EXHIBIT 10.1FIFTH FORBEARANCE AGREEMENT

 

 

 

 

                                                                    Exhibit 10.1

 

                          FIFTH FORBEARANCE AGREEMENT

 

 

         FIFTH FORBEARANCE AGREEMENT, dated as of September 30, 2005 (this

"Agreement"), among (1) McLeodUSA Incorporated, a Delaware corporation (the

"Borrower"), (2) each of the Subsidiaries of the Borrower listed on Schedule I

hereto (the "Subsidiary Guarantors"), (3) the financial institutions named on

the signature pages hereto (together with their respective successors and

assigns, the "Participant Lenders") and (4) JPMorgan Chase Bank, N.A., as

agent for the Lenders (the "Administrative Agent").

 

                                  WITNESSETH:

 

         A. WHEREAS, the Borrower, certain Participant Lenders, the

Administrative Agent and certain other financial institutions are parties to a

Credit Agreement dated as of May 31, 2000 (as amended, the "2000 Credit

Agreement");

 

         B. WHEREAS, the Borrower, certain Participant Lenders, the

Administrative Agent and certain other financial institutions are parties to a

Credit Agreement dated as of April 16, 2002 (as amended, the "2002 Credit

Agreement," together with the 2000 Credit Agreement, the "Credit Agreements");

 

         C. WHEREAS, the Subsidiary Guarantors and JPMorgan Chase Bank, N.A.,

as Collateral Agent for the Secured Parties, are parties to a Subsidiary

Guarantee Agreement dated as of May 31, 2000, as amended and restated as of

April 16, 2002 (the "Guarantee Agreement");

 

         D. WHEREAS, the Borrower and the Subsidiary Guarantors have proposed

a restructuring plan that is under discussion with the Participant Lenders (as

such plan may be modified, the "Plan");

 

         E. WHEREAS, the Borrower has advised the Administrative Agent and the

Lenders that the Specified Defaults (as defined in section 1(c) below),

including, without limitation, the failure to make scheduled amortization

payments under the Credit Agreements and interest payments under the 2000

Credit Agreement, might occur or continue occurring during the Prior

Forbearance Periods or the Forbearance Period (each as defined below);

 

         F. WHEREAS, in order to permit completion of the negotiation of the

Plan and exploration of other possible strategic transactions, the Borrower,

the Subsidiary Guarantors, the Participant Lenders (as defined in the First

Forbearance Agreement) and the Administrative Agent executed a Forbearance

Agreement, dated as of March 16, 2005 (the "First Forbearance Agreement"),

pursuant to which the Participant Lenders (as defined in the First Forbearance

Agreement) and the Administrative Agent agreed to forbear from exercising

certain default-related remedies against the Borrower and the Subsidiary

Guarantors on account of the Specified Defaults (as defined in the First

Forbearance Agreement) for a limited period of time and upon the terms and

conditions set forth therein;

 

         G. WHEREAS, the Borrower paid to the Administrative Agent, and has

periodically replenished, an advance of $1.5 million (the "Advance") in

accordance with section 2(e) of the Prior Forbearance Agreements, on account

of the Borrower's obligations to pay expenses and other amounts (including the

fees and expenses of counsel and financial advisors) under sections 9.03 of

the Credit Agreements;

 

         H. WHEREAS, on March 29, 2005 the Borrower entered into an engagement

letter (the "A&M Engagement Letter") with, and retained Alvarez & Marsal, LLC

(the "Restructuring Adviser") as an adviser of the Borrower to validate and

provide information regarding the Borrower and its Subsidiaries to the

Lenders, prospective buyers and other parties, and to assist the Borrower in

developing strategies relating to any restructuring or other strategic

transactions;

 

         I. WHEREAS, the Forbearance Period under and as defined in the First

Forbearance Agreement (the "First Forbearance Period") came to an end on May

23, 2005;

 

         J. WHEREAS, in order to permit completion of the negotiation of the

Plan and exploration of other possible strategic transactions, the Borrower,

the Subsidiary Guarantors, the Participant Lenders (as defined in the Second

Forbearance Agreement) and the Administrative Agent executed the Second

Forbearance Agreement, dated as of May 23, 2005 (the "Second Forbearance

Agreement"), pursuant to which the Participant Lenders (as defined in the

Second Forbearance Agreement) and the Administrative Agent agreed to forbear

from exercising certain default-related remedies against the Borrower and the

Subsidiary Guarantors on account of the Specified Defaults (as defined in the

Second Forbearance Agreement) for a limited period of time and upon the terms

and conditions set forth therein;

 

         K. WHEREAS, the Second Forbearance Period under and as defined in the

Second Forbearance Agreement (the "Second Forbearance Period") came to an end

on July 21, 2005;

 

         L. WHEREAS, in order to permit completion of the negotiation of the

Plan, the Borrower, the Subsidiary Guarantors, the Participant Lenders (as

defined in the Third Forbearance Agreement) and the Administrative Agent

executed the Third Forbearance Agreement, dated as of July 21, 2005 (the

"Third Forbearance Agreement"), pursuant to which the Participant Lenders (as

defined in the Third Forbearance Agreement) and the Administrative Agent

agreed to forbear from exercising certain default-related remedies against the

Borrower and the Subsidiary Guarantors on account of the Specified Defaults

(as defined in the Third Forbearance Agreement) for a limited period of time

and upon the terms and conditions set forth therein;

 

         M. WHEREAS, on August 12 the A&M Engagement Letter was amended and

restated to provide for, among other things, the appointment of Stan Springel,

a Managing Director of Alvarez & Marsal, LLC, to serve as Chief Restructuring

Officer (the "Chief Restructuring Officer") of the Borrower;

 

         N. WHEREAS, the Forbearance Period under and as defined in the Third

Forbearance Agreement (the "Third Forbearance Period") came to an end on

September 9, 2005;

 

         O. WHEREAS, in order to permit completion of the negotiation of the

Plan, the Borrower, the Subsidiary Guarantors, the Participant Lenders (as

defined in the Fourth Forbearance Agreement) and the Administrative Agent

executed the Fourth Forbearance Agreement, dated as of September 9, 2005 (the

"Fourth Forbearance Agreement," together with the First Forbearance Agreement,

the Second Forbearance Agreement and the Third Forbearance Agreement, the

"Prior Forbearance Agreements"), pursuant to which the Participant Lenders (as

defined in the Fourth Forbearance Agreement) and the Administrative Agent

agreed to forbear from exercising certain default-related remedies against the

Borrower and the Subsidiary Guarantors on account of the Specified Defaults

(as defined in the Fourth Forbearance Agreement) for a limited period of time

and upon the terms and conditions set forth therein;

 

         P. WHEREAS, the Forbearance Period under and as defined in the Fourth

Forbearance Agreement (the "Fourth Forbearance Period," together with the

First Forbearance Period, the Second Forbearance Period and the Third

Forbearance Period, the "Prior Forbearance Periods") was to expire on

September 30, 2005; and

 

         Q. WHEREAS, in order to permit completion of the negotiation of the

Plan, the Borrower and the Subsidiary Guarantors have asked the Participant

Lenders, and the Participant Lenders are willing, to continue to forbear from

exercising certain default-related remedies against the Borrower and the

Subsidiary Guarantors on account of the Specified Defaults for a further

limited period of time and upon the terms and conditions set forth herein.

 

         NOW, THEREFORE, in consideration of the foregoing, the covenants and

conditions contained herein and other good and valuable consideration, the

receipt and sufficiency of which are hereby acknowledged, the parties hereto

agree as follows:

 

         Section 1 . Defined Terms. Unless otherwise specifically defined

herein, each term used herein which is defined in the Credit Agreements has

the meaning assigned to such term in the Credit Agreements. As used in this

Agreement, the following terms have the meanings specified below:

 

         (a) "Forbearance Period" means the period beginning on the date

hereof and ending on the earliest to occur of (any such occurrence being a

"Termination Event"):

 

                  (i) October 31, 2005;

 

                  (ii) the occurrence of any Event of Default other than a

         Specified Default;

 

                  (iii) any holder of Indebtedness or other obligations of $7

         million or more of the Borrower or any of its Subsidiaries shall take

         any action to collect or enforce any claim or to create or enforce

         any lien against the Borrower or any of its Subsidiaries, excluding

         the making of a demand or the assertion of a claim by a vendor or

         customer that is disputed in good faith by the Borrower or such

         Subsidiary in the ordinary course of business and with respect to

         which such vendor or customer has not obtained a lien or otherwise

         obtained the ability to collect or enforce such claim; and

 

                  (iv) a breach of any term, condition or representation

         contained in this Agreement by the Borrower or the Subsidiary

         Guarantors, including without limitation, any failure by the Borrower

         or Subsidiary Guarantors to comply with the undertakings in Section 2

         hereof.

 

         (b) "Other Assets" means all assets of the Borrower and the

Subsidiary Guarantors other than Guaranteed Obligations Collateral (as defined

in the Security Agreement).

 

         (c) "Specified Defaults" means existing or anticipated Events of

Default, as listed (i) on Schedule II to the First Forbearance Agreement that

occurred during the First Forbearance Period, (ii) on Schedule II to the

Second Forbearance Agreement that occurred during the Second Forbearance

Period, (iii) on Schedule II to the Third Forbearance Agreement that occurred

during the Third Forbearance Period, (iv) on Schedule II to the Fourth

Forbearance Agreement that occurred during the Fourth Forbearance Period or

(v) on Schedule II hereto that might occur or continue during the Forbearance

Period (as defined in section 1(a)).

 

         (d) "Steering Committee Members" means those Lenders who are members

of the informal steering committee of Lenders whose names have been provided

to the Borrower in a letter from the Administrative Agent dated May 23, 2005,

as amended from time to time.

 

         Section 2. Acknowledgements and Undertakings.

 

         (a) The Borrower and the Subsidiary Guarantors agree and acknowledge

that certain of the Specified Defaults (as defined in the First Forbearance

Agreement, the Second Forbearance Agreement, the Third Forbearance Agreement

and the Fourth Forbearance Agreement) occurred during the First Forbearance

Period, the Second Forbearance Period, the Third Forbearance Period and the

Fourth Forbearance Period, respectively, and that the Specified Defaults (as

defined in section 1(c) hereof) might occur or continue during the Forbearance

Period (as defined in section 1(a) hereof) and that certain of the Specified

Defaults (as defined in the Prior Forbearance Agreements) constituted, and the

Specified Defaults (as defined in section 1(c) hereof) should they occur will

constitute material Events of Default.

 

         (b) In addition to the information required to be furnished under the

Loan Documents to the Administrative Agent and the Lenders (and without

prejudice to sections 5.01 or any other provision of the Credit Agreements),

the Borrower shall, as promptly as practicable, provide to the Administrative

Agent and the Steering Committee Members any information reasonably requested

by the Administrative Agent or the Lenders. Without limiting the generality of

the foregoing, the Borrower shall promptly provide to the Administrative Agent

and the Steering Committee Members, in a form acceptable to the Administrative

Agent,

 

                  (i) on Tuesday of each week, a detailed forecast of receipts

         and disbursements for the Borrower and the Subsidiary Guarantors

         providing, on a weekly basis, the Borrower's good faith estimate of

         projected receipts and disbursements for the 13 weeks commencing with

         the immediately following week, together with a reconciliation of

         such forecast against the forecast delivered the previous week and a

         reasonably detailed explanation of any variance between the current

         forecast and such previously delivered forecast;

 

                  (ii) not later than the tenth day following the end of each

         calendar month, an operational report, including management's good

         faith estimate of receipts and disbursements for such month, the cash

         balances of the Borrower and Subsidiary Guarantors as of the end of

         such calendar month, and an analysis of performance against projected

         performance as set forth in the phased business plan dated March 9,

         2005 previously delivered to the Participant Lenders;

 

                  (iii) on Tuesday of each week, a written or oral (in the

         sole discretion of the Borrower) update, and at any time on request

         of the Administrative Agent, a written update, addressed to the

         financial advisor of the Administrative Agent regarding the status of

         the Borrower's restructuring activities, including the Borrower's

         efforts to sell any material assets or to sell all or any portion of

         its business, including, without limitation, a list of all contacts

         made with potential purchasers (including the identities of those

         contacted and the dates of such contacts), copies (if in writing) or

         descriptions (if not in writing) of any proposals, offers or

         indications of interest received by the Borrower or its attorneys or

         financial advisors, and any responses thereto by the Borrower or any

         such attorney or financial advisor;

 

                  (iv) all material information (except for information

         previously provided by the Borrower to the Administrative Agent and

         the Steering Committee Members) that the Borrower proposes or intends

         to disclose to the public as far in advance of such disclosure as

         practicable; and

 

                  (v) direct access to the officers and employees, and books

         and records of the Borrower and its Subsidiaries (including the Chief

         Restructuring Officer and the Restructuring Adviser) to obtain such

         information as the Participant Lenders deem reasonably necessary to

         evaluate, negotiate and implement any restructuring plan and to

         verify and analyze to the reasonable satisfaction of the Participant

         Lenders the matters referred to in subparagraphs (i), (ii), (iii) and

         (iv) above.

 

         (c) The Chief Restructuring Officer (and the Restructuring Advisor)

shall continue to be actively employed by the Borrower at all times during the

Forbearance Period and shall have direct access to all information, personnel

and other resources necessary to the performance of his duties.

 

         (d) The Borrower shall make all scheduled interest payments under the

2002 Credit Agreement at the non-default contract rate.

 

         (e) The Administrative Agent has been paid and shall continue to

retain the Advance as an advance payment in respect of the Borrower's

obligations to pay expenses and other amounts under sections 9.03 of the

Credit Agreements, and shall continue to be entitled to pay such amounts

(including sums payable in respect of expenses or other liabilities incurred

or paid by the Administrative Agent prior to the date hereof) as they come

due, including, without limitation, (i) the reasonable fees and expenses of

counsel and financial advisors (including FTI Consulting, Inc.) provided for

in such sections and (ii) travel and other incidental expenses of Lenders

actively participating with the Administrative Agent in restructuring

discussions with the Borrower. The Borrower shall from time to time, within

three Business Days following the receipt of a demand from the Administrative

Agent, make further advances to the Administrative Agent in order to restore

the balance of the Advance held by the Administrative Agent to $1.5 million.

 

 

         (f) The Borrower shall furnish to the Administrative Agent prompt

written notice of the occurrence of a Termination Event.

 

         (g) The Borrower and the Subsidiary Guarantors acknowledge and agree

that, under the Credit Agreements, as amended, they are not currently entitled

to request any new Loans or Letters of Credit.

 

         (h) Notwithstanding anything to the contrary in any Loan Document,

the Borrower and the Subsidiary Guarantors, as applicable, shall not, unless

the Required Lenders under each Credit Agreement give their written consent,

sell, transfer or otherwise dispose of any Other Assets, except for sales,

transfers or dispositions entered into (i) in the ordinary course of business

or (ii) with Net Proceeds totaling up to $2 million in the aggregate,

calculated from May 23, 2005.

 

         (i) The Required Lenders under each Credit Agreement may, without

prejudice to the rights of the Required Lenders under each Credit Agreement to

refuse or condition their consent in any way, require, as a condition to any

consent to any sale, transfer or disposition of any Guaranteed Obligations

Collateral or Other Assets (including Non-Core Assets) that the Net Proceeds

realized from such sale, transfer or disposition be applied first, to prepay

Borrowings (as defined in the 2002 Credit Agreement) in an aggregate amount

equal to such Net Proceeds and second, to the extent of any remaining Net

Proceeds, as required by section 2.11(c) of the 2000 Credit Agreement.

 

         (j) For the avoidance of doubt, the restrictions on the disposition

of Guaranteed Obligations Collateral contained in section 4.09 of the Security

Agreement while an Existing Agreement Event of Default or a New Agreement

Event of Default (as such terms are defined in the Security Agreement) shall

have occurred and be continuing, shall apply during the Forbearance Period and

remain in full force and effect.

 

         (k) All depository, operating, investment accounts and other accounts

of the Borrower and the Subsidiary Guarantors opened at any time (in each case

other than payroll, withholding tax and other fiduciary accounts or accounts

held by the Collateral Agent) shall be or continue to be subject to control

agreements that are in favor of and reasonably acceptable to the

Administrative Agent ("Control Agreement Accounts").

 

         (l) The Borrower and the Subsidiary Guarantors agree that they will

continue to maintain with the Collateral Agent (or, if approved in writing by

the Collateral Agent, any of its affiliates) an account or accounts to be used

by the Borrower and the Subsidiary Guarantors as their overnight investment

account or other holding account for daily excess funds ("Collateral Agent

Accounts", collectively with the Control Agreement Accounts and accounts in

the name of the Collateral Agent holding funds of the Borrower and/or one or

more Subsidiary Guarantors as cash collateral, "Collateral Accounts").

 

         (m) In any event, and in addition to any other requirements that may

be applicable under the Loan Documents or sections 2(k) and 2(l) above, the

Borrower and the Subsidiary Guarantors shall not maintain more than $5 million

of its available cash and cash investments in the aggregate in accounts that

are not Collateral Accounts; provided that no funds shall be maintained in

accounts other than the Collateral Accounts except for the purposes specified

in the next sentence. In addition, funds shall be transferred to payroll,

withholding tax and other fiduciary accounts of the Borrower and the

Subsidiary Guarantors solely to the extent required to cover immediate

disbursement needs in respect of employee payroll incurred and paid in the

ordinary course of business and in accordance with past practice, and, with

respect to fiduciary and withholding tax accounts, solely to the extent

necessary to meet legal requirements in respect of such payroll.

 

         (n) The Borrower and the Subsidiary Guarantors shall use their

reasonable commercial efforts to complete as soon as possible the

documentation of a restructuring reasonably satisfactory to the Required

Lenders under each Credit Agreement.