Exhibit 10.4
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600 Lexington Avenue, 6th Floor
New York, New York
Phone: (212) 759-4433
Fax: (972) 281-5831
www.alvarezandmarsal.com
[ALVAREZ & MARSAL GRAPHIC OMITTED]
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August 15, 2005
Ms. Chris Davis
Chairman of the Board of Directors
McLeodUSA, Inc.
6400 C Street SW
Cedar Rapids, Iowa 52406
Dear Ms. Davis:
This letter confirms, amends and restates the letter agreement dated March 29,
2005 between Alvarez & Marsal, LLC ("A&M") and McLeodUSA, Inc. (the "Company")
(as amended and restated "this Agreement"). Upon execution of this letter by
each of the parties below, this letter will constitute an agreement between the
Company and A&M. A&M shall continue to hold the retainer previously delivered
on the terms and conditions set forth herein.
1. Officers
In connection with this agreement A&M shall make available to
the Company:
(a) Stan Springel to serve as the Chief Restructuring
Officer of the Company (the "CRO") and
(b) Jay Bradford, Girish Satya, Kevin Hausler, Joseph
Bondi, Biff McGuire and Arnold Adams (collectively,
with the CRO, the `Officers" and each of the
Officers individually, an "Officer") as well, upon
the mutual agreement of A&M and the Company's Board
of Directors, such additional personnel as are
necessary to assist in the performance of the duties
set forth in the clause 2 below (the "Additional
Officers"). Each of the Officers and any Additional
Officers shall be designated by the Company as
executive officers. In addition to the Officers, A&M
may make available to the Company additional
personnel who will serve as consultants to the
Company on a specific project basis ("Consultants").
2. Duties:
It is anticipated that the Officers' activities shall include
the following:
(a) Assist the Company in its overall reorganization
efforts.
(b) Assist the Company in the development of a business
plan that may be utilized in part of a
reorganization plan.
(c) Assist the Company on financing issues including
cash management support, assistance in preparation
of analytical reports and liaison with the Company's
creditors; and
(e) Assist the Company in cost reduction activities and
the sale of non-core assets; and
(f) Assist the Company in developing employee retention
programs; and
(g) Other activities as are approved by you or the Board
of Directors and agreed to by A&M.
You understand that the services to be rendered by
the Officers and Consultants may include the
preparation of projections and other forward-looking
statements, and numerous factors can affect the
actual results of the Company's operations, which
may materially and adversely differ from those
projections. In addition, the Officers and
Consultants will be relying on information provided
by the Company in the preparation of those
projections and other forward-looking statements.
Neither A&M nor any of the Officers or Consultants
make any representation or guarantee that an
appropriate restructuring proposal can be formulated
for the Company, that restructuring is the best
course of action for the Company or, if formulated,
that any proposed restructuring plan will be
accepted by the Company's creditors, shareholders
and other constituents. Further, neither A&M nor the
Officers or Consultants assume any responsibility
for the implementation or selection of any
restructuring proposal which they assist the Company
in formulating.
In rendering services to the Company, the Officers
will report directly to the Board of Directors and
will make recommendations to and consult with the
Board of Directors.
3. Stan Springel, a Managing Director of A&M, will be
responsible for the overall engagement. He will be assisted
by Jay Bradford, a Director of A&M on a fulltime basis and
Kevin Hausler, a contractor to A&M on a part-time basis; as
well as other A&M personnel as necessary, provided they are
approved in advance by the Company. Joe Bondi will provide
assistance from time to time as required by A&M and as
requested by the Company.
4. Employment by A&M:
The CRO and the Officers (and any Consultants) shall continue
to be employed by A&M (or in the case of Kevin Hausler, be a
contractor to A&M) and while rendering services to the
Company will continue to work with other personnel at A&M in
connection with unrelated matters, which shall not interfere
with services pursuant to this agreement. With respect to the
Company, however the Officers and Consultants shall operate
under the direction of the Board of Directors and A&M shall
have no liability to the Company for any acts or omissions of
such Officers.
5. Compensation
(a) A&M will be compensated at a rate of $125,000 per
month for the services of the CRO.
(b) A&M will receive fees based on the following hourly
rates for the services of the other Officers:
Managing Directors $475 - $675
Directors $375 - $475
Associates $275 - $375
Analysts $175 - $250
Kevin Hausler will be billed as a Director at the
rate of $400 an hour.
Such rates shall be subject to adjustment annually
at such time as A&M adjusts its rates generally,
provided any rate adjustment will not be made prior
to November 1, 2005. A&M agrees to provide a monthly
budget in advance to the Company for the purposes of
cash planning.
(c) In addition, A&M will be reimbursed for its
reasonable out-of-pocket expenses of the Officers
and Consultants incurred in connection with this
assignment, such as travel, lodging, duplicating,
computer research, messenger and telephone charges.
In addition, A&M shall be reimbursed for the
reasonable fees and expenses of its counsel incurred
in connection with the preparation, negotiation and
enforcement of this Agreement, such expenses not to
exceed $10,000 without prior approval of the
Company. All fees and expenses will be billed and
payable on a monthly basis or more often if mutually
agreed to in advance by the parties.
(d) An incentive fee will be considered if it is
determined within 45 days of the date of this
agreement that the basis for such a fee exists and
payment of an incentive fee would be appropriate.
(e) A&M will bill the Company on a monthly basis in
arrears including hours and rates by name or monthly
rates by name. The Company shall pay such invoice
within 10 business days.
6. Term
The engagement will commence as of the date hereof and may be
terminated by either party without cause by giving two weeks
written notice to the other party. In the event of any such
termination, any fees and expenses due to A&M shall be
remitted promptly (including fees and expenses that accrued
prior to but were invoiced subsequent to such termination).
If the Company terminates this engagement without Cause or if
A&M terminates this engagement for Good Reason, A&M shall
also be entitled to receive an incentive fee agreed upon
pursuant to Section 5(d) provided the criteria for payment of
such fee occur within 6 months of the termination. The
Company may immediately terminate A&M's services hereunder at
any time for Cause by giving written notice to A&M. Upon any
such termination, the Company shall be relieved of all of its
payment obligations under this Agreement, except for the
payment of fees and expenses through the effective date of
termination (including fees and expenses that accrued prior
to but were invoiced subsequent to such termination) and its
obligations under paragraph 8. For purposes of this
Agreement, "Cause" shall mean if A&M breaches any of its
material obligations hereunder and does not cure such breach
within two weeks of the Company having given written notice
of such breach to A&M describing in reasonable detail the
nature of the alleged breach. A&M shall be entitled to
immediately terminate its services hereunder for Good Reason.
For purposes of this Agreement, termination for "Good Reason"
shall mean either its resignation caused by a breach by the
Company of any of its material obligations under this
Agreement that is not cured within two weeks of A&M having
given written notice of such breach to the Company describing
in reasonable detail the nature of the alleged breach or a
filing of a petition under Chapter 11 of the United States
Bankruptcy Code in respect of the Company unless within 45
days thereafter (or, if sooner, prior to the date on which a
plan of reorganization is confirmed or the case is converted
to one under Chapter 7), the Company has obtained judicial
authorization to continue the engagement on the terms herein
pursuant to an order which has become a final, nonappealable
order
7. Relationship of the Parties
The parties intend that an independent contractor
relationship will be created by this engagement letter.
Neither A&M nor any of its personnel or subcontractors
(including the Officers) is to be considered an employee or
agent of the Company and the personnel and subcontractors of
A&M are not entitled to any of the benefits that the Company
provides for the Company employees. The Company acknowledges
that A&M's engagement shall not constitute an audit, review
or compilation, or any other type of financial statement
reporting engagement that is subject to the rules of the
AICPA, SEC or other state or national professional or
regulatory body.
8. No Third Party Beneficiary
The Company acknowledges that all advice (written or oral)
given by the Officers or Consultants to the Company in
connection with this engagement is intended solely for the
benefit and use of the Company (limited to its Board of
Directors, management, investment banking advisors and its
outside counsel) in considering the matters to which this
engagement relates. The Company agrees that no such advice
shall be used for any other purpose or reproduced,
disseminated, quoted or referred to at any time in any manner
or for any purpose other than accomplishing the tasks
referred to herein without A&M's prior approval (which shall
not be unreasonably withheld), except as required by law.
9. Conflicts
A&M is not currently aware of any relationship that would
create a conflict of interest with the Company or those
parties-in-interest of which you have made us aware, but we
note A&M has been retained by VarTec Telecom Inc. and A&M
employees hold officer positions with such company. A&M has
established confidentiality measures with respect to
information about both companies to which it may have access.
Because A&M is a consulting firm that serves clients on a
national basis in numerous cases, both in and out of court,
it is possible that A&M may have rendered services to or have
business associations with other entities or people which had
or have or may have relationships with the Company, including
creditors of the Company. In the event you accept the terms
of this engagement, A&M will not represent, and A&M has not
represented, the interests of any such entities or people in
connection with this matter.
10. Confidentiality / Non-Solicitation
A&M and the Officers (and any Consultants) shall keep as
confidential all non-public information received from the
Company in conjunction with this engagement, except: (i) as
requested by the Company or its legal counsel; or (ii) as
required by legal proceedings. All obligations as to
non-disclosure shall cease as to any part of such information
to the extent that such information is or becomes public
other than as a result of a breach of this provision. The
Company and A&M agree not to solicit, recruit or hire any
employees of the other effective from the date of this
Agreement and continuing for a period of one year subsequent
to the termination of this engagement. Should either extend
offers of employment to the other's employee and should such
an offer be accepted, A&M will be entitled to a fee based
upon such individual's hourly rates multiplied by an assumed
annual billing of 2,000 hours and the Company will be
entitled to a fee of employee's salary for one year. This fee
would be payable at the time of the individual's acceptance
of employment.
11. Indemnification
The attached indemnification agreement is incorporated herein
by reference and shall be executed upon the acceptance of
this Agreement. Termination of this engagement shall not
affect these indemnification provisions, which shall remain
in full force and effect.
12. Miscellaneous
This engagement letter (together with the attached indemnity
provisions): (a) shall be governed and construed in
accordance with the laws of the State of New York, regardless
of the laws that might otherwise govern under applicable
principles of conflict of laws thereof; (b) incorporates the
entire understanding of the parties with respect to the
subject matter hereof; and (c) may not be amended or modified
except in writing executed by both parties hereto. The
Company and A&M agree to waive trial by jury in any action,
proceeding or counterclaim brought by or on behalf of the
parties hereto with respect to any matter relating to or
arising out of the engagement or the performance or
non-performance of A&M hereunder. In the event the Company
files under Chapter 11, the Company and A&M agree that the
Bankruptcy Court shall have exclusive jurisdiction over any
and all matters arising under or in connection with this
engagement letter and the indemnity provisions and in
connection with the services rendered by the Officers and
Consultants of A&M hereunder.
If the foregoing is acceptable to you, kindly sign the
enclosed copy to acknowledge your agreement with its terms.
Very truly yours,
Alvarez & Marsal, LLC
By: /s/ Stan Springel
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Stan Springel
Title: Managing Director
Accepted and agreed:
McLeodUSA, Inc.
By: /s/ Chris A. Davis
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Chris Davis, Chairman of the Board of Directors