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Exhibit 10.1
FORBEARANCE AGREEMENT
FORBEARANCE AGREEMENT, dated as of March 16, 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
(i)
advised the Participant Lenders they intend to retain as an
officer of the
Borrower a person reasonably acceptable to the Participant
Lenders with the
requisite expertise and scope of duties 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
(the
"Restructuring Officer") and (ii) 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(b)
below),
including, without limitation, the failure to make scheduled
amortization
payments under the Credit Agreements and interest payments under
the 2000
Credit Agreement, will be occurring during the Forbearance
Period (as defined
in section 1(a) below); and
F. WHEREAS, in order to permit completion of the negotiation of
the
Plan and exploration of other possible strategic transactions,
the Borrower
and the Subsidiary Guarantors have asked the Participant
Lenders, and the
Participant Lenders are willing, to forbear from exercising
certain
default-related remedies against the Borrower and the Subsidiary
Guarantors on
account of the Specified Defaults for a 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) May 23, 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.
(b) "Specified Defaults" means existing or anticipated Events
of
Default, as listed in Schedule II hereto.
Section 2. Acknowledgements and Undertakings.
(a) The Borrower and the Subsidiary Guarantors agree and
acknowledge
that the Specified Defaults will occur during the Forbearance
Period and that
certain of the Specified Defaults 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 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, 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 request of the Administrative Agent, and in any
event on Monday of each week, a written update addressed to
the
financial advisor of the Administrative Agent regarding the
status of
the Borrower's efforts 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; and
(iv) direct access to the officers and employees, and books
and records of the Borrower and its Subsidiaries (including
the
Restructuring Officer retained by the Borrower) 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) and
(iii)
above.
(c) As promptly as possible, and, in any event, not later than
March
31, 2005, the Borrower shall retain (and identify to the
Administrative Agent)
the Restructuring Officer. The scope of the Restructuring
Officer's engagement
shall be reasonably acceptable to the Participant Lenders. From
and after such
retention, the Restructuring Officer 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 or her duties.
(d) The Borrower shall make all scheduled interest payments
under the
2002 Credit Agreement at the non-default contract rate.
(e) On or prior to the Forbearance Effective Date (as defined
in
section 12 below), the Borrower shall pay to the Administrative
Agent an
advance of $1.5 million (the "Advance") on account of the
Borrower's
obligations to pay expenses and other amounts under sections
9.03 of the
Credit Agreements. The Administrative Agent shall be entitled to
pay such
amounts as they come due, including, without limitation, (i) the
reasonable
fees and expenses of counsel and financial advisors 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 make further
advances to
the Administrative Agent, upon demand (and in any event within
three business
days), 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.
Section 3. Forbearance.
(a) The Participant Lenders agree that until the expiration of
the
Forbearance Period, the Participant Lenders will temporarily
forbear (subject
to the terms hereof) from the exercise of their default-related
remedies under
the Credit Agreements, Loan Documents or otherwise, against the
Borrower and
the Subsidiary Guarantors solely to the extent the availability
of such
remedies arises exclusively from the Specified Defaults;
provided that the
Borrower and the Subsidiary Guarantors shall comply during the
Forbearance
Period with all provisions, limitations, restrictions or
prohibitions that
would otherwise be effective or applicable under any of the Loan
Documents
during the continuance of any Default or Event of Default;
provided further
that the agreement of the Participant Lenders temporarily to
forbear shall not
apply to nor preclude any remedy available to the Administrative
Agent or the
Lenders in connection with any proceeding commenced under any
bankruptcy or
insolvency law, including without limitation, to any relief in
respect of
adequate protection or relief from any stay imposed under such
law.
(b) Upon a Termination Event, the agreement of the
Participant
Lenders hereunder to forbear from exercising their
default-related remedies
shall immediately terminate without the requirement of any
demand,
presentment, protest or notice of any kind, all of which the
Borrower and the
Subsidiary Guarantors hereby waive. The Borrower and the
Subsidiary Guarantors
agree that the Administrative Agent and the Lenders may at any
time thereafter
proceed to exercise any and all of their respective rights and
remedies under
any or all of the Loan Documents and/or applicable law,
including, without
limitation, their respective rights and remedies in connection
with any or all
of the Defaults and Events of Default, including, without
limitation, the
Specified Defaults.
(c) For the avoidance of doubt, nothing herein limits the right
of
the Administrative Agent or the Lenders, including during the
Forbearance
Period, to take any action to preserve or exercise rights or
remedies against
parties other than the Borrower and the Subsidiary Guarantors
("Third Party
Rights"). For purposes of the foregoing, the Borrower and the
Subsidiary
Guarantors acknowledge and agree that execution and delivery of
this Agreement
shall constitute the making of any necessary demand or the
giving of any
necessary notice for purposes of preserving and/or permitting
the exercise of
any such Third Party Rights of the Administrative Agent and the
Lenders.
(d) Execution of this Agreement constitutes a direction by
the
Participant Lenders that the Administrative Agent act in
accordance with its
terms. Each Participant Lender agrees that, notwithstanding
anything to the
contrary in the Credit Agreements, the Administrative Age
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