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,
