Exhibit 10.1
SECOND FORBEARANCE AGREEMENT
SECOND FORBEARANCE AGREEMENT, dated as of May 23, 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 Forbearance
Period (as defined in section 1(a)
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, on March 29, 2005 the Borrower retained Alvarez &
Marsal,
LLC 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 (the "Restructuring Adviser");
H. WHEREAS, in order to permit completion of the negotiation of
the
Plan and further exploration of other
possible strategic transactions, 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;
I. 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 First
Forbearance Agreement, 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; and
J. 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.
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) July 21, 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 on Schedule II to the
First Forbearance Agreement that
occurred during the First Forbearance
Period, and as listed in 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 as of the date
hereof, 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) occurred during the First
Forbearance Period and that the Specified
Defaults (as defined in section 1(c)) might
occur or continue during the
Forbearance Period (as defined in section
1(a)) and that certain of the
Specified Defaults (as defined in the First
Forbearance Agreement) constituted,
and the Specified Defaults (as defined in
section 1(c)) 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 Monday 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 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;
(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
Restructuring Adviser 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), (iii) and
(iv)
above.
(c) The Restructuring Adviser 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) 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 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)
after the date hereof with Net Proceeds
totaling up to $2 million in the
aggregate; provided that the Borrower may
sell the two Citation III airplanes
(tail numbers 800 MC and 890 MC) without
consent provided that (x) the Net
Proceeds from each such sale are at least
$4 million and (y) the Net Proceeds
are deposited in an account with the
Collateral Agent (or, if the Required
Lenders under each Credit Agreement request
in writing, 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). The
Net Proceeds from the sale of such
airplanes shall not be included for the
purpose of calculating the $2 million
amount referred to in section 2(h)(ii).
(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 (in each case other than payroll,
withholding tax and other fiduciary
accounts) shall no later than thirty days
after the date hereof 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 as soon
as
practicable after and in any event within
thirty days from date hereof, they
will open and 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, "Collateral
Accounts") and will close their existing
accounts with U.S. Bancorp and its
affiliates currently used for such
purposes.
(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 at any time after May 31,
2005, maintain more than $5 million of its
available cash and cash investments
in the aggregate in accounts that are not
Collateral Accounts; provided that
after the expiration of the thirty-day
period referred to in sections 2(k) and
2(l) above, 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
