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Exhibit 10.4    
    

 
 

EMPLOYMENT AGREEMENT    
    

        THIS
AGREEMENT is by and between McLeodUSA, Inc. (the "Company"), and Royce J. Holland (the "Executive"), dated as of January 1, 2006 and effective as of the date hereof
(the "Effective Date"). 

        WHEREAS,
the Company desires to have the association and services of the Executive in order to obtain the Executive's experience, skills, abilities, background and knowledge, desires to
provide incentive to the Executive to provide valuable future services to the Company, and is willing to employ the Executive in the capacities and on the terms and conditions set forth in this
Agreement; and 

        WHEREAS,
the Company wishes to provide for contractual terms relating to the employment by the Company of the Executive from and after the Effective Date; and 

        WHEREAS,
the Executive wishes to serve the Company, in the capacities and on the terms and conditions set forth in this Agreement and is willing to accept such employment on the terms
and conditions set forth in this Agreement. 

        NOW,
THEREFORE, it is hereby agreed as follows: 

        1.    TERM.    The term of this Agreement shall commence on the Effective Date and end on the date four years
following the Effective Date unless sooner terminated pursuant to Section 4 of this Agreement (the "Term"). 

        2.    POSITION AND DUTIES.    

        (a)   During
the Term, the Executive shall serve as the Chief Executive Officer of the Company and as a member the Company's Board of Directors (the "Board"), in each case
with such duties and responsibilities as are customarily assigned to these positions, and such other duties and responsibilities not inconsistent therewith as may from time to time be assigned to him
by the Board. During the Term, the Company shall cause the Executive to be included in the slate of persons nominated to serve as members of the Board and shall use its best efforts (including,
without limitation, the solicitation of proxies) to have the Executive elected and reelected to the Board. 

        (b)   During
the Term, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive shall devote his full business attention and time
to the business and affairs of the Company and shall use all reasonable efforts to carry out his responsibilities faithfully and efficiently. However, the Executive may, subject to the prior approval
of the Board, serve on corporate boards and such industry, civic or charitable boards or committees as Executive may determine, so long as these activities do not interfere or represent a conflict of
interest with the performance of the Executive's responsibilities to the Company. 

        (c)   During
the Term, the Executive shall be based at the Company's principal executive offices except for travel reasonably required for the performance of Executive's
duties hereunder. The Executive and the Board shall select a location for the Company's principal executive offices, with such location being within the Company's market area. 

        3.    COMPENSATION.    

        (a)    BASE SALARY.    The Company shall pay the Executive an annual base salary (the "Annual Base Salary") of
$500,000. The Annual Base Salary shall be paid in accordance with the Company's regular payroll practice for its senior executives, as in effect from time to time. Annual Base Salary shall be reviewed
at least annually by the Board and may from time to time be increased (but not decreased) as determined by the Board. Effective as of the date of any such increase the Annual Base Salary as so
increased shall be considered the new Annual Base Salary for all purposes of this Agreement and may not thereafter be reduced. Any increase in Annual 

Base
Salary shall not limit or reduce any other obligation of the Company to the Executive under this Agreement. No additional remuneration shall be paid to Executive with respect to his service on
the Board during the Term. 

        (b)    ANNUAL CASH BONUS.    During the Term, the Executive shall participate in annual cash incentive compensation
plans, in effect or to be adopted and approved by the Board or its Compensation Committee from time to time, with applicable corporate and individual performance targets and maximum award amounts
determined by the Compensation Committee. The Executive's annual target bonus opportunity pursuant to such plans shall be 100% of the Annual Base Salary in effect for the Executive at the beginning of
the year, provided that the Executive's bonus payment for any particular year may be more or less than the foregoing target bonus opportunity, based on the level of achievement of the applicable
performance targets. Any cash bonuses payable to the Executive will be paid at the time the Company normally pays such bonuses to its senior executives and will be subject to the terms and conditions
of the applicable annual cash incentive compensation plan. 

        (c)    OPTION GRANT.    As soon as practicable following the Effective Date, the Company shall adopt an equity
compensation plan (the "Equity Plan") which shall provide for the grant of stock options and restricted stock grants. Upon the adoption of the Equity Plan (which shall be developed by Executive and
the Board of Directors), the Company shall grant to the Executive an award of stock options thereunder with respect to a number of shares equal to 1.5% of the total number of shares of Company common
stock outstanding immediately prior to such award (and the award of restricted stock described below). The option grant shall provide that it shall become vested and exercisable with respect to 25% of
the shares subject thereto on each of the Effective Date and the first three anniversaries of the Effective Date, subject to the Executive's continued employment with the Company on such anniversary
dates, and shall provide for a per-share exercise price equal to the fair market value of the underlying shares. For example, it is anticipated that there will be 30 million shares
outstanding at the time of the option grant and that the equity value of the Company will be $250 million at such time. If that is the case, there would be 450,000 shares subject to the option
and the per-share exercise price applicable to the option would be $8.33. 

        In
addition, upon the adoption of the Equity Plan, the Company shall grant to the Executive an award of performance vesting stock options thereunder with respect to a number of shares
equal to 1.0% of the total number of shares of Company common stock outstanding immediately prior to such award (and prior to the award of any other options or restricted stock). The performance
vesting option grant shall provide that it becomes vested and exercisable with respect to 50% of the shares subject thereto upon completion of an initial public offering of Company common stock or a
Change in Control as defined in Paragraph 3(e) hereof, and with respect to the other 50% of the shares subject thereto if the value of the Company's equity is at least $500 million at
the completion of a Change in Control or initial public offering (disregarding the value of any equity issued after the Effective Date in connection with any corporate acquisitions or similar
transactions). The option grant shall provide for a per-share exercise price equal to that of the time vested option grant discussed above in this paragraph 3(c). All performance
vesting cliffs are subject to the Executive's continued employment with the Company on the date of such events. If Executive's employment is terminated by the Company for Cause or by Executive without
Good Reason prior to the first anniversary of the Effective Date, Executive will forfeit all vested options of any type and will return to the Company any shares acquired pursuant to their exercise. 

        (d)    RESTRICTED STOCK GRANT.    As soon as practicable following the Effective Date, the Company shall grant to the
Executive an award of restricted stock pursuant to the Equity Plan with respect to a number of shares equal to 1.5% of the total number of shares of Company common stock outstanding immediately prior
to such award (and the award of options described above). The restricted grant shall provide that it shall become vested and no longer subject to forfeiture (except as provided in this paragraph
below) with respect to 25% of the shares subject thereto on the Effective Date and each of the first three anniversaries of the Effective Date, 

subject
to the Executive's continued employment with the Company on such anniversary dates. In addition, Company shall grant to the Executive an award of performance vesting restricted stock equal to
1.0% of the total number of shares of Company common stock outstanding immediately prior to such award (and prior to the award of options described above), with vesting criteria identical to the
performance vesting stock option grant described in Paragraph 3(c) hereof. If Executive's employment is terminated by the Company for Cause or by Executive without Good Reason prior to the
first anniversary of the Effective Date, Executive will forfeit all vested restricted stock. 

        (e)    OTHER PROVISIONS WITH RESPECT TO EQUITY AWARDS.    Each of the option and restricted stock awards described in
Sections 3(c) and 3(d) shall be subject to the terms of the Equity Plan and an award agreement which shall include the terms and conditions set forth in such sections. In addition, each of the option
and restricted stock awards described in Sections 3(c) and 3(d) shall provide that the award shall become fully vested immediately upon a "Change in Control" of the Company. Notwithstanding the
immediately preceding sentence, the performance vesting stock options described in the second paragraph of Section 3(c) and the performance vesting restricted stock described in
Section 3(d) shall vest according to the language in Sections 3(c) and 3(d). Additional grants of stock options or restricted stock may be made during the Term to the Executive by the Board (or
a committee thereof), in its discretion. For purposes of this Agreement, a "Change in Control" shall be deemed to have occurred if any Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Company representing more than 50% of either the then outstanding shares of common stock of the Company or the combined voting power of the Company's then outstanding
securities. Notwithstanding anything in the foregoing to the contrary, no Change in Control shall be deemed to have occurred for purposes of this Agreement by virtue of any transaction which results
in the Executive, or a group of Persons which includes the Executive, acquiring, directly or indirectly, 50% or more of either the then outstanding shares of common stock of the Company or the
combined voting power of the Company's then outstanding securities. For purposes of the preceding definition of Change in Control, the following definitions shall apply: (1) "Beneficial Owner"
shall have the meaning set forth in Rule 13d-3 under the Exchange Act; (2) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time; and
(3) "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include
(i) the Company or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Affiliates, (iii) an
underwriter temporarily holding securities pursuant to an offering of such securities and (iv) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially
the same proportions as their ownership of stock of the Company. 

        (f)    EQUITY PLAN.    Executive shall work with the Board to develop the Equity Plan at the earliest practical date.
With regard to stock options and restricted stock, the Equity Plan shall include the following provisions: (1) stock options shall have a term of six years, unless at the expiration of the
six-year period, the common stock of the Company is not publicly traded, in which event the length of the option will be the earlier of ten years from issuance or three months following
the date that the Company's common stock becomes publicly traded; (2) if Executive's (or other directors and officers subject to the Equity Plan) employment terminates for any reason,
Executive, or such directors and officers shall have three months following termination of employment (but not beyond the maximum term of the option) to exercise vested stock options if the Company's
common stock is publicly traded, or if the Company's common stock is not publicly traded at the date of termination of employment, three months following the date that the Company's common stock
begins to be publicly traded or ten years from issuance, whichever is earlier (but in no event beyond the maximum term of the option); (3) if Company's common stock is not publicly traded,
Executive, Directors and Officers may sell vested restricted stock in a private transaction subject to a right of first refusal by the Company (however, the Company shall have no obligation to buy
back such stock); and (4) other provisions as the Executive and Board shall decide. 

        (g)    OTHER BENEFITS.    During the Term, the Executive shall be eligible to participate in the retirement, welfare
benefit, and fringe benefit plans, practices, policies and programs of the Company (including any medical, prescription, dental, disability, life insurance, accidental death and travel accident
insurance plans and programs) to the same extent, and subject to the same terms and conditions, as these arrangements are made available to the senior officers of the Company. 

        (h)    VACATION.    The Executive shall be entitled to four weeks paid vacation per calendar year during the Term. 

        (i)    EXPENSES.    The Company shall pay or reimburse the Executive for ordinary and necessary business expenses
incurred by him in the performance of his duties in accordance with the Company's usual policies. The Company shall provide the Executive with relocation benefits in accordance with the Company's
executive relocation policy with respect to Executive's move, if any, to the Company's new principal executive offices (selected by the Executive and the Board as provided in paragraph 2(c)
herein), if that location is greater than 35 miles from Dallas, Texas. The Company shall also pay or reimburse the Executive for reasonable temporary living and commuting expenses incurred during the
first six months of the Term in connection with such relocation. 

        4.    TERMINATION OF EMPLOYMENT.    

        (a)    DEATH OR DISABILITY.    The Executive's employment shall terminate automatically upon the Executive's death
during the Term. The Company shall be entitled to terminate the Executive's
employment because of the Executive's Disability during the Term. "Disability" means that the Executive is permanently disabled within the meaning of the long- term disability coverage
provided by the Company or, if there is no such coverage in effect, that (i) the Executive has been substantially unable, for 120 business days within a period of 180 consecutive business days,
to perform the Executive's duties under this Agreement, as a result of physical or mental illness or injury and (ii) a physician mutually selected by the Executive and the Company (with
approval of such physician not unreasonably withheld or delayed), has determined that the Executive is permanently disabled. A termination of the Executive's employment by the Company for Disability
shall be communicated to the Executive by written notice, and will be effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"). 

        (b)    TERMINATION BY THE COMPANY.    

        (i)    The
Company may terminate the Executive's employment during the Term for Cause or without Cause, subject to the provisions of Section 4(b)(ii) hereof. 

        (ii)   "Cause"
means any of the following: (A) the Executive's conviction by a court of competent jurisdiction for felony criminal conduct, (B) the Executive's
gross negligence or willful misconduct, in either case in the performance of his duties hereunder that results in a detriment that is material to the Company and its subsidiaries taken as a whole, or
(C) the Executive's willful or intentional material breach of Section 6 of this Agreement. If the Company seeks to terminate Executive's employment pursuant to either clause (b)
or (c) of this paragraph 4(b)(ii), the Executive shall have thirty days from receipt of written notice from the Board identifying with specificity the conduct constituting "Cause" to
cure any conduct, misconduct, gross negligence, or breach so identified. 

        (c)    TERMINATION BY THE EXECUTIVE.    

        (i)    The
Executive may terminate employment for Good Reason or without Good Reason. 

        (ii)   "Good
Reason" shall mean the occurrence of any of the following events, without the Executive's consent, at any time during the Term: (A) the Executive is not
elected to the Board of Directors or designated Chief Executive Officer of the Company; (B) causing or requiring the Executive to report to anyone other than the Board; (C) the
assignment to the 

Executive
of any duties inconsistent in any material respect with his position, authority, duties or responsibilities as contemplated by this Agreement, or any other action by the Company which
results in a significant diminution in such position, authority, duties or responsibilities; (D) the failure of the Company to assign this Agreement to a successor to the Company or failure of
a successor to the Company to explicitly assume and agree to be bound by this Agreement; (E) the relocation of the Company's principal executive offices to any location greater than 35 miles
from the location initially agreed upon by Executive and Company pursuant to paragraph 2(c) hereunder; or (F) a reduction of the Annual Base Salary under Section 3(a) or material
failure to pay benefits provided or referred to under this Agreement, unless, in any case, such action is remedied by the Company within ten days after receipt of notice thereof given by the
Executive. 

        (iii)  A
termination of employment by the Executive for Good Reason shall be effected by giving the Company written notice ("Notice of Termination for Good Reason") of the
termination, setting forth in reasonable detail the specific conduct of the Company that constitutes Good Reason and the specific provision(s) of this Agreement on which the Executive relies. A
termination of employment by the Executive for Good Reason shall be effective ten days following the date when the Notice of Termination for Good Reason is given, unless the event constituting Good
Reason is remedied by the Company prior to that date. Actions by the Company which constitute Good Reason shall be disregarded in the calculation of termination benefits described in Section 5.
An event shall not be deemed to constitute Good Reason if the Executive fails to deliver Notice of Termination for Good Reason within 90 days of his actual knowledge of the event. 

        (iv)  A
termination of the Executive's employment by the Executive without Good Reason shall be effected by giving the Company 30 days written notice of the
termination. 

        (d)    DATE OF TERMINATION; RESIGNATION.    The "Date of Termination" means the date of the Executive's death, the
Disability Effective Date, or the date on which the termination of the Executive's employment by the Company for Cause or without Cause or by the Executive for Good Reason or without Good Reason is
effective (each as specifically provided herein). Following termination of the Executive's employment for any reason, the Executive shall immediately resign from the Board and from all other offices
and positions he holds with the Company and its subsidiaries. For the avoidance of doubt, a delivery of notice of non-renewal of the Term by the Company shall not be deemed to be a
termination with or without Cause by the Company, nor shall it be an event of Good Reason. 

        5.    OBLIGATIONS OF THE COMPANY UPON TERMINATION.    Upon any termination of the Executive's employment, the Company
will reimburse the Executive for un-reimbursed
business expenses and pay the Executive in respect of accrued but unused vacation, in each case in accordance with Company policy. 

        (a)    OTHER THAN FOR CAUSE, DEATH OR DISABILITY; OR FOR GOOD REASON.    If, during the Term, the Company terminates
the Executive's employment for any reason other than for Cause or due to his Death or Disability, or the Executive terminates his employment for Good Reason, then the Company shall pay to the
Executive, not later than thirty days following the Date of Termination, (i) a cash lump sum equal to the sum of (A) the Executive's Annual Base Salary immediately prior to the Date of
Termination and (B) the Executive's annual target bonus for the fiscal year in which the Date of Termination occurs; and (ii) any unpaid amounts of the Executive's Annual Base Salary and
previously earned and unpaid annual bonus for periods prior to the Date of Termination; provided, however, that the amount described in the foregoing clause (i) shall be multiplied by 2 in the
event that such termination occurs on or within one year following a Change in Control. The Company shall also provide to the Executive (and, as applicable, his eligible dependents), in the event of
such a termination continued participation in the Company's medical and dental insurance plans (or substantially equivalent coverage under an alternative arrangement) as well as continued supplemental
life insurance coverage for the lesser 

of
12 months following the Date of Termination or until the Executive is provided by another employer with benefits substantially comparable to the benefits provided by the Company plans.
Payment by the Company of the amounts described in clause (i) of the first sentence of this subparagraph (a) and provision by the Company of the benefit continuation described above
shall be contingent upon the Executive's execution and non-revocation of a customary general release in favor of the Company and its affiliates. 

        (b)    DEATH AND DISABILITY.    If the Executive's employment is terminated by reason of Disability or Death during
the Term, the Company shall pay to the Executive, not later than thirty days following the Disability Effective Date or the date of Death, any earned and unpaid amounts of the Executive's Annual Base
Salary and annual bonus for periods prior to the Date of Termination. 

        (c)    BY THE COMPANY FOR CAUSE; BY THE EXECUTIVE OTHER THAN FOR GOOD REASON.    If the Executive's employment is
terminated by the Company for Cause or the Executive voluntarily terminates employment other than for Good Reason then, the Company shall pay to the Executive in a lump sum in cash within thirty days
after the Date of Termination, any portion of the Executive's Annual Base Salary and bonus earned through the Date of Termination that has not been paid. In addition, if such termination takes place
prior to the time when the Company's common stock becomes publicly traded, the Company may (but is not obligated to) repurchase from the Executive (or the transferee of such shares) each share of
common stock acquired by the Executive pursuant to the option and restricted stock awards described in Sections 3(d) and 3(e), at a per share price equal to the fair market value of such shares as of
the Date of Termination. The Executive shall obtain the consent of any transferee of such shares to such repurchase right for so long as it shall remain in effect. 

        (d)    MITIGATION; FULL SETTLEMENT.    Following termination of the Executive's employment with the Company, the
Executive shall be under no obligation to seek reemployment and there shall be no offset against amounts due the Executive under this Agreement on account of any remuneration attributable to any
subsequent employment that he may obtain except as specifically provided in this Agreement. Any amounts due under this Section 5 are in the nature of severance payments considered to be
reasonable by the Company. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances,
including set-off, counterclaim, recoupment, defense or other claim, right or action that the Company may have against Executive or others. 

        (i)    RELATIONSHIP TO OTHER BENEFITS.    The Executive's benefits under this Agreement shall be in addition to any
other amount earned, accrued or owing but not yet paid under any plan, program, arrangement or understanding covering the Executive. 

        6.    COMPETITION.    

        (a)   To
the extent permitted by law and except as set forth below, during the Executive's employment with the Company and for a period of one year after the termination of
the Executive's employment with the Company for any reason, the Executive shall not within the geographic area being served by the Company at the time of such termination, without the prior written
consent of the Board, directly or indirectly engage in the development, production, marketing, or sale of products that compete (or, upon commercialization, could compete) with products of the Company
being developed, marketed or sold as of the date of such termination (such business or activity, a "Competing Business") whether such engagement shall be as an officer, owner, employee, partner,
consultant, advisor or any other prohibited capacity. Notwithstanding the foregoing, Company agrees that Executive may serve on the Board of Directors of any Competing Business (and in no other
capacity) at any time following termination of Executive's employment, provided that Executive does not divulge or utilize the confidential information of Company in carrying out his duties as a
Director. Nothing herein will prohibit the Executive from acquiring or holding not more than five percent of any class of securities of any business. 

        (b)   The
Executive shall not, during the period commencing on the Effective Date and ending one (1) year following the termination of the Executive's employment with
the Company for any reason whatsoever, directly or indirectly, as employee, agent, consultant, stockholder, director, co-partner or in any other individual or representative capacity,
without the prior written consent of the Board, recruit or solicit for employment or engagement, any person who is employed or engaged by the Company or any of its affiliates, or otherwise seek to
influence or alter any such person's relationship with such the Company or any of its affiliates (other than in connection with the performance of Executive's duties to the Company during the Term). 

        (c)   From
and after the Effective Date, the Executive shall not make or cause to be made any disparaging remarks with respect to the Company, its management, business
practices or products, it being understood that this provision shall not be construed to prohibit truthful testimony which is legally required to be given. 

        (d)   The
Executive agrees that the restrictions set forth in Section 6(a), (b) and (c) hereof are reasonable and necessary to protect the legal interests
of the Company. The Executive further agrees that the Company shall be entitled to injunctive relief in the event of any actual or threatened breach of the restrictions and shall not be required to
post bond or prove actual damages. If the scope or content of any restriction contained in this Agreement is too broad to permit enforcement of such restriction to its full extent, then the
restriction shall be enforced to the maximum extent permitted by law, and the parties hereby consent that the scope or restriction shall be judicially modified accordingly in any proceeding brought
with respect to the enforcement of the restriction. 

        7.    INDEMNIFICATION.    The Company shall, to the fullest extent authorized under the laws of the State of Delaware,
as those laws may be amended and supplemented from time to time, indemnify the Executive if he is made, or threatened to be made, a party to an action or proceeding, whether criminal, civil,
administrative or investigative, by reason of being a director or officer of the Company or a predecessor corporation or, at the Company's request, a director or officer of another corporation,
provided, however, that the Company shall indemnify the Executive in connection with a proceeding initiated by the Executive only if such proceeding was authorized by the Board. The indemnification
provided for in this Section 7 shall not be deemed exclusive of any other rights to which the Executive may be entitled under any bylaw, agreement or vote of stockholders or disinterested
directors or otherwise, both as to action in the Executive's official capacities and as to action in another capacity while holding such office. 

        8.    DISPUTE RESOLUTION; ATTORNEYS' FEES.    Other than with respect to the Company's right to obtain injunctive
relief under Section 6 (which shall not be subject to the provisions of this Section 8), all disputes arising under or in connection with this Agreement shall be resolved by binding
arbitration, to be held in Chicago, Illinois in accordance with the rules and procedures of the American Arbitration Association, National Rules for the Resolution of Employment Disputes. The dispute
shall be resolved by one arbitrator mutually acceptable to Executive and the Company. If no single arbitrator can be agreed upon by the parties, the dispute shall be resolved by a three-person panel
of arbitrators, with one arbitrator chosen by Executive, one chosen by the Company, and the third chosen by the arbitrators selected by Executive and the Company. Judgment upon the award rendered by
the arbitrators may be entered in any court having jurisdiction thereof. The prevailing party shall be entitled to recover its reasonable attorneys' fees and costs incurred in connection with the
pursuit of any claim arising out of this Agreement, including but not limited to, all reasonable fees, costs, and expenses or the arbitration. 

        9.    SUCCESSORS.    

        (a)   This
Agreement is personal to the Executive, and without the prior written consent of the Company the Executive's rights under the Agreement shall not be assignable
(except by will or the laws of descent and distribution). This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. 

        (b)   This
Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. 

        (c)   The
Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or
assets of the Company expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would have been required to perform it if no such succession
had taken place. As used in this Agreement, the term "Company" shall mean both the Company as defined above and any such successor. 

        10.    MISCELLANEOUS.    

        (a)   This
Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, without reference to principles of conflict of laws. The
captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified except by a written agreement executed by the parties
hereto or their respective successors and legal representatives. 

        (b)   All
notices and other communications under this Agreement shall be in writing and shall be given by hand delivery to the other party, by overnight courier or by
certified mail, return receipt requested, postage prepaid, addressed as follows: 

If
to the Executive:

17415 Pauma Valley Circle

Dallas, TX 75287-7419 

If
to the Company: 

        or
to such other address as either party furnishes to the other in writing in accordance with this Section 10(b). 

        (c)   Notwithstanding
any other provision of this Agreement, the Company may withhold from amounts payable under this Agreement all federal, state, local and foreign taxes
that are required to be withheld by applicable laws or regulations. 

        (d)   The
provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any such provision shall not affect the validity or enforceability
of the other provisions hereof. 

        (e)   The
Executive's or the Company's failure to insist upon strict compliance with any provisions of, or to assert any right under, this Agreement shall not be deemed to be
a waiver of such provision or right or of any other provision of or right under this Agreement. 

        (f)    This
Agreement constitutes the entire understanding of the parties with respect to its subject matter and supersedes any other agreement or other understanding, whether
oral or written, express or implied, between them concerning, related to or otherwise in connection with, the subject matter hereof. 

        (g)   The
rights and benefits of the Executive under this Agreement may not be anticipated, assigned, alienated or subject to attachment, garnishment, levy, execution or other
legal or equitable process except as required by law. Any attempt by the Executive to anticipate, alienate, assign, sell, transfer, pledge, encumber or charge the same shall be void. Payments
hereunder shall not be considered assets of the Executive in the event of his insolvency or bankruptcy. 

        (h)   This
Agreement shall terminate upon the expiration of the Term or, if earlier, upon the termination of the Executive's employment under any of the circumstances
described in Section 4, except that terms of this Agreement which must survive the termination this Agreement in order to be effectuated (including the provisions of Sections 5, 6, 7 and
8) shall survive. 

        (i)    This
Agreement may be executed in several counterparts, each of which shall be deemed an original and which together shall constitute but one and the same instrument. 

        IN
WITNESS WHEREOF, the Executive and the Company have executed this Agreement under seal, as of the day and year first above written. 

	 	MCLEODUSA, INC.
	

 	

By:	

/s/ Stan Springel

	 	Title: Chief Restructuring Officer
	

 	

/s/ Royce J. Holland
 ROYCE J. HOLLAND

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Exhibit 10.4

EMPLOYMENT AGREEMENTExhibit
10.5

 

MCLEODUSA
INCORPORATED

STOCK OPTION
AGREEMENT

 

STOCK OPTION AGREEMENT (the “Agreement”)
by and between McLeod USA Incorporated (the “Company”) and Royce J.
Holland (the “Optionee”), dated as of January 1, 2006 under the McLeodUSA
Incorporated 2006 Omnibus Equity Plan (the “Plan”).

 

1.                                       Definitions.
Capitalized terms which are not defined herein shall have the meaning set forth
in the Plan.

 

2.                                       Number of
Shares and Exercise Price. The Company hereby grants to the Optionee an
option (the “Option”), subject to the terms and conditions set forth herein and
in the Plan, to purchase 750,000 shares of Company Stock (“Shares”), subject to
adjustment in accordance with Section 3 of the Plan, at a price (the “Exercise
Price”) of $8.33 per Share (subject to adjustment in accordance with Section 3
of the Plan). The Option is a nonqualified stock option. The grant of the
Option is in full satisfaction of the obligations set forth in Section 3(c) of
the Employment Agreement between the Participant and the Company, dated as of
January 1, 2006 (the “Employment Agreement”) and the parties hereby acknowledge
that the share amount, exercise price and vesting provisions set forth in this
Agreement shall govern the Option in lieu of the share amount, exercise price
and vesting provisions set forth in Section 3(c) of the Employment Agreement.

 

3.                                       Term of
Option and Conditions of Exercise.

 

(a)                                  Term of Option.
Unless the Option is earlier terminated pursuant to this Agreement, the term of
the Option shall commence on the Date of Grant and terminate upon the tenth
anniversary of the Date of Grant, provided, however, that if on or after the
sixth anniversary of the Date of Grant the Shares are or become listed on a
national securities exchange, the term of the Option will expire on the 90th
day following such sixth anniversary or, if later, the date upon which the
Shares become so listed. For purposes of this Agreement, the Date of Grant
shall be deemed to be January 1, 2006.

 

(b)                                 Option Vesting.
Subject to the provisions of this Agreement and the Plan and the Optionee’s
continued employment with the Company on the applicable vesting dates, the
Option will become exercisable with respect to 225,000 Shares subject thereto
immediately on the Date of Grant and with respect to an additional 225,000 such
shares on each of the first two anniversaries of the Date of Grant with respect
to 75,000 such shares on the third anniversary of the Date of Grant.

 

(c)                                  Vesting Upon
Change in Control. Notwithstanding the foregoing, any outstanding and
unvested portion of the Option shall become fully vested and exercisable upon
the occurrence of a Change in Control, as such term is defined in the
Employment Agreement between the Optionee and the Company, dated as of January
1, 2006 (the “Employment Agreement”).

 

 

(d)                                 Condition to
Acceptance; Exercise. If, at the time of exercise of all or any portion of
the Option, the Board or Committee determines that it is desirable to require
the Optionee to enter into the Company’s Stockholders Agreement, it shall be a
condition to the exercise of the Option that the Optionee join such
Stockholders Agreement by executing a joinder agreement in the form provided by
the Company.

 

4.                                       Rights and
Obligations Upon Termination of Employment or Service.

 

(a)                                  If the Optionee’s
employment terminates due to the Optionee’s death or Disability, the Option
will become fully vested immediately prior to such termination. For purposes of
this Agreement, “Disability” shall have the meaning set forth in the Company’s
long-term disability in which the Optionee participates, or, if there is no
such Plan, shall be determined by the Committee in good faith

 

(b)                                 Except as set forth
below, if the Optionee’s employment with the Company terminates for any reason,
the vested portion of the Option (giving effect to Section 4(a)) shall remain
exercisable until the later of (i) ninety (90) days following the date of such
termination and (ii) the date which is three months following the date the
Shares become listed on a national securities exchange (but in any event
subject to the maximum term of the Option set forth in Section 3(a)), and at
the end of such period the vested portion of the Option shall terminate. Notwithstanding
the foregoing, if such termination of employment occurs prior to the first
anniversary of the Date of Grant and it is by the Company for Cause or by the
Executive without Good Reason (in each case as defined in the Employment
Agreement) the (i) both the vested and unvested portion of the Option shall
terminate immediately upon such termination of employment and (ii) the Optionee
shall return to the Company any and all Shares acquired pursuant to the
exercise of the Option. The unvested portion of the Option shall terminate and
may not be exercised following the termination of the Optionee’s employment
with the Company.

 

5.                                       Nontransferability
of Option; Conditions to Transfer of Option Shares. The Option shall not be
assignable or transferable otherwise than by a duly executed and attested will
or by the laws of descent and distribution; and the Option may be exercised,
during the lifetime of the Optionee, only by the Optionee or the Optionee’s
legal representative.

 

6.                                       Exercise of
Option. The Option shall be exercised by a written notice delivered to the
Secretary of the Company at the Company’s principal executive offices in
accordance with Section 8, specifying the portion of the Option to be exercised
and accompanied by payment therefor. The exercise price for any Shares
purchased pursuant to the exercise of the Option shall be paid in full upon
such exercise in cash, by wire transfer or certified check or by such other
method as may be approved by the Committee.

 

2

 

7.                                       Rights as a
Shareholder.

 

(a)                                  By accepting the
Option, the Optionee acknowledges that the Optionee is and will be subject to
the applicable provisions of the Plan with respect to Shares acquired pursuant
to such exercise, including, without limitation, the provisions of Section 9 of
the Plan, and that the Optionee has read and understood such provisions and the
provisions referenced therein.

 

(b)                                 Other Restrictions.
Notwithstanding anything to the contrary contained herein, all repurchases of
and payments for the Shares by the Company shall be subject to applicable legal
restrictions and any restrictions in the Company’s and its Affiliates’ debt and
equity financing agreements. If any such restrictions prohibit the repurchase
of or payment for the Shares hereunder, the Company shall make such repurchases
or payments as soon as it is permitted to do so under such restrictions.

 

8.                                       Notices. All
notices and other communications under this Agreement shall be in writing and
shall be given by hand delivery to the other party, by confirmed facsimile
transmission or by registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:

 

	
  If to the Optionee:

  	
  Royce J. Holland

  	
   

  
	
   

  	
  17415 Pauma Valley Circle

  	
   

  
	
   

  	
  Dallas, TX 75287

  	
   

  
	
   

  	
   

  	
   

  
	
  If to the Company:

  	
  6400 C Street, SW

  	
   

  
	
   

  	
  Cedar Rapids, IA 52406-3177

  	
   

  
	
   

  	
  Attention: Optim Plan Administrator-HR

  	
   

  

 

Either party may furnish to the other in writing a substitute address
and phone and fax numbers for delivery of notice in accordance with Section 8. Notices
and communications shall be effective when actually received by the addressee.

 

9.                                       Incorporation
of Plan; Acknowledgement. The Plan is hereby incorporated herein by
reference and made a part hereof, and the Option and this Agreement are subject
to all terms and conditions of the Plan. In the event of any inconsistency
between the Plan and this Agreement, the provisions of the Plan shall govern. By
signing this Agreement, the Optionee acknowledges having received and read a
copy of the Plan. In the event of any inconsistency between the Plan, this
Agreement, and the Employment Agreement on matters regarding the rights and
obligations of the Company and the Optionee upon termination of employment or
service, the provisions of the Employment Agreement shall govern.

 

10.                                 Adjustment of
Option. The Option shall be subject to the adjustment provisions set forth
in Section 3 of the Plan.

 

11.                                 Governing Law. This
Agreement shall be governed by and construed according to the laws of the State
of Delaware, without regard to the conflicts of law rules thereof.

 

3

 

12.                                 Amendment and
Termination. Rights and obligations under this Agreement shall not be
adversely altered or impaired by termination or amendment of the Plan, except
with the consent of the Optionee.

 

13.                                 Representations.

 

(a)                                  The Optionee hereby
represents and warrants that, upon exercise of the Option, the Optionee will be
acquiring Shares for investment solely for his own account and not with a view
to, or for resale in connection with, the distribution or other disposition
thereof. The Optionee agrees and acknowledges that he will not, directly or
indirectly, offer, transfer, sell, assign, pledge, hypothecate or otherwise
dispose of any Shares, or solicit any offers to purchase or otherwise acquire
or take a pledge of any Shares, unless such offer, transfer, sale, assignment,
pledge, hypothecation or other disposition complies with (A) the provisions of
the Plan and this Agreement and (B) the Securities Act or an exemption
therefrom.

 

(b)                                 The Optionee
acknowledges and represents that he has been advised by the Company that (i)
the offer and sale of the Shares have not been registered under the Securities
Act; (ii) if acquired, the Shares must be held indefinitely and Optionee must
continue to bear the economic risk of the investment in the Shares; (iii) a
restrictive legend with respect to the foregoing shall be placed on the
certificates representing the Shares; and (iv) a notation shall be made in the
appropriate records of the Company indicating that the Shares are subject to
restrictions on transfer and, if the Company should at some time in the future
engage the services of a securities transfer agent, appropriate stop-transfer
instructions will be issued to such transfer agent with respect to the Shares.

 

14.                                 Counterparts. This
Agreement may be executed in several counterparts, each of which shall be
deemed an original and said counterparts shall constitute but one and the same
instrument.

 

IN WITNESS WHEREOF, the
parties hereto have executed this Agreement as of the date and year set forth
above.

 

 

	
   

  	
  MCLEODUSA INCORPORATED

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Bernard L. Zuroff

  	
   

  
	
   

  	
  By: Bernard L. Zuroff

  
	
   

  	
  Title: General Counsel, GVP and Secretary

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Royce J. Holland

  	
   

  

 

4

 

[McLeodUSA letterhead]

 

February 27, 2007

 

Royce J. Holland

17415 Pauma Valley Circle

Dallas, TX  75287

 

Re:          Amendment of
Option Agreement

 

Dear Royce,

 

McLeodUSA Incorporated and you hereby agree to amend your Stock Option
Agreement, dated as of January 1, 2006, covering the grant of a nonqualified
stock option for 750,000 shares of Common Stock, to increase the exercise price
from $8.33 per share to $8.43 per share (subject to adjustment in accordance
with Section 3 of the 2006 Omnibus Equity Plan).

 

McLeodUSA Incorporated hereby agrees to pay you a cash bonus of
$75,000, less applicable withholding, on January 2, 2008 or as soon thereafter
as practicable.

 

Please sign below to indicate your agreement to the foregoing.

 

 

	
   

  	
  McLeodUSA Incorporated

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Bernard L. Zuroff

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
  General Counsel

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Agreed:

  	
   

  
	
   

  	
   

  
	
  /s/ Royce J. Holland

  	
   

  	
   

  
	
  Royce J. Holland

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