; and if three months and 20 days have lapsed since the Issue Date, the Time Factor equals 3 + 20/30 or 3.667. "Voting Stock" means, with respect to any person, the Capital Stock of any class or kind ordinarily having the power to vote for the election of directors or other members of the governing body of such person. 3. Rank. (a) The Series D Preferred Stock and Series E Preferred Stock each will, with respect to dividend rights and rights on liquidation, winding-up and dissolution, rank (i) senior to all classes of Common Stock and to each other class of Capital Stock of the Corporation or series of Preferred Stock of the Corporation established hereafter by the Board of Directors of the Corporation the terms of which do not expressly provide that such class or series ranks senior to, or on a parity with, the Series D Preferred Stock and Series E Preferred Stock as to dividend rights and rights on liquidation, winding-up and dissolution of the Corporation (collectively referred to, together with all classes of Common Stock of the Corporation, as "Junior Securities"); (ii) on a parity with the Corporation's 6.75% Series A Cumulative Convertible Preferred Stock, par value $.01 per share, and with each class of Capital Stock of the Corporation or series of Preferred Stock of the Corporation established hereafter by the Board of Directors of the Corporation, the terms of which expressly provide that such class or series will rank on a parity with the Series D Preferred Stock and Series E Preferred Stock as to dividend rights and rights on liquidation, winding-up and dissolution (collectively referred to as "Parity Securities"); and (iii) junior to each class of Capital Stock of the Corporation or series of Preferred Stock of the Corporation established hereafter by the Board of Directors of the Corporation, the terms of which expressly provide that such class or series will rank senior to the Series D Preferred Stock and Series E Preferred Stock as to dividend rights and rights on liquidation, winding-up and dissolution of the Corporation (collectively referred to as "Senior Securities"); provided that the relative powers, rights and preferences of the Series D Preferred Stock and Series E Preferred Stock vis-a-vis the other shall be as set forth herein and in the Series E Designation. (b) The respective definitions of Junior Securities, Parity Securities and Senior Securities shall also include any warrants, rights or options or other securities exercisable or exchangeable for or convertible into any of the Junior Securities, Parity Securities and Senior Securities, as the case may be. (c) The Series D Preferred Stock shall be subject to the creation of Junior Securities and Parity Securities. 4. Dividends. If at any time from the Issue Date through September 15, 2004, the Corporation pays a dividend in cash or property other than in shares of Capital Stock on the Common Stock then at the same time the Corporation shall declare and pay a dividend on each share of Series D Preferred Stock in an amount equal to the Series D Per Share Participation Amount. The "Series D Per Share Participation Amount" means, as at any date, 56% of the amount of dividends that would be paid with respect to the Series D Preferred Stock and Series E Preferred Stock taken together if converted into Common Stock on the date established as the record date with respect to such dividend on the Common Stock divided by the number of shares of Series D Preferred Stock then outstanding. Except as aforesaid, the holders of shares of Series D Preferred Stock shall not be entitled to receive any dividends in respect of their shares of Series D Preferred Stock. 5. Liquidation Preference. (a) In the event of any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary (a "liquidation"), before any payment or distribution of the assets of the Corporation (whether capital or surplus) shall be made to or set apart for the holders of Junior Securities, the holders of the outstanding shares of Series D Preferred Stock and Series E Preferred Stock, taken together, shall be entitled to receive an amount in cash equal to the greater of (x) the aggregate Liquidation Preferences of the outstanding shares of Series D Preferred Stock and Series E Preferred Stock, or (y) the aggregate amount that would have been received with respect to the outstanding shares of Series D Preferred Stock and Series E Preferred Stock if such shares had been converted to Common Stock immediately prior to the earliest event comprising the liquidation. If, upon any liquidation of the Corporation, the assets of the Corporation, or proceeds thereof, shall be insufficient to pay in full the aforesaid amounts under clause (x) of the preceding sentence and liquidating payments on all Parity Securities, then such assets, or proceeds thereof, shall be distributed among the shares of Series D Preferred Stock and Series E Preferred Stock taken together and all such other Parity Securities ratably in accordance with the respective amounts that would be payable on such shares of Series D Preferred Stock and Series E Preferred Stock and any such other Parity Securities if all amounts payable thereon were paid in full. Any proceeds distributed among the outstanding shares of Series D Preferred Stock and Series E Preferred Stock under clause (x) of the first sentence or pursuant to the preceding sentence of this Section 5(a) upon a liquidation shall be distributed (1) first, to the Series D Preferred Stock until it has received an amount equal to the aggregate Preference Amounts as of the date of liquidation of the outstanding Series D Preferred Stock, (2) second, 37.5% to the Series D Preferred Stock and 62.5% to the Series E Preferred Stock until the Series D Preferred Stock has received an amount equal to the Outstanding Series D Capital Amount as of the date of liquidation (in addition to any amount received pursuant to clause (1) of this sentence) and the Series E Preferred Stock has received an amount equal to the Outstanding Series E Capital Amount as of the date of liquidation, and (3) thereafter 56% to the Series D Preferred Stock and 44% to the Series E Preferred Stock. Any amounts distributed among the outstanding shares of Series D Preferred Stock and Series E Preferred Stock under clause (y) of the first sentence of this Section 5(a) upon a liquidation shall be distributed as between the Series D Preferred Stock and Series E Preferred Stock as though such shares were converted as of the date of liquidation in accordance with the provisions of Section 7. Any amounts distributed with respect to the Series D Preferred Stock pursuant to this Section 5(a) shall be allocated pro rata among the shares of Series D Preferred Stock. For the purposes of this Section 5, neither the sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property or assets of the Corporation nor the consolidation or merger of the Corporation with or into one or more other entities shall be deemed to be a liquidation, dissolution or winding-up of the Corporation. (b) Subject to the rights of the holders of any Parity Securities, after payment shall have been made in full to the holders of the Series D Preferred Stock and the Series E Preferred Stock taken together, as provided in this Section 5, any other series or class or classes of Junior Securities shall, subject to the respective terms and provisions (if any) applying thereto, be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Series D Preferred Stock, Series E Preferred Stock and any Parity Securities shall not be entitled to share therein. 6. Redemption. (a) Subject to applicable legal requirements and the Credit Agreement, to the extent the Corporation shall have funds legally available therefor, during the 180-day period commencing on September 15, 2009, the holders of the Series D Preferred Stock shall have the right to cause the Corporation to redeem at any time in whole or from time to time in part (the date of any such redemption being referred to as the "Redemption Date") outstanding shares of Series D Preferred Stock, if any; provided, that upon any such election the Corporation shall be required to redeem a proportional amount of the then outstanding Series E Preferred Stock. On any Redemption Date, the holders of shares of Series D Preferred Stock and Series E Preferred Stock being redeemed on such date pursuant to this Section 6(a), taken together, shall be entitled to receive an amount in cash equal to the aggregate Liquidation Preferences of such shares of Series D Preferred Stock and Series E Preferred Stock as of such Redemption Date (the "Aggregate Redemption Amount"). The Aggregate Redemption Amount shall be allocated between the shares of Series D Preferred Stock and Series E Preferred Stock being redeemed on any Redemption Date as follows: (x) the holders of shares of Series D Preferred Stock being redeemed shall be entitled to receive an amount equal to the sum of (A) the aggregate Preference Amounts of the shares of Series D Preferred Stock being redeemed as of such Redemption Date plus (B) 37.5% of the difference between (i) the Aggregate Redemption Amount and (ii) the amount payable pursuant to clause (A) above (such difference, the "Excess Amount"), and (y) the holders of shares of Series E Preferred Stock being redeemed shall be entitled to receive an amount equal to 62.5% of the Excess Amount. The amount payable with respect to each share of Series D Preferred Stock being redeemed on any Redemption Date shall be an amount in cash (the "Series D Redemption Amount") equal to (x) the aggregate amount payable to the shares of Series D Preferred Stock being redeemed as calculated pursuant to the previous sentence divided by (y) the number of shares of Series D Preferred Stock being redeemed on such Redemption Date. (b) Shares of Series D Preferred Stock which have been issued and reacquired by the Corporation in any manner, including shares purchased or redeemed, shall (upon compliance with any applicable provisions of the laws of the State of Delaware) be retired and have the status of authorized and unissued shares of the class of Preferred Stock undesignated as to series and may be redesignated and reissued as part of any series of the Preferred Stock; provided that no such issued and reacquired shares of Series D Preferred Stock shall be reissued or sold as Series D Preferred Stock. (c) On any Redemption Date, the Corporation shall pay, in cash or by wire transfer to an account designated by the holder of Series D Preferred Stock, the Series D Redemption Amount for each share of Series D Preferred Stock being redeemed pursuant to Section 6(a). If the Corporation is unable or shall fail to discharge its obligation to redeem outstanding shares of Series D Preferred Stock pursuant to Section 6(a) (the "Mandatory Redemption Obligation"), the Mandatory Redemption Obligation shall be discharged as soon as the Corporation is able to discharge such Mandatory Redemption Obligation. If and so long as any Mandatory Redemption Obligation with respect to the Series D Preferred Stock shall not be fully discharged, the Corporation shall not (i) directly or indirectly, redeem, purchase, or otherwise acquire any Parity Security or discharge any mandatory or optional redemption, sinking fund or other similar obligation in respect of any Parity Securities, (ii) declare, pay or set apart for payment any dividends on Junior Securities, (iii) declare or make any distribution upon Junior Securities, (iv) redeem, purchase or otherwise acquire any Junior Securities, or (v) directly or indirectly, discharge any mandatory or optional redemption, sinking fund or other similar obligation in respect of any Junior Securities. (d) In the case of any partial redemption of Series D Preferred Stock by the holders thereof, selection of the Series E Preferred Stock for automatic redemption shall be made by the Corporation in compliance with the requirements of the principal national securities exchange, if any, on which the Series E Preferred Stock is listed, or if the Series E Preferred Stock is not listed on a national securities exchange, on a pro rata basis, by lot or such other method as the Corporation, in its sole discretion, shall deem fair and appropriate. (e) In the event the holders of the Series D Preferred Stock, or any one of them, shall elect to cause the Corporation to redeem all or any portion of their shares of Series D Preferred Stock pursuant to Section 6(a), notice of such election (an "Election Notice") shall be given by such holders to the Corporation by registered first class mail, return receipt requested. Each such Election Notice shall state: (i) the name of the holder of the shares of Series D Preferred Stock to be redeemed and (ii) the number of shares of Series D Preferred Stock such holder elects to be redeemed by the Corporation. Upon receipt of an Election Notice, the Corporation will promptly notify the holder of (i) a date, which date shall be no less than 20 days nor more than 30 days from the date the Corporation received such Election Notice, which shall serve as the Redemption Date for the redemption of such holder's shares of Series D Preferred Stock, (ii) the place or places where the certificates for such shares of Series D Preferred Stock are to be surrendered for payment of the redemption price and (iii) any documentation the Corporation may reasonably require of the holder to effect such redemption. 7. Conversion. (a) (i) Subject to the provisions of this Section 7, the holders of shares of Series D Preferred Stock shall have the right, at any time in whole and from time to time in part, at such holders' option, to convert any or all outstanding shares (and fractional shares) of Series D Preferred Stock held by such holders into fully paid and non-assessable shares of Class A Common Stock ("Optional Conversion"). In addition, if, at any time on or after September 15, 2006, the Sixty Trading Day Average is equal to or greater than the product of (x) 1.01 and (y) the Conversion Price, then the Corporation shall have the right to declare, during the 30-day period following the last trading day used in the calculation of the Sixty Trading Day Average, that all outstanding shares of Series D Preferred shall be automatically converted into fully paid and non-assessable shares of Class A Common Stock ("Mandatory Conversion"). Upon any Optional Conversion, a proportional amount, based on the percentage of each series of shares outstanding, of the Series E Preferred Stock, and, upon a Mandatory Conversion, all of the Series E Preferred Stock, shall automatically convert in accordance with the terms of the Series E Designation. (ii) Upon any Optional Conversion or any Mandatory Conversion, the outstanding shares of Series D Preferred Stock and Series E Preferred Stock, taken together, shall be convertible into a number of shares of Class A Common Stock (the "Aggregate Conversion Shares") equal to (x) the aggregate Liquidation Preferences of the outstanding shares of the Series D Preferred Stock and Series E Preferred Stock divided by (y) $6.10 (as adjusted from time to time pursuant to Section 7(f), the "Conversion Price"). The Series D Preferred Stock shall be convertible into a number of shares of Class A Common Stock (the "Aggregate Series D Conversion Shares") equal to the sum of (A) the aggregate Preference Amounts as of the date of conversion of the outstanding shares of Series D Preferred Stock divided by the Net Realizable FMV of a share of Class A Common Stock as of the date of conversion, plus (B) the Series D Capital Share Number, plus (C) the product of (x) .560 and (y) the excess, if any, of the Aggregate Conversion Shares over the sum of (i) the number determined pursuant to clause (A), (ii) the Series D Capital Share Number and (iii) the Series E Capital Share Number. Each share of Series D Preferred Stock being converted shall convert into a number of shares of Class A Common Stock equal to the Aggregate Series D Conversion Shares divided by the number of shares of Series D Preferred Stock outstanding as of the date of conversion. (iii) In the case of any partial conversion of Series D Preferred Stock by the holders thereof, selection of the Series E Preferred Stock for automatic conversion will be made by the Corporation in compliance with the requirements of the principal national securities exchange, if any, on which the Series E Preferred Stock is listed, or if the Series E Preferred Stock is not listed on a national securities exchange, on a pro rata basis, by lot or such other method as the Corporation, in its sole discretion, shall deem fair and appropriate; provided, however, that the Corporation may redeem all the shares held by holders of fewer than 5 shares of Series E Preferred Stock (or all of the shares held by the holders who would hold less than 5 shares of Series E Preferred Stock as a result of such redemption) as may be determined by the Corporation. (b) (i) In order to effect an Optional Conversion, the holder of the shares of Series D Preferred Stock to be converted shall surrender the certificate representing such shares at the principal executive offices of the Corporation, with a written notice of election to convert completed and signed, specifying the number of shares to be converted. In order to effect a Mandatory Conversion, the Corporation shall give notice of such event by first class mail, postage prepaid, mailed within the 30-day time period set forth in Section 7(a)(i) to each holder of record of shares of Series D Preferred Stock at such holder's address as the same appears on the stock register of the Corporation. Such notice shall set forth: (A) the calculation of the Sixty Trading Day Average (including the trading days utilized in making the calculation); (B) the Conversion Price; and (C) the place or places where certificates for such shares are to be surrendered. (ii) Unless the shares issuable on conversion are to be issued in the same name as the name in which such shares of Series D Preferred Stock are registered, each share surrendered for conversion shall be accompanied by instruments of transfer, in form satisfactory to the Corporation, duly executed by the holder or the holder's duly authorized attorney, and an amount sufficient to pay any transfer or similar tax. (iii) As promptly as practicable after the surrender by the holder of the certificates for shares of Series D Preferred Stock as aforesaid, the Corporation shall issue and shall deliver to such holder, or on the holder's written order to the holder's transferee, (x) a certificate or certificates for the whole number of shares of Class A Common Stock issuable upon the conversion of such shares in accordance with the provisions of this Section 7, (y) any cash adjustment required pursuant to Section 7(e), and (z) in the event of a conversion in part, a certificate or certificates for the whole number of shares of Series D Preferred Stock not being so converted. (iv) Each conversion of shares of Series D Preferred Stock pursuant to Section 7(a) shall be deemed to have been effected, in the case of an Optional Conversion, immediately prior to the close of business on the date on which the certificates for shares of Series D Preferred Stock shall have been surrendered and such notice received by the Corporation as aforesaid, and, in the case of a Mandatory Conversion, immediately prior to the close of business on the last trading day included in the calculation of the Sixty Trading Day Average (and the date of conversion shall be the date of surrender and receipt of notice, in the case of an Optional Conversion, or the last trading day included in the calculation of the Sixty Trading Day Average, in the case of a Mandatory Conversion), and the person in whose name or names any certificate or certificates for shares of Class A Common Stock shall be issuable upon any such conversion shall be deemed to have become the holder of record of the shares of Class A Common Stock represented thereby at such time on such date and such conversion shall be into a number of whole shares of Class A Common Stock in respect of the shares of Series D Preferred Stock being converted as determined in accordance with this Section 7 at such time on such date. All shares of Class A Common Stock delivered upon conversion of the Series D Preferred Stock will upon delivery be duly and validly issued and fully paid and non-assessable, free of all liens and charges and not subject to any preemptive rights. Upon the surrender of certificates representing the shares of Series D Preferred Stock to be converted, the shares to be so converted shall no longer be deemed to be outstanding and all rights of a holder with respect to such shares surrendered for conversion shall immediately terminate except the right to receive the Class A Common Stock and other amounts payable pursuant to this Section 7 and a certificate or certificates representing the shares of Series D Preferred Stock not converted. (c) (i) The Corporation covenants that it will at all times reserve and keep available, free from preemptive rights, such number of its authorized but unissued shares of Class A Common Stock as shall be required for the purpose of effecting conversions of the Series D Preferred Stock. (ii) Prior to the delivery of any securities which the Corporation shall be obligated to deliver upon conversion of the Series D Preferred Stock, the Corporation shall comply with all applicable federal and state laws and regulations which require action to be taken by the Corporation. (d) The Corporation will pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of shares of Class A Common Stock on conversion of the Series D Preferred Stock pursuant hereto; provided that the Corporation shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue or delivery of shares of Class A Common Stock in a name other than that of the holder of the Series D Preferred Stock to be converted and no such issue or delivery shall be made unless and until the person requesting such issue or delivery has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax has been paid. (e) In connection with the conversion of any shares of Series D Preferred Stock, no fractions of shares of Class A Common Stock shall be required to be issued to the holder of such shares of Series D Preferred Stock, but in lieu thereof the Corporation shall pay a cash adjustment in respect of such fractional interest in an amount equal to such fractional interest multiplied by the Market Price per share of Class A Common Stock on the business day next preceding the date of conversion. (f) (i) In case the Corporation shall at any time after the Issue Date (A) declare a dividend or make a distribution on Common Stock payable in Common Stock, (B) subdivide or split the outstanding Common Stock, (C) combine or reclassify the outstanding Common Stock into a smaller number of shares, (D) issue any shares of its Capital Stock in a reclassification of Common Stock (including any such reclassification in connection with a consolidation or merger in which the Corporation is the continuing corporation), or (E) consolidate with, or merge with or into, any other person, the Conversion Price in effect at the time of the record date for such dividend or distribution or on the effective date of such subdivision, split, combination, consolidation, merger or reclassification shall be adjusted so that the conversion of the Series D Preferred Stock after such time shall entitle the holder to receive the aggregate number of shares of Common Stock or other securities of the Corporation (or other securities into which such shares of Common Stock have been converted, exchanged, combined, consolidated, merged or reclassified pursuant to Section 7(f)(i)(C), 7(f)(i)(D) or 7(f)(i)(E)) which, if the Series D Preferred Stock had been converted immediately prior to such time, such holder would have owned upon such conversion and been entitled to receive by virtue of such dividend, distribution, subdivision, split, combination, consolidation, merger or reclassification. Such adjustment shall be made successively whenever an event listed above shall occur. (ii) In case the Corporation shall issue or sell any Common Stock (or rights, options, warrants or other securities convertible into or exercisable or exchangeable for shares of Common Stock) without consideration or for a consideration per share (or having a conversion, exchange or exercise price per share) less than the Conversion Price on the date of such issuance (or, in the case of convertible or exchangeable or exercisable securities, less than the Conversion Price as of the date of issuance of the rights, options, warrants or other securities in respect of which shares of Common Stock were issued) then, and in each such case, the Conversion Price shall be reduced to an amount determined by multiplying (A) the Conversion Price in effect on the day immediately prior to such date by (B) a fraction, the numerator of which shall be the sum of (1) the number of shares of Common Stock outstanding immediately prior to such sale or issuance multiplied by the then applicable Conversion Price (such then applicable Conversion Price being the "Adjustment Price") and (2) the aggregate consideration receivable by the Corporation for the total number of shares of Common Stock so issued (or into or for which the rights, options, warrants or other securities are convertible, exercisable or exchangeable), and the denominator of which shall be the sum of (x) the total number of shares of Common Stock outstanding immediately prior to such sale or issue and (y) the number of additional shares of Common Stock issued (or into or for which the rights, options, warrants or other securities may be converted, exercised or exchanged), multiplied by the Adjustment Price. In case any portion of the consideration to be received by the Corporation shall be in a form other than cash, the fair market value of such noncash consideration shall be utilized in the foregoing computation. Such fair market value shall be determined in good faith by the Board of Directors. (iii) In case the Corporation shall fix a record date for the issuance on a pro rata basis of rights, options or warrants to the holders of its Common Stock or other securities entitling such holders to subscribe for or purchase shares of Common Stock (or securities convertible into or exercisable or exchangeable for shares of Common Stock) at a price per share of Common Stock (or having a conversion, exercise or exchange price per share of Common Stock, in the case of a security convertible into, or exerciseable or exchangeable for, shares of Common Stock) less than the Conversion Price on such record date, the maximum number of shares of Common Stock issuable upon exercise of such rights, options or warrants (or conversion of such convertible securities) shall be deemed to have been issued and outstanding as of such record date and the Conversion Price shall be adjusted pursuant to Section 7(f)(ii), as though such maximum number of shares of Common Stock had been so issued for an aggregate consideration payable by the holders of such rights, options, warrants or other securities prior to their receipt of such shares of Common Stock. In case any portion of such consideration shall be in a form other than cash, the fair market value of such noncash consideration shall be determined as set forth in Section 7(f)(ii). Such adjustment shall be made successively whenever such record date is fixed; and in the event that such rights, options or warrants are not so issued or expire in whole or in part unexercised, or in the event of a change in the number of shares of Common Stock to which the holders of such rights, options or warrants are entitled (other than pursuant to adjustment provisions therein comparable to those contained in this Section 7(f)), the Conversion Price shall again be adjusted as follows: (A) in the event that all of such rights, options or warrants expire unexercised, the Conversion Price shall be the Conversion Price that would then be in effect if such record date had not been fixed; (B) in the event that less than all of such rights, options or warrants expire unexercised, the Conversion Price shall be adjusted pursuant to Section 7(f)(ii) to reflect the maximum number of shares of Common Stock issuable upon exercise of such rights, options or warrants that remain outstanding (without taking into effect shares of Common Stock issuable upon exercise of rights, options or warrants that have lapsed or expired); and (C) in the event of a change in the number of shares of Common Stock to which the holders of such rights, options or warrants are entitled, the Conversion Price shall be adjusted to reflect the Conversion Price which would then be in effect if such holder had initially been entitled to such changed number of shares of Common Stock. Notwithstanding anything herein to the contrary, no further adjustment to the Conversion Price shall be made upon the issuance or sale of Common Stock upon the exercise of any rights, options or warrants to subscribe for or purchase Common Stock, if any adjustment in the Conversion Price was made or required to be made upon the record date for the issuance or sale of such rights, options or warrants under this Section 7(f)(iii). Notwithstanding anything herein to the contrary, no adjustment in the Conversion Price shall be made under this Section 7(f)(iii) to the extent the holders of Series D Preferred Stock participate in any such distribution in accordance with Section 4 hereof. (iv) In case the Corporation shall fix a record date for the making of a distribution to all holders of any class of Common Stock (including any such distribution made in connection with a consolidation or merger in which the Corporation is the continuing corporation) of evidences of indebtedness, assets or other property, the Conversion Price to be in effect after such record date shall be determined by multiplying the Conversion Price in effect immediately prior to such record date by a fraction, (A) the numerator of which shall be the Conversion Price immediately prior to such distributions less the fair market value (determined as set forth in Section 7(f)(ii)) of the portion of the assets, other property or evidence of indebtedness so to be distributed which is applicable to one share of Common Stock and (B) the denominator of which shall be the Conversion Price immediately prior to such distributions. Such adjustments shall be made successively whenever such a record date is fixed; and in the event that such distribution is not so made, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such record date had not been fixed. An adjustment to the Conversion Price also shall be made in respect of dividends and distributions paid exclusively in cash to all holders of any class of Common Stock (excluding any dividend or distribution in connection with the liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, and any cash that is distributed upon a merger, consolidation or other transaction for which an adjustment pursuant to Section 7(f)(i) is made) where the sum of (1) all such cash dividends and distributions made within the preceding 12 months in respect of which no adjustment has been made and (2) any cash and the fair market value (determined as set forth in Section 7(f)(ii)) of other consideration paid in respect of any repurchases of Common Stock by the Corporation or any of its subsidiaries within the preceding 12 months in respect of which no adjustment has been made, exceeds 2% of the Corporation's market capitalization (being the product of the then Current Market Price of the Common Stock times the aggregate number of shares of Common Stock then outstanding on the record date for such distribution). The Conversion Price to be in effect after such adjustment shall be determined by subtracting from the Conversion Price in effect prior to such adjustment an amount equal to the quotient of (A) the sum of clause (1) and clause (2) above and (B) the number of shares of Common Stock outstanding on the date such adjustment is to be determined. Notwithstanding anything herein to the contrary, no adjustment in the Conversion Price shall be made under this Section 7(f)(iv) to the extent the holders of Series D Preferred Stock participate in any such distribution in accordance with Section 4 hereof. (v) No adjustment to the Conversion Price pursuant to (a) Sections 7(f)(ii), 7(f)(iii) or 7(f)(iv) shall be required unless such adjustment would require an increase or decrease of at least $.25 in the Conversion Price or (b) Section 7(f)(ii) shall be required with respect to rights, options, warrants or other securities outstanding on the Issue Date or issued pursuant to the Corporation's employee benefit plans in effect on the Issue Date or reserved for issuance thereunder as of the Issue Date or issued after the Issue Date pursuant to any employee benefit plans adopted by the Board of Directors; provided, however, that any adjustments which by reason of Section 7(f)(v)(a) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 7(f) shall be made by the Corporation and shall be made to the nearest four decimal points. (vi) In the event that, at any time as a result of the provisions of this Section 7(f), a holder of Series D Preferred Stock upon subsequent conversion shall become entitled to receive any shares of Capital Stock of the Corporation other than Common Stock, the number of such other shares so receivable upon conversion of Series D Preferred Stock shall thereafter be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions contained herein. (vii) If, as a result of the operation of Sections 7(f)(ii), 7(f)(iii) or 7(f)(iv) and corresponding provisions in the Series E Designation, the cumulative number of shares of Class A Common Stock issued or issuable upon conversion of the Series D Preferred Stock and Series E Preferred Stock, after giving effect to (x) the adjustments described in such Sections and corresponding provisions in the Series E Designation and (y) all prior conversions of the Series D Preferred Stock and Series E Preferred Stock, would equal or exceed a number (the "Threshold Number") equal to 20% of the outstanding shares of Class A Common Stock as of the Issue Date and if the Corporation receives a written opinion of its outside counsel that the issuance of such shares in excess of the Threshold Number would violate the rules of the Nasdaq National Market or any other exchange on which the Class A Common Stock is then quoted or traded, then until and unless the Corporation obtains the approval of its common stockholders for the issuance of any such shares of Class A Common Stock in excess of the Threshold Number, the holders shall only be entitled to exercise their conversion rights with respect to a maximum number of Series D and Series E Preferred Stock that would not result in an amount of shares of Class A Common Stock being issued in excess of the Threshold Number, but in any case, the Conversion Price shall be adjusted as provided in such Sections. If, as a result of the operation of the preceding sentence, the conversion rights of the holders of Series D Preferred Stock are limited by operation thereof because appropriate stockholder approval has not been obtained, the Corporation agrees for the benefit of the holders of Series D Preferred Stock and Series E Preferred Stock to use its reasonable best efforts to seek, as promptly as reasonably practicable, the requisite approval of its common stockholders (and shall seek such approval as often as necessary to obtain such approval), and will recommend to its stockholders that they vote in favor of a resolution providing for such approval, for the amount of shares of Class A Common Stock that would be issued or issuable upon conversion in full of all outstanding Series D and Series E Preferred Stock. Notwithstanding anything to the contrary set forth above, the holders of Series D Preferred Stock and Series E Preferred Stock shall be entitled to exercise such holders' conversion rights in full (after giving effect to any and all anti-dilution adjustments resulting from operation of Sections 7(f)(ii), 7(f)(iii) or 7(f)(iv)) in connection with any merger, consolidation or other transaction in which such Series D Preferred Stock, Series E Preferred Stock or Class A Common Stock is being converted into or exchanged for cash, securities or other property in connection with such merger, consolidation or other transaction. (g) All adjustments pursuant to this Section 7 shall be notified to the holders of the Series D Preferred Stock and such notice shall be accompanied by a schedule of computations of the adjustments. 8. Voting Rights. (a) The holders of record of shares of Series D Preferred Stock shall not be entitled to any voting rights except as hereinafter provided in this Section 8 or as otherwise provided by law. (b) (i) From and after the Issue Date, the holders of the outstanding shares of Series D Preferred Stock shall be entitled to designate two directors (the "Two Designees," who shall be designated specifically as the "First Designee" and the "Second Designee," respectively) for election to the Board of Directors of the Corporation and, voting separately as a series, shall have the exclusive right to vote for the election of such designees to the Board of Directors; provided that, notwithstanding the foregoing, (A) the holders of the outstanding shares of the Series D Preferred Stock shall continue to be entitled to designate two directors for election to the Board of Directors and, voting separately as a series, shall continue to have the exclusive right to vote for the election of such designees to the Board of Directors, for as long as, and only for as long as, at least 40% of the shares of Series D Preferred Stock issued on the Issue Date remains outstanding; (B) the entitlement of the holders of outstanding shares of Series D Preferred Stock to designate two directors for election to the Board of Directors, and the exclusive right of the holders of outstanding shares of Series D Preferred Stock to vote, separately as a series, for the election of such designees to the Board of Directors, shall cease immediately upon less than 40% of the shares of Series D Preferred Stock issued on the Issue Date being outstanding, and the holders of the outstanding shares of the Series D Preferred Stock shall be entitled to designate one director (the "Single Designee," who initially shall be the Second Designee continuing as a director) for election to the Board of Directors and, voting separately as a series, shall have the exclusive right to vote for the election of such designee to the Board of Directors, and to designate one Board Observer (as hereinafter defined), for as long as, and only for so long as, less than 40% but more than 20% of the shares of Series D Preferred Stock issued on the Issue Date remains outstanding; (C) the entitlement of the holders of outstanding shares of Series D Preferred Stock to designate one director for election to the Board of Directors, and the exclusive right of the holders of outstanding shares of Series D Preferred Stock to vote, separately as a series, for the election of such designee to the Board of Directors, and the exclusive right of the holders of outstanding shares of Series D Preferred Stock to designate one Board Observer, and the rights of such Board Observer, shall cease immediately upon 20% or less of the shares of Series D Preferred Stock issued on the Issue Date being outstanding, and the holders of the outstanding shares of Series D Preferred Stock shall be entitled to designate two Board Observers for as long as, and only for as long as, 20% or less (but at least one) of the shares of Series D Preferred Stock issued on the Issue Date remains outstanding; (D) immediately upon no shares of Series D Preferred Stock issued on the Issue Date being outstanding, the entitlement of the holders of outstanding shares of Series D Preferred Stock to designate two Board Observers, and the rights of such Board Observers, shall cease; (E) immediately upon less than 40% but more than 20% of the shares of Series D Preferred Stock issued on the Issue Date being outstanding, the Board of Directors shall cause the total number of directors then constituting the whole Board of Directors to be decreased by one, and the term of office of the First Designee shall terminate; and (F) immediately upon 20% or less of the shares of Series D Preferred Stock issued on the Issue Date being outstanding, the Board of Directors shall cause the total number of directors then constituting the whole Board of Directors to be decreased by one, and the term of office of the Single Designee shall terminate. Any or all of the Two Designees and the Single Designee may be removed with or without cause by the holders of the shares of Series D Preferred Stock. "Board Observer" means a person who shall not be a member of the Board of Directors and who shall have the rights as agreed to with the Corporation. (ii) If the Corporation shall have failed to discharge its Mandatory Redemption Obligation or the Corporation shall have failed to comply with Section 8(d), the total number of directors then constituting the whole Board of Directors automatically shall be increased by one and the holders of outstanding shares of Series D Preferred Stock, voting separately as a single series, shall be entitled to elect one additional director to serve on the Board of Directors at any annual meeting of stockholders or special meeting held in place thereof, or at a special meeting of the holders of the Series D Preferred Stock called as hereinafter provided. Whenever the Corporation shall have fulfilled its Mandatory Redemption Obligation, then the right of the holders of outstanding shares of Series D Preferred Stock to elect such additional director shall cease (but subject always to the same provisions for the vesting of such voting rights in the case of any similar failure to fulfill any Mandatory Redemption Obligation), and the term of office of any person elected as director by the holders of outstanding shares of Series D Preferred Stock pursuant to this Section 8(b)(ii) shall forthwith terminate and the total number of directors then constituting the whole Board of Directors automatically shall be reduced by one. At any time after voting power to elect one additional director shall have become vested and be continuing in the holders of outstanding shares of Series D Preferred Stock pursuant to this Section 8(b)(ii), or if a vacancy shall exist in the office of a director elected by the holders of outstanding shares of Series D Preferred Stock pursuant to this Section 8(b)(ii), a proper officer of the Corporation may, and upon the written request of the holders of record of at least twenty-five percent (25%) of the shares of Series D Preferred Stock then outstanding addressed to the Secretary of the Corporation shall, call a special meeting of the holders of Series D Preferred Stock, for the purpose of electing the one additional director which such holders are entitled to elect pursuant to this Section 8(b)(ii). If such meeting shall not be called by a proper officer of the Corporation within twenty (20) days after personal service of said written request upon the Secretary of the Corporation, or within twenty (20) days after mailing the same within the United States by certified mail, addressed to the Secretary of the Corporation at its principal executive offices, then the holders of record of at least twenty-five percent (25%) of the outstanding shares of Series D Preferred Stock may designate in writing one of their number to call such meeting at the expense of the Corporation, and such meeting may be called by the person so designated upon the notice required for the annual meeting of stockholders of the Corporation and shall be held at the place for holding the annual meetings of stockholders. Any holder of Series D Preferred Stock so designated shall have, and the Corporation shall provide, access to the lists of stockholders to be called pursuant to the provisions hereof. (c) Without the written consent of holders of a majority of the outstanding shares of Series D Preferred Stock or the affirmative vote of holders of a majority of the outstanding shares of Series D Preferred Stock at a meeting of the holders of Series D Preferred Stock called for such purpose, the Corporation will not amend, alter or repeal any provision of the Restated Certificate of Incorporation or this Certificate of Designation so as to adversely affect the preferences, rights or powers of the Series D Preferred Stock or to authorize the issuance of, or to issue any, additional shares of Series D Preferred Stock; provided that any such amendment that changes any dividend or other amount payable on or the Liquidation Preference of the Series D Preferred Stock shall require the written consent of holders of two-thirds of the outstanding shares of Series D Preferred Stock or the affirmative vote of holders of two-thirds of the outstanding shares of Series D Preferred Stock at a meeting of the holders of Series D Preferred Stock called for such purpose. (d) Without the written consent of holders of a majority of the outstanding shares of Series D Preferred Stock or the affirmative vote of holders of a majority of the outstanding shares of Series D Preferred Stock at a meeting of such holders called for such purpose, the Corporation will not (i) create, authorize or issue any Senior Securities, (ii) declare, pay or set apart for payment any dividends in cash on Junior Securities (other than dividends on Common Stock which are, at the same time, also declared and paid on shares of Series D Preferred Stock pursuant to Section 4), (iii) declare or make a distribution in cash upon Junior Securities (other than distributions on Common Stock which are, at the same time, also declared and made on shares of Series D Preferred Stock pursuant to Section 4) or (iv) redeem, purchase or otherwise acquire in exchange for cash any Junior Securities. (e) The Corporation may, without the consent of the holders of the Series D Preferred Stock, or any one of them, consolidate with or merge with or into, or convey, transfer or lease all or substantially all its assets as an entirety to, any Person, provided that: (1) the successor, transferee or lessee (if not the Corporation) is organized and existing under the laws of the United States of America or any State thereof or the District of Columbia and the Series D Preferred Stock shall be converted into or exchanged for and shall become shares of, or interests in, such successor, transferee or lessee, having in respect of such successor, transferee, or lessee substantially the same powers, preferences and relative, participating, optional or other special rights and the qualifications, limitations or restrictions thereof, that the Series D Preferred Stock has immediately prior to such transaction; and (2) the Corporation delivers to the transfer agent an officers' certificate and an opinion of counsel stating that such consolidation, merger, conveyance, transfer or lease complies with this Certificate of Designation. In the event of any consolidation or merger or conveyance, transfer or lease of all or substantially all of the assets of the Corporation that is permitted pursuant to this Section 8(e), the successor resulting from such consolidation or into which the Corporation is merged or the transferee or lessee to which such conveyance, transfer or lease is made, will succeed to, and be substituted for, and may exercise every right and power of, the Corporation with respect to the Series D Preferred Stock (or the shares or interests into, or for which, the Series D Preferred Stock is converted or exchanged), and thereafter, except in the case of a lease, the predecessor (if still in existence) shall be released from its obligations and covenants with respect to the Series D Preferred Stock. Where consent is required by this Section 8(e), such consent shall be given by the affirmative vote or written consent of the holders of a majority of the outstanding shares of Series D Preferred Stock or the affirmative vote of holders of a majority of the outstanding shares of Series D Preferred Stock at a meeting of the holders of Series D Preferred Stock called for such purpose. (f) In exercising the voting rights set forth in this Section 8, each share of Series D Preferred Stock shall have one vote per share. Except as otherwise required by applicable law or as set forth herein, the shares of Series D Preferred Stock shall not have any relative, participating, optional or other special voting rights and powers and the consent of the holders thereof shall not be required for the taking of any corporate action. 9. Reports. So long as any of the Series D Preferred Stock is outstanding, in the event the Corporation is not required to file quarterly and annual financial reports with the Securities and Exchange Commission pursuant to Section 13 or Section 15(d) of the Exchange Act, the Corporation will furnish the holders of the Series D Preferred Stock with reports containing the same information as would be required in such reports. 10. General Provisions. (a) The term "person" as used herein means any corporation, limited liability company, partnership, trust, organization, association, other entity or individual. (b) The term "outstanding", when used with reference to shares of stock, shall mean issued shares, excluding shares held by the Corporation or a subsidiary of the Corporation. (c) The headings of the sections, paragraphs, subparagraphs, clauses and subclauses of this Certificate of Designation are for convenience of reference only and shall not define, limit or affect any of the provisions hereof. IN WITNESS WHEREOF, said McLeodUSA Incorporated has caused this Certificate of Designations to be signed by Stephen C. Gray, its President and Chief Executive Officer this 30th day of September, 2001. McLEODUSA INCORPORATED By: /s/ Stephen C. Gray --------------------------------- Name: Stephen C. Gray Title: President and Chief Executive Officer EX-99.10 7 ex99_10.txt EXHIBIT 99.10 EXHIBIT 99.10 MCLEODUSA INCORPORATED CERTIFICATE OF DESIGNATION OF THE POWERS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL AND OTHER SPECIAL RIGHTS OF SERIES E CONVERTIBLE PREFERRED STOCK AND QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS THEREOF ------------------------------------------------------------------------------- Pursuant to Section 151 of the General Corporation Law of the State of Delaware ------------------------------------------------------------------------------- McLeodUSA Incorporated (the "Corporation"), a corporation organized and existing under the General Corporation Law of the State of Delaware, does hereby certify that, pursuant to authority conferred upon the board of directors of the Corporation (the "Board of Directors") by the Corporation's Amended and Restated Certificate of Incorporation, as amended (the "Restated Certificate of Incorporation"), and the authority delegated by the Board of Directors to a Special Committee of the Board of Directors in accordance with the provisions of Section 141(c) of the General Corporation Law of the State of Delaware and Section 3.7 of the Amended and Restated Bylaws of the Corporation and pursuant to the provisions of Section 151 of the General Corporation Law of the State of Delaware, said Special Committee of the Board of Directors is authorized to issue Preferred Stock of the Corporation in one or more series and the Special Committee of the Board of Directors has approved and adopted the following resolution on September 28, 2001 (the "Resolution"): RESOLVED that, the Special Committee of the Board of Directors hereby creates, authorizes and provides for the issuance of a series of the preferred stock of the Corporation, par value $.01 per share, designated as the "Series E Convertible Preferred Stock," consisting of 125,000 shares and having the powers, designation, preferences and relative, participating, optional and other special rights and the qualifications, limitations and restrictions thereof that are set forth in the Restated Certificate of Incorporation and in this Resolution as follows: 1. Number and Designation. 125,000 shares of the Preferred Stock of the Corporation shall constitute a series designated as "Series E Convertible Preferred Stock" (the "Series E Preferred Stock"). 2. Definitions. Unless the context otherwise requires, when used herein the following terms shall have the meaning indicated. "Board of Directors" means the Board of Directors of the Corporation. "Business Day" means any day except Saturday, Sunday and any day which shall be a legal holiday or a day on which banking institutions in New York City, New York generally are authorized or required by law or other governmental actions to close. "Capital Stock" means, with respect to any person, any and all shares, interests, participations, rights in, or other equivalents (however designated and whether voting and/or non-voting) of such person's capital stock, whether outstanding on the Issue Date or issued after the Issue Date, and any and all rights (other than any evidence of indebtedness), warrants or options exchangeable for or convertible into such capital stock. "Class A Common Stock" means any shares of the Corporation's Class A common stock, par value $.01 per share, now or hereafter authorized to be issued, any and all securities of any kind whatsoever of the Corporation which may be exchanged for or converted into Class A Common Stock, and any and all securities of any kind whatsoever of the Corporation which may be issued on or after the date hereof in respect of, in exchange for, or upon conversion of shares of Class A Common Stock pursuant to a merger, consolidation, stock split, stock dividend, recapitalization of the Corporation or otherwise. "Common Stock" means the Corporation's Class A Common Stock, and any other common stock of the Corporation. "Credit Agreement" means the Credit Agreement, dated as of May 31, 2000, as amended and in effect on the Issue Date, among the Corporation, the Lenders party thereto and The Chase Manhattan Bank, as Agent. "Current Market Price" means the average of the daily Market Prices of the Common Stock for ten consecutive trading days immediately preceding the date for which such value is to be computed. "Exchange Act" means the Securities Exchange Act of 1934, as amended, or any successor statute, and the rules and regulations promulgated thereunder. "Issue Date" means the original date of issuance of shares of Series E Preferred Stock. "Liquidation Preference" with respect to a share of Series D Preferred Stock or a share of Series E Preferred Stock means $2,500. "Market Price" means, with respect to the Common Stock, on any given day, (i) the price of the last trade, as reported on the Nasdaq National Market, not identified as having been reported late to such system, or (ii) if the Common Stock is so traded, but not so quoted, the average of the last bid and ask prices, as those prices are reported on the Nasdaq National Market, or (iii) if the Common Stock is not listed or authorized for trading on the Nasdaq National Market or any comparable system, the average of the closing bid and asked prices as furnished by two members of the National Association of Securities Dealers, Inc. selected from time to time by the Corporation for that purpose. If the Common Stock is not listed and traded in a manner that the quotations referred to above are available for the period required hereunder, the Market Price per share of Common Stock shall be deemed to be the fair value per share of such security as determined in good faith by the Board of Directors of the Corporation. "Net Realizable FMV" means, with respect to a share of Common Stock, if calculable, the amount of gross proceeds net of underwriters' discounts, commissions or other selling expenses received by or to be received by the holder in connection with the sale of such share of Common Stock on a when issued basis or immediately after the conversion or, in all other cases, an amount equal to 97% of the Current Market Price of the Common Stock. "Outstanding Series D Capital Amount" means the product of (x) 193,125,000 and (y) a fraction, the numerator of which is the number of outstanding shares of Series D Preferred Stock as of the date of liquidation or conversion, as the case may be, and the denominator of which is the number of shares of Series D Preferred Stock issued on the Issue Date, as adjusted, if appropriate, to reflect any event set forth in Section 7(f)(i). "Outstanding Series E Capital Amount" means the product of (x) 321,875,000 and (y) a fraction, the numerator of which is the number of outstanding shares of Series E Preferred Stock as of the date of liquidation or conversion, as the case may be, and the denominator of which is the number of shares of Series E Preferred Stock issued on the original date of issuance of the Series E Preferred Stock, as adjusted, if appropriate, to reflect any event set forth in Section 7(f)(i). "Preference Amount" with respect to a share of Series D Preferred Stock means, as at any date, the sum of (i) $1818.182 plus (ii) the Special Amount. "Series D Capital Share Number" means the lesser of (x) .375 times the excess, if any, of the Aggregate Conversion Shares over the number determined pursuant to clause (A) of Section 7(a)(ii) of the Series D Designation and (y) the number obtained by dividing (i) the Outstanding Series D Capital Amount as of the date of conversion by (ii) the Net Realizable FMV of a share of Class A Common Stock as of the date of conversion. "Series D Designation" means the Certificate of Designation for the Series D Preferred Stock. "Series D Preferred Stock" means the Series D Convertible Preferred Stock, par value $.01 per share, of the Corporation. "Series E Capital Share Number" means the lesser of (x) .625 times the excess, if any, of the Aggregate Conversion Shares over the number determined pursuant to clause (A) of Section 7(a)(ii) of the Series D Designation and (y) the number obtained by dividing (i) the Outstanding Series E Capital Amount as of the date of conversion by (ii) the Net Realizable FMV of a share of Class A Common Stock as of the date of conversion. "Sixty Trading Day Average" means the average of the daily Market Prices of the Common Stock for sixty consecutive trading days immediately preceding the date for which such value is to be computed, adjusted, if appropriate, to reflect any event set forth in Section 7(f)(i). "Special Amount" with respect to a share of Series D Preferred Stock shall mean, as at any date, a fraction, the numerator of which is equal to the product of (i) $1818.18, (ii) .07 and (iii) the Time Factor, and the denominator of which is equal to 12. "Time Factor" means, as at any date, the number of months (or the fraction of a month calculated to three decimal places) that have lapsed since the Issue Date. The Time Factor shall be calculated on the basis of a 30-day month. For example, if 16 days have lapsed since the Issue Date, the Time Factor equals 16/30 or .533; and if three months and 20 days have lapsed since the Issue Date, the Time Factor equals 3 + 20/30 or 3.667. "Voting Stock" means, with respect to any person, the Capital Stock of any class or kind ordinarily having the power to vote for the election of directors or other members of the governing body of such person. 3. Rank. (a) The Series D Preferred Stock and Series E Preferred Stock each will, with respect to dividend rights and rights on liquidation, winding-up and dissolution, rank (i) senior to all classes of Common Stock and to each other class of Capital Stock of the Corporation or series of Preferred Stock of the Corporation established hereafter by the Board of Directors of the Corporation the terms of which do not expressly provide that such class or series ranks senior to, or on a parity with, the Series D Preferred Stock and Series E Preferred Stock as to dividend rights and rights on liquidation, winding-up and dissolution of the Corporation (collectively referred to, together with all classes of Common Stock of the Corporation, as "Junior Securities"); (ii) on a parity with the Corporation's 6.75% Series A Cumulative Convertible Preferred Stock, par value $.01 per share, and with each class of Capital Stock of the Corporation or series of Preferred Stock of the Corporation established hereafter by the Board of Directors of the Corporation, the terms of which expressly provide that such class or series will rank on a parity with the Series D Preferred Stock and Series E Preferred Stock as to dividend rights and rights on liquidation, winding-up and dissolution (collectively referred to as "Parity Securities"); and (iii) junior to each class of Capital Stock of the Corporation or series of Preferred Stock of the Corporation established hereafter by the Board of Directors of the Corporation, the terms of which expressly provide that such class or series will rank senior to the Series D Preferred Stock and Series E Preferred Stock as to dividend rights and rights on liquidation, winding-up and dissolution of the Corporation (collectively referred to as "Senior Securities"); provided that the relative powers, rights and preferences of the Series D Preferred Stock and Series E Preferred Stock vis-a-vis the other shall be as set forth herein and in the Series D Designation. (b) The respective definitions of Junior Securities, Parity Securities and Senior Securities shall also include any warrants, rights or options or other securities exercisable or exchangeable for or convertible into any of the Junior Securities, Parity Securities and Senior Securities, as the case may be. (c) The Series E Preferred Stock shall be subject to the creation of Junior Securities and Parity Securities. 4. Dividends. If at any time from the Issue Date through September 15, 2004, the Corporation pays a dividend in cash or property other than in shares of Capital Stock on the Common Stock then at the same time the Corporation shall declare and pay a dividend on each share of Series E Preferred Stock in an amount equal to the Series E Per Share Participation Amount. The "Series E Per Share Participation Amount" means, as at any date, 44% of the amount of dividends that would be paid with respect to the Series D Preferred Stock and Series E Preferred Stock taken together if converted into Common Stock on the date established as the record date with respect to such dividend on the Common Stock divided by the number of shares of Series E Preferred Stock then outstanding. Except as aforesaid, the holders of shares of Series E Preferred Stock shall not be entitled to receive any dividends in respect of their shares of Series E Preferred Stock. 5. Liquidation Preference. (a) In the event of any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary (a "liquidation"), before any payment or distribution of the assets of the Corporation (whether capital or surplus) shall be made to or set apart for the holders of Junior Securities, the holders of the outstanding shares of Series D Preferred Stock and Series E Preferred Stock, taken together, shall be entitled to receive an amount in cash equal to the greater of (x) the aggregate Liquidation Preferences of the outstanding shares of Series D Preferred Stock and Series E Preferred Stock, or (y) the aggregate amount that would have been received with respect to the outstanding shares of Series D Preferred Stock and Series E Preferred Stock if such shares had been converted to Common Stock immediately prior to the earliest event comprising the liquidation. If, upon any liquidation of the Corporation, the assets of the Corporation, or proceeds thereof, shall be insufficient to pay in full the aforesaid amounts under clause (x) of the preceding sentence and liquidating payments on all Parity Securities, then such assets, or proceeds thereof, shall be distributed among the shares of Series D Preferred Stock and Series E Preferred Stock taken together and all such other Parity Securities ratably in accordance with the respective amounts that would be payable on such shares of Series D Preferred Stock and Series E Preferred Stock and any such other Parity Securities if all amounts payable thereon were paid in full. Any proceeds distributed among the outstanding shares of Series D Preferred Stock and Series E Preferred Stock under clause (x) of the first sentence or pursuant to the preceding sentence of this Section 5(a) upon a liquidation shall be distributed (1) first, to the Series D Preferred Stock until it has received an amount equal to the aggregate Preference Amounts as of the date of liquidation of the outstanding Series D Preferred Stock, (2) second, 37.5% to the Series D Preferred Stock and 62.5% to the Series E Preferred Stock until the Series D Preferred Stock has received an amount equal to the Outstanding Series D Capital Amount as of the date of liquidation (in addition to any amount received pursuant to clause (1) of this sentence) and the Series E Preferred Stock has received an amount equal to the Outstanding Series E Capital Amount as of the date of liquidation, and (3) thereafter 56% to the Series D Preferred Stock and 44% to the Series E Preferred Stock. Any amounts distributed among the outstanding shares of Series D Preferred Stock and Series E Preferred Stock under clause (y) of the first sentence of this Section 5(a) upon a liquidation shall be distributed as between the Series D Preferred Stock and Series E Preferred Stock as though such shares were converted as of the date of liquidation in accordance with the provisions of Section 7. Any amounts distributed with respect to the Series E Preferred Stock pursuant to this Section 5(a) shall be allocated pro rata among the shares of Series E Preferred Stock. For the purposes of this Section 5, neither the sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property or assets of the Corporation nor the consolidation or merger of the Corporation with or into one or more other entities shall be deemed to be a liquidation, dissolution or winding-up of the Corporation. (b) Subject to the rights of the holders of any Parity Securities, after payment shall have been made in full to the holders of the Series D Preferred Stock and the Series E Preferred Stock taken together, as provided in this Section 5, any other series or class or classes of Junior Securities shall, subject to the respective terms and provisions (if any) applying thereto, be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Series E Preferred Stock, Series D Preferred Stock and any Parity Securities shall not be entitled to share therein. 6. Redemption. (a) Pursuant to the Series D Designation, subject to applicable legal requirements and the Credit Agreement, to the extent the Corporation shall have funds legally available therefor, during the 180-day period commencing on September 15, 2009, the holders of the Series D Preferred Stock shall have the right to cause the Corporation to redeem at any time in whole or from time to time in part (the date of any such redemption being referred to as the "Redemption Date") outstanding shares of Series D Preferred Stock, if any; provided, that upon any such election the Corporation shall be required to redeem a proportional amount of the then outstanding Series E Preferred Stock. On any Redemption Date, the holders of shares of Series D Preferred Stock and Series E Preferred Stock being redeemed on such date pursuant to this Section 6(a), taken together, shall be entitled to receive an amount in cash equal to the aggregate Liquidation Preferences of such shares of Series D Preferred Stock and Series E Preferred Stock as of such Redemption Date (the "Aggregate Redemption Amount"). The Aggregate Redemption Amount shall be allocated between the shares of Series D Preferred Stock and Series E Preferred Stock being redeemed on any Redemption Date as follows: (x) the holders of shares of Series D Preferred Stock being redeemed shall be entitled to receive an amount equal to the sum of (A) the aggregate Preference Amounts of the shares of Series D Preferred Stock being redeemed as of such Redemption Date plus (B) 37.5% of the difference between (i) the Aggregate Redemption Amount and (ii) the amount payable pursuant to clause (A) above (such difference, the "Excess Amount"), and (y) the holders of shares of Series E Preferred Stock being redeemed shall be entitled to receive an amount equal to 62.5% of the Excess Amount. The amount payable with respect to each share of Series E Preferred Stock being redeemed on any Redemption Date shall be an amount in cash (the "Series E Redemption Amount") equal to (x) the aggregate amount payable to the shares of Series E Preferred Stock being redeemed as calculated pursuant to the previous sentence divided by (y) the number of shares of Series E Preferred Stock being redeemed on such Redemption Date. (b) Shares of Series E Preferred Stock which have been issued and reacquired by the Corporation in any manner, including shares purchased or redeemed, shall (upon compliance with any applicable provisions of the laws of the State of Delaware) be retired and have the status of authorized and unissued shares of the class of Preferred Stock undesignated as to series and may be redesignated and reissued as part of any series of the Preferred Stock; provided that no such issued and reacquired shares of Series E Preferred Stock shall be reissued or sold as Series E Preferred Stock. (c) On any Redemption Date, the Corporation shall pay, in cash or by wire transfer to an account designated by the holder of Series E Preferred Stock, the Series E Redemption Amount for each share of Series E Preferred Stock being redeemed pursuant to Section 6(a). If the Corporation is unable or shall fail to discharge its obligation to redeem outstanding shares of Series D Preferred Stock and Series E Preferred Stock pursuant to Section 6(a) (the "Mandatory Redemption Obligation"), the Mandatory Redemption Obligation shall be discharged as soon as the Corporation is able to discharge such Mandatory Redemption Obligation. If and so long as any Mandatory Redemption Obligation with respect to the Series D Preferred Stock and the Series E Preferred Stock shall not be fully discharged, the Corporation shall not (i) directly or indirectly, redeem, purchase, or otherwise acquire any Parity Security or discharge any mandatory or optional redemption, sinking fund or other similar obligation in respect of any Parity Securities, (ii) declare, pay or set apart for payment any dividends on Junior Securities, (iii) declare or make any distribution upon Junior Securities, (iv) redeem, purchase or otherwise acquire any Junior Securities, or (v) directly or indirectly, discharge any mandatory or optional redemption, sinking fund or other similar obligation in respect of any Junior Securities. (d) In the case of any partial redemption of Series D Preferred Stock by the holders thereof, selection of the Series E Preferred Stock for automatic redemption shall be made by the Corporation in compliance with the requirements of the principal national securities exchange, if any, on which the Series E Preferred Stock is listed, or if the Series E Preferred Stock is not listed on a national securities exchange, on a pro rata basis, by lot or such other method as the Corporation, in its sole discretion, shall deem fair and appropriate. (e) Pursuant to the Series D Designation, in the event the holders of the Series D Preferred Stock, or any one of them, shall elect to cause the Corporation to redeem all or any portion of their shares of Series D Preferred Stock pursuant to Section 6(a), an Election Notice (as defined in the Series D Designation) shall be given by such holders to the Corporation by registered first class mail, return receipt requested. Upon receipt of an Election Notice, the Corporation will promptly notify the holders of Series E Preferred Stock to be redeemed of (i) its receipt of an Election Notice, (ii) a date, which date shall be no less than 20 days nor more than 30 days from the date the Corporation received such Election Notice, which shall serve as the Redemption Date for the redemption of such holder's shares of Series E Preferred Stock, (iii) the place or places where the certificates for such shares of Series E Preferred Stock are to be surrendered for payment of the redemption price and (iv) any documentation the Corporation may reasonably require of the holder to effect such redemption. 7. Conversion. (a) (i) Pursuant to the provisions of the Series D Designation, the holders of shares of Series D Preferred Stock shall have the right, at any time in whole and from time to time in part, at such holders' option, to convert any or all outstanding shares (and fractional shares) of Series D Preferred Stock held by such holders into fully paid and non-assessable shares of Class A Common Stock ("Optional Conversion"). In addition, if, at any time on or after September 15, 2006, the Sixty Trading Day Average is equal to or greater than the product of (x) 1.01 and (y) the Conversion Price, then the Corporation shall have the right to declare, during the 30-day period following the last trading day used in the calculation of the Sixty Trading Day Average, that all outstanding shares of Series D Preferred shall be automatically converted into fully paid and non-assessable shares of Class A Common Stock ("Mandatory Conversion"). Upon any Optional Conversion, a proportional amount, based on the percentage of each series of shares outstanding, of the Series E Preferred Stock, and, upon a Mandatory Conversion, all of the Series E Preferred Stock, shall automatically convert into fully paid and non-assessable shares of Class A Common Stock, subject to the provisions of this Section 7. (ii) Upon any Optional Conversion or any Mandatory Conversion, the outstanding shares of Series D Preferred Stock and Series E Preferred Stock, taken together, shall be convertible into a number of shares of Class A Common Stock (the "Aggregate Conversion Shares") equal to (x) the aggregate Liquidation Preferences of the outstanding shares of the Series D Preferred Stock and Series E Preferred Stock divided by (y) $6.10 (as adjusted from time to time pursuant to Section 7(f), the "Conversion Price"). The Series E Preferred Stock shall be convertible into a number of shares of Class A Common Stock (the "Aggregate Series E Conversion Shares") equal to the sum of (A) the Series E Capital Share Number, plus (B) the product of (x) .440 and (y) the excess, if any, of the Aggregate Conversion Shares over the sum of (i) the number determined pursuant to clause (A) of Section 7(a)(ii) of the Series D Designation, (ii) the Series D Capital Share Number and (iii) the Series E Capital Share Number. Each share of Series E Preferred Stock being converted shall convert into a number of shares of Class A Common Stock equal to the Aggregate Series E Conversion Shares divided by the number of shares of Series E Preferred Stock outstanding as of the date of conversion. (iii) In the case of any partial conversion of Series D Preferred Stock by the holders thereof, selection of the Series E Preferred Stock for automatic conversion will be made by the Corporation in compliance with the requirements of the principal national securities exchange, if any, on which the Series E Preferred Stock is listed, or if the Series E Preferred Stock is not listed on a national securities exchange, on a pro rata basis, by lot or such other method as the Corporation, in its sole discretion, shall deem fair and appropriate; provided, however, that the Corporation may redeem all the shares held by holders of fewer than 5 shares of Series E Preferred Stock (or all of the shares held by the holders who would hold less than 5 shares of Series E Preferred Stock as a result of such redemption) as may be determined by the Corporation. The Corporation shall provide prompt written notice (including the number of shares so converted) of the automatic conversion of shares of Series E Preferred Stock pursuant to this paragraph 7(a)(iii) to the holders of record of the shares so converted. (b) (i) Promptly upon receipt of notice of automatic conversion of shares of Series E Preferred Stock pursuant to an Optional Conversion (including the number of shares to be so converted), the holder of the shares of Series E Preferred Stock so converted shall surrender the certificate representing such shares at the principal executive offices of the Corporation. In order to effect a Mandatory Conversion, the Corporation shall give notice of such event by first class mail, postage prepaid, mailed within the 30-day time period set forth in Section 7(a)(i) to each holder of record of shares of Series E Preferred Stock at such holder's address as the same appears on the stock register of the Corporation. Such notice shall set forth: (A) the calculation of the Sixty Trading Day Average (including the trading days utilized in making the calculation); (B) the Conversion Price; and (C) the place or places where certificates for such shares are to be surrendered. (ii) Unless the shares issuable on conversion are to be issued in the same name as the name in which such shares of Series E Preferred Stock are registered, each certificate surrendered for conversion shall be accompanied by instruments of transfer, in form satisfactory to the Corporation, duly executed by the holder or the holder's duly authorized attorney, and an amount sufficient to pay any transfer or similar tax. (iii) As promptly as practicable after the surrender by the holder of the certificates for shares of Series E Preferred Stock as aforesaid, the Corporation shall issue and shall deliver to such holder, or on the holder's written order to the holder's transferee, (x) a certificate or certificates for the whole number of shares of Class A Common Stock issuable upon the conversion of such shares in accordance with the provisions of this Section 7, (y) any cash adjustment required pursuant to Section 7(e), and (z) in the event of a conversion in part, a certificate or certificates for the whole number of shares of Series E Preferred Stock not being so converted. (iv) Each conversion of shares of Series E Preferred Stock pursuant to Section 7(a) shall be deemed to have been effected, in the case of an Optional Conversion, immediately prior to the close of business on the date on which the certificates for shares of Series D Preferred Stock shall have been surrendered and the notice of election to convert received by the Corporation in accordance with the procedures set forth in Section 7 of the Series D Designation, and, in the case of a Mandatory Conversion, immediately prior to the close of business on the last trading day included in the calculation of the Sixty Trading Day Average (and the date of conversion shall be the date of surrender and receipt of notice, in the case of an Optional Conversion, or the last trading day included in the calculation of the Sixty Trading Day Average, in the case of a Mandatory Conversion), and the person in whose name or names any certificate or certificates for shares of Class A Common Stock shall be issuable upon any such conversion shall be deemed to have become the holder of record of the shares of Class A Common Stock represented thereby at such time on such date and such conversion shall be into a number of whole shares of Class A Common Stock in respect of the shares of Series E Preferred Stock being converted as determined in accordance with this Section 7 at such time on such date. All shares of Class A Common Stock delivered upon conversion of the Series E Preferred Stock will upon delivery be duly and validly issued and fully paid and non-assessable, free of all liens and charges and not subject to any preemptive rights. Upon the automatic conversion of shares of Series E Preferred Stock, the shares so converted shall no longer be deemed to be outstanding and all rights of a holder with respect to such converted shares shall immediately terminate except the right to receive the Class A Common Stock and other amounts payable pursuant to this Section 7 and a certificate or certificates representing the shares of Series E Preferred Stock not converted. (c) (i) The Corporation covenants that it will at all times reserve and keep available, free from preemptive rights, such number of its authorized but unissued shares of Class A Common Stock as shall be required for the purpose of effecting conversions of the Series E Preferred Stock. (ii) Prior to the delivery of any securities which the Corporation shall be obligated to deliver upon conversion of the Series E Preferred Stock, the Corporation shall comply with all applicable federal and state laws and regulations which require action to be taken by the Corporation. (d) The Corporation will pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of shares of Class A Common Stock on conversion of the Series E Preferred Stock pursuant hereto; provided that the Corporation shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue or delivery of shares of Class A Common Stock in a name other than that of the holder of the Series E Preferred Stock to be converted and no such issue or delivery shall be made unless and until the person requesting such issue or delivery has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax has been paid. (e) In connection with the conversion of any shares of Series E Preferred Stock, no fractions of shares of Class A Common Stock shall be required to be issued to the holder of such shares of Series E Preferred Stock, but in lieu thereof the Corporation shall pay a cash adjustment in respect of such fractional interest in an amount equal to such fractional interest multiplied by the Market Price per share of Class A Common Stock on the business day next preceding the date of conversion. (f) (i) In case the Corporation shall at any time after the Issue Date (A) declare a dividend or make a distribution on Common Stock payable in Common Stock, (B) subdivide or split the outstanding Common Stock, (C) combine or reclassify the outstanding Common Stock into a smaller number of shares, (D) issue any shares of its Capital Stock in a reclassification of Common Stock (including any such reclassification in connection with a consolidation or merger in which the Corporation is the continuing corporation), or (E) consolidate with, or merge with or into, any other person, the Conversion Price in effect at the time of the record date for such dividend or distribution or on the effective date of such subdivision, split, combination, consolidation, merger or reclassification shall be adjusted so that the conversion of the Series E Preferred Stock after such time shall entitle the holder to receive the aggregate number of shares of Common Stock or other securities of the Corporation (or other securities into which such shares of Common Stock have been converted, exchanged, combined, consolidated, merged or reclassified pursuant to Section 7(f)(i)(C), 7(f)(i)(D) or 7(f)(i)(E)) which, if the Series E Preferred Stock had been converted immediately prior to such time, such holder would have owned upon such conversion and been entitled to receive by virtue of such dividend, distribution, subdivision, split, combination, consolidation, merger or reclassification. Such adjustment shall be made successively whenever an event listed above shall occur. (ii) In case the Corporation shall issue or sell any Common Stock (or rights, options, warrants or other securities convertible into or exercisable or exchangeable for shares of Common Stock) without consideration or for a consideration per share (or having a conversion, exchange or exercise price per share) less than the Conversion Price on the date of such issuance (or, in the case of convertible or exchangeable or exercisable securities, less than the Conversion Price as of the date of issuance of the rights, options, warrants or other securities in respect of which shares of Common Stock were issued) then, and in each such case, the Conversion Price shall be reduced to an amount determined by multiplying (A) the Conversion Price in effect on the day immediately prior to such date by (B) a fraction, the numerator of which shall be the sum of (1) the number of shares of Common Stock outstanding immediately prior to such sale or issuance multiplied by the then applicable Conversion Price (such then applicable Conversion Price being the "Adjustment Price") and (2) the aggregate consideration receivable by the Corporation for the total number of shares of Common Stock so issued (or into or for which the rights, options, warrants or other securities are convertible, exercisable or exchangeable), and the denominator of which shall be the sum of (x) the total number of shares of Common Stock outstanding immediately prior to such sale or issue and (y) the number of additional shares of Common Stock issued (or into or for which the rights, options, warrants or other securities may be converted, exercised or exchanged), multiplied by the Adjustment Price. In case any portion of the consideration to be received by the Corporation shall be in a form other than cash, the fair market value of such noncash consideration shall be utilized in the foregoing computation. Such fair market value shall be determined in good faith by the Board of Directors. (iii) In case the Corporation shall fix a record date for the issuance on a pro rata basis of rights, options or warrants to the holders of its Common Stock or other securities entitling such holders to subscribe for or purchase shares of Common Stock (or securities convertible into or exercisable or exchangeable for shares of Common Stock) at a price per share of Common Stock (or having a conversion, exercise or exchange price per share of Common Stock, in the case of a security convertible into, or exerciseable or exchangeable for, shares of Common Stock) less than the Conversion Price on such record date, the maximum number of shares of Common Stock issuable upon exercise of such rights, options or warrants (or conversion of such convertible securities) shall be deemed to have been issued and outstanding as of such record date and the Conversion Price shall be adjusted pursuant to Section 7(f)(ii), as though such maximum number of shares of Common Stock had been so issued for an aggregate consideration payable by the holders of such rights, options, warrants or other securities prior to their receipt of such shares of Common Stock. In case any portion of such consideration shall be in a form other than cash, the fair market value of such noncash consideration shall be determined as set forth in Section 7(f)(ii). Such adjustment shall be made successively whenever such record date is fixed; and in the event that such rights, options or warrants are not so issued or expire in whole or in part unexercised, or in the event of a change in the number of shares of Common Stock to which the holders of such rights, options or warrants are entitled (other than pursuant to adjustment provisions therein comparable to those contained in this Section 7(f)), the Conversion Price shall again be adjusted as follows: (A) in the event that all of such rights, options or warrants expire unexercised, the Conversion Price shall be the Conversion Price that would then be in effect if such record date had not been fixed; (B) in the event that less than all of such rights, options or warrants expire unexercised, the Conversion Price shall be adjusted pursuant to Section 7(f)(ii) to reflect the maximum number of shares of Common Stock issuable upon exercise of such rights, options or warrants that remain outstanding (without taking into effect shares of Common Stock issuable upon exercise of rights, options or warrants that have lapsed or expired); and (C) in the event of a change in the number of shares of Common Stock to which the holders of such rights, options or warrants are entitled, the Conversion Price shall be adjusted to reflect the Conversion Price which would then be in effect if such holder had initially been entitled to such changed number of shares of Common Stock. Notwithstanding anything herein to the contrary, no further adjustment to the Conversion Price shall be made upon the issuance or sale of Common Stock upon the exercise of any rights, options or warrants to subscribe for or purchase Common Stock, if any adjustment in the Conversion Price was made or required to be made upon the record date for the issuance or sale of such rights, options or warrants under this Section 7(f)(iii). Notwithstanding anything herein to the contrary, no adjustment in the Conversion Price shall be made under this Section 7(f)(iii) to the extent the holders of Series E Preferred Stock participate in any such distribution in accordance with Section 4 hereof. (iv) In case the Corporation shall fix a record date for the making of a distribution to all holders of any class of Common Stock (including any such distribution made in connection with a consolidation or merger in which the Corporation is the continuing corporation) of evidences of indebtedness, assets or other property, the Conversion Price to be in effect after such record date shall be determined by multiplying the Conversion Price in effect immediately prior to such record date by a fraction, (A) the numerator of which shall be the Conversion Price immediately prior to such distributions less the fair market value (determined as set forth in Section 7(f)(ii)) of the portion of the assets, other property or evidence of indebtedness so to be distributed which is applicable to one share of Common Stock and (B) the denominator of which shall be the Conversion Price immediately prior to such distributions. Such adjustments shall be made successively whenever such a record date is fixed; and in the event that such distribution is not so made, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such record date had not been fixed. An adjustment to the Conversion Price also shall be made in respect of dividends and distributions paid exclusively in cash to all holders of any class of Common Stock (excluding any dividend or distribution in connection with the liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, and any cash that is distributed upon a merger, consolidation or other transaction for which an adjustment pursuant to Section 7(f)(i) is made) where the sum of (1) all such cash dividends and distributions made within the preceding 12 months in respect of which no adjustment has been made and (2) any cash and the fair market value (determined as set forth in Section 7(f)(ii)) of other consideration paid in respect of any repurchases of Common Stock by the Corporation or any of its subsidiaries within the preceding 12 months in respect of which no adjustment has been made, exceeds 2% of the Corporation's market capitalization (being the product of the then Current Market Price of the Common Stock times the aggregate number of shares of Common Stock then outstanding on the record date for such distribution). The Conversion Price to be in effect after such adjustment shall be determined by subtracting from the Conversion Price in effect prior to such adjustment an amount equal to the quotient of (A) the sum of clause (1) and clause (2) above and (B) the number of shares of Common Stock outstanding on the date such adjustment is to be determined. Notwithstanding anything herein to the contrary, no adjustment in the Conversion Price shall be made under this Section 7(f)(iv) to the extent the holders of Series E Preferred Stock participate in any such distribution in accordance with Section 4 hereof. (v) No adjustment to the Conversion Price pursuant to (a) Sections 7(f)(ii), 7(f)(iii) or 7(f)(iv) shall be required unless such adjustment would require an increase or decrease of at least $.25 in the Conversion Price or (b) Section 7(f)(ii) shall be required with respect to rights, options, warrants or other securities outstanding on the Issue Date or issued pursuant to the Corporation's employee benefit plans in effect on the Issue Date or reserved for issuance thereunder as of the Issue Date or issued after the Issue Date pursuant to any employee benefit plans adopted by the Board of Directors; provided, however, that any adjustments which by reason of Section 7(f)(v)(a) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 7(f) shall be made by the Corporation and shall be made to the nearest four decimal points. (vi) In the event that, at any time as a result of the provisions of this Section 7(f), a holder of Series E Preferred Stock upon subsequent conversion shall become entitled to receive any shares of Capital Stock of the Corporation other than Common Stock, the number of such other shares so receivable upon conversion of Series E Preferred Stock shall thereafter be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions contained herein. (vii) If, as a result of the operation of Sections 7(f)(ii), 7(f)(iii) or 7(f)(iv) and corresponding provisions in the Series D Designation, the cumulative number of shares of Class A Common Stock issued or issuable upon conversion of the Series D Preferred Stock and Series E Preferred Stock, after giving effect to (x) the adjustments described in such Sections and corresponding provisions in the Series D Designation and (y) all prior conversions of the Series D Preferred Stock and Series E Preferred Stock, would equal or exceed a number (the "Threshold Number") equal to 20% of the outstanding shares of Class A Common Stock as of the Issue Date and if the Corporation receives a written opinion of its outside counsel that the issuance of such shares in excess of the Threshold Number would violate the rules of the Nasdaq National Market or any other exchange on which the Class A Common Stock is then quoted or traded, then until and unless the Corporation obtains the approval of its common stockholders for the issuance of any such shares of Class A Common Stock in excess of the Threshold Number, the holders shall only be entitled to exercise their conversion rights with respect to a maximum number of Series D and Series E Preferred Stock that would not result in an amount of shares of Class A Common Stock being issued in excess of the Threshold Number, but in any case, the Conversion Price shall be adjusted as provided in such Sections. If, as a result of the operation of the preceding sentence, the conversion rights of the holders of Series E Preferred Stock are limited by operation thereof because appropriate stockholder approval has not been obtained, the Corporation agrees for the benefit of the holders of Series D Preferred Stock and Series E Preferred Stock to use its reasonable best efforts to seek, as promptly as reasonably practicable, the requisite approval of its common stockholders (and shall seek such approval as often as necessary to obtain such approval), and will recommend to its stockholders that they vote in favor of a resolution providing for such approval, for the amount of shares of Class A Common Stock that would be issued or issuable upon conversion in full of all outstanding Series D and Series E Preferred Stock. Notwithstanding anything to the contrary set forth above, the holders of Series D Preferred Stock and Series E Preferred Stock shall be entitled to exercise such holders' conversion rights in full (after giving effect to any and all anti-dilution adjustments resulting from operation of Sections 7(f)(ii), 7(f)(iii) or 7(f)(iv)) in connection with any merger, consolidation or other transaction in which such Series D Preferred Stock, Series E Preferred Stock or Class A Common Stock is being converted into or exchanged for cash, securities or other property in connection with such merger, consolidation or other transaction. (g) All adjustments pursuant to this Section 7 shall be notified to the holders of the Series E Preferred Stock and such notice shall be accompanied by a schedule of computations of the adjustments. 8. Voting Rights. (a) The holders of record of shares of Series E Preferred Stock shall not be entitled to any voting rights except as hereinafter provided in this Section 8 or as otherwise provided by law. (b) (i) So long as any shares of Series E Preferred Stock are issued and outstanding, the holders of the Series E Preferred Stock shall be entitled to designate one Board Observer. "Board Observer" means a person who shall not be a member of the Board of Directors and who shall have the rights as agreed to with the Corporation. (ii) If the Corporation shall have failed to discharge its Mandatory Redemption Obligation or the Corporation shall have failed to comply with Section 8(d), the total number of directors then constituting the whole Board of Directors automatically shall be increased by one and the holders of outstanding shares of Series E Preferred Stock, voting separately as a single series, shall be entitled to elect one additional director to serve on the Board of Directors at any annual meeting of stockholders or special meeting held in place thereof, or at a special meeting of the holders of the Series E Preferred Stock called as hereinafter provided. Whenever the Corporation shall have fulfilled its Mandatory Redemption Obligation, then the right of the holders of outstanding shares of Series E Preferred Stock to elect such additional director shall cease (but subject always to the same provisions for the vesting of such voting rights in the case of any similar failure to fulfill any Mandatory Redemption Obligation), and the term of office of any person elected as director by the holders of outstanding shares of Series E Preferred Stock pursuant to this Section 8(b)(ii) shall forthwith terminate and the total number of directors then constituting the whole Board of Directors automatically shall be reduced by one. At any time after voting power to elect one additional director shall have become vested and be continuing in the holders of outstanding shares of Series E Preferred Stock pursuant to this Section 8(b)(ii), or if a vacancy shall exist in the office of a director elected by the holders of outstanding shares of Series E Preferred Stock pursuant to this Section 8(b)(ii), a proper officer of the Corporation may, and upon the written request of the holders of record of at least twenty-five percent (25%) of the shares of Series E Preferred Stock then outstanding addressed to the Secretary of the Corporation shall, call a special meeting of the holders of Series E Preferred Stock, for the purpose of electing the one additional director which such holders are entitled to elect pursuant to this Section 8(b)(ii). If such meeting shall not be called by a proper officer of the Corporation within twenty (20) days after personal service of said written request upon the Secretary of the Corporation, or within twenty (20) days after mailing the same within the United States by certified mail, addressed to the Secretary of the Corporation at its principal executive offices, then the holders of record of at least twenty-five percent (25%) of the outstanding shares of Series E Preferred Stock may designate in writing one of their number to call such meeting at the expense of the Corporation, and such meeting may be called by the person so designated upon the notice required for the annual meeting of stockholders of the Corporation and shall be held at the place for holding the annual meetings of stockholders. Any holder of Series E Preferred Stock so designated shall have, and the Corporation shall provide, access to the lists of stockholders to be called pursuant to the provisions hereof. (c) Without the written consent of holders of a majority of the outstanding shares of Series E Preferred Stock or the affirmative vote of holders of a majority of the outstanding shares of Series E Preferred Stock at a meeting of the holders of Series E Preferred Stock called for such purpose, the Corporation will not amend, alter or repeal any provision of the Restated Certificate of Incorporation or this Certificate of Designation so as to adversely affect the preferences, rights or powers of the Series E Preferred Stock or to authorize the issuance of, or to issue any, additional shares of Series E Preferred Stock; provided that any such amendment that changes any dividend or other amount payable on or the Liquidation Preference of the Series E Preferred Stock shall require the written consent of holders of two-thirds of the outstanding shares of Series E Preferred Stock or the affirmative vote of holders of two-thirds of the outstanding shares of Series E Preferred Stock at a meeting of the holders of Series E Preferred Stock called for such purpose. (d) Without the written consent of holders of a majority of the outstanding shares of Series E Preferred Stock or the affirmative vote of holders of a majority of the outstanding shares of Series E Preferred Stock at a meeting of such holders called for such purpose, the Corporation will not (i) create, authorize or issue any Senior Securities, (ii) declare, pay or set apart for payment any dividends in cash on Junior Securities (other than dividends on Common Stock which are, at the same time, also declared and paid on shares of Series E Preferred Stock pursuant to Section 4), (iii) declare or make a distribution in cash upon Junior Securities (other than distributions on Common Stock which are, at the same time, also declared and made on shares of Series E Preferred Stock pursuant to Section 4) or (iv) redeem, purchase or otherwise acquire in exchange for cash any Junior Securities. (e) The Corporation may, without the consent of the holders of the Series E Preferred Stock, or any one of them, consolidate with or merge with or into, or convey, transfer or lease all or substantially all its assets as an entirety to, any Person, provided that: (1) the successor, transferee or lessee (if not the Corporation) is organized and existing under the laws of the United States of America or any State thereof or the District of Columbia and the Series E Preferred Stock shall be converted into or exchanged for and shall become shares of, or interests in, such successor, transferee or lessee, having in respect of such successor, transferee, or lessee substantially the same powers, preferences and relative, participating, optional or other special rights and the qualifications, limitations or restrictions thereof, that the Series E Preferred Stock has immediately prior to such transaction; and (2) the Corporation delivers to the transfer agent an officers' certificate and an opinion of counsel stating that such consolidation, merger, conveyance, transfer or lease complies with this Certificate of Designation. In the event of any consolidation or merger or conveyance, transfer or lease of all or substantially all of the assets of the Corporation that is permitted pursuant to this Section 8(e), the successor resulting from such consolidation or into which the Corporation is merged or the transferee or lessee to which such conveyance, transfer or lease is made, will succeed to, and be substituted for, and may exercise every right and power of, the Corporation with respect to the Series E Preferred Stock (or the shares or interests into, or for which, the Series E Preferred Stock is converted or exchanged), and thereafter, except in the case of a lease, the predecessor (if still in existence) shall be released from its obligations and covenants with respect to the Series E Preferred Stock. Where consent is required by this Section 8(e), such consent shall be given by the affirmative vote or written consent of the holders of a majority of the outstanding shares of Series E Preferred Stock or the affirmative vote of holders of a majority of the outstanding shares of Series E Preferred Stock at a meeting of the holders of Series E Preferred Stock called for such purpose. (f) In exercising the voting rights set forth in this Section 8, each share of Series E Preferred Stock shall have one vote per share. Except as otherwise required by applicable law or as set forth herein, the shares of Series E Preferred Stock shall not have any relative, participating, optional or other special voting rights and powers and the consent of the holders thereof shall not be required for the taking of any corporate action. 9. Reports. So long as any of the Series E Preferred Stock is outstanding, in the event the Corporation is not required to file quarterly and annual financial reports with the Securities and Exchange Commission pursuant to Section 13 or Section 15(d) of the Exchange Act, the Corporation will furnish the holders of the Series E Preferred Stock with reports containing the same information as would be required in such reports. 10. General Provisions. (a) The term "person" as used herein means any corporation, limited liability company, partnership, trust, organization, association, other entity or individual. (b) The term "outstanding", when used with reference to shares of stock, shall mean issued shares, excluding shares held by the Corporation or a subsidiary of the Corporation. (c) The headings of the sections, paragraphs, subparagraphs, clauses and subclauses of this Certificate of Designation are for convenience of reference only and shall not define, limit or affect any of the provisions hereof. IN WITNESS WHEREOF, said McLeodUSA Incorporated has caused this Certificate of Designations to be signed by Stephen C. Gray, its President and Chief Executive Officer this 30th day of September, 2001. McLEODUSA INCORPORATED By: /s/ Stephen C. Gray ------------------------------- Name: Stephen C. Gray Title: President and Chief Executive Officer