Document:

Exhibit 10.5

 

AMENDMENT NO. 2 TO

ASSET PURCHASE AGREEMENT

 

This AMENDMENT NO. 2 TO ASSET PURCHASE AGREEMENT
(this “Amendment”), dated as of October 16, 2003, is made and entered into by
and between INTERNATIONAL INTEGRATED
INCORPORATED, a British Virgin Islands company (“Purchaser”), * * *  (“Seller”)
and INTERNATIONAL INTEGRATED DEVELOPMENT COMPANY, a Delaware corporation
(“Servicer”).

 

RECITALS

 

WHEREAS
Purchaser and Seller are parties to that certain Asset Purchase Agreement,
dated April 19, 2002 (as amended pursuant to Amendment No. 1 to Asset Purchase
Agreement dated as of November 20, 2002, the “Agreement”), pursuant to which,
Purchaser agreed to purchase certain assets and assume certain liabilities of
Seller.  Capitalized terms used in this
Amendment but not defined herein shall have the same meanings given to such
terms in the Agreement.

 

WHEREAS
pursuant to the Agreement, Purchaser agreed to make certain payments to be
applied to the Purchase Price, including Weekly Payments in the amount of * * * beginning on Thursday April 25, 2002
and on each Thursday thereafter until the first to occur of the Closing,
termination of the Agreement, or January 1, 2004.

 

WHEREAS
Seller and Purchaser have agreed to amend the Purchase Price to provide for a
single additional lump sum cash payment and a stock payment, each to be paid in
accordance with this Agreement.

 

* * *

 

WHEREAS
Seller and Purchaser have agreed that Seller will engage Servicer to assist
Seller in * * *  in
accordance with the terms of this Amendment.

 

WHEREAS
Seller and Purchaser have agreed to terminate all Weekly Payments and have
agreed that Purchaser shall be responsible for funding and paying any related
costs associated with * * *, which
have been previously the Seller’s responsibility.

 

WHEREAS
Purchaser and Seller desire to amend the Agreement as hereinafter provided.

 

NOW, THEREFORE,
in consideration of the foregoing and of the covenants and agreements contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree hereby
as follows:

 

1.     Deposits.  Seller acknowledges and agrees that, as of October 16, 2003, the
sum total of the Initial Deposit, the Execution Deposit and all Weekly Deposits
equals * * *  (the sum of all such
payments are referred to herein as the “Payments to Date”).

 

* * * = Confidential Treatment
Requested

 

1

 

2.     Amendment to the Purchase Price; Closing
Date; Payment.

 

2.1           The Purchase Price is hereby amended
to equal the sum of (a) the Payments to Date, (b) * * *  in cash (the “Cash
Payment”), and (c) the Equity Shares (as defined in Section 2.3 below).  Payment of the Purchase Price, as amended
hereby shall be, full and timely performance of Purchaser’s obligations under
the Agreement.

 

2.2           The Closing Date shall be a date not
later than 30 calendar days following the date on which both of the following
events shall have occurred:  (a) * * *.

 

2.3           At the Closing Purchaser shall (a)
pay to Seller the Cash Payment and (b) deliver to Seller certificates
representing the Equity Shares, duly issued in Seller’s name or in the name of
Seller’s nominee, with such legends thereon as shall be appropriate under
applicable securities law. * * *.

 

3.     Transition Services.

 

3.1           Seller hereby retains Servicer as its
sole and exclusive supplier of management services for the purpose of
conducting all operations and managing all assets of Seller other than the
Principal Obligations (collectively, the “Operations”) until the Closing.  The Operations shall specifically include
all operations, asset administration, expenditures, and other actions in
connection with * * *.

 

3.2           Servicer agrees to provide such
personnel that, in addition to Seller’s personnel, are in Servicer’s judgment
reasonably necessary or appropriate to manage the Operations until the
Closing.  Servicer shall otherwise be
entitled to exercise its reasonable business judgment in managing the
Operations and shall be under no other obligation to Seller or its officers,
directors or shareholders.

 

3.3           Seller agrees to cooperate, and shall
use its best efforts to cause all of its employees, consultants and other
agents and representatives to cooperate, with Servicer in conducting the
Operations.  In addition, Seller shall
remain responsible, in cooperation with Servicer, for the timely and efficient
conduct of the Principal Obligations and agrees to use its reasonable best
efforts to keep available the services of its current officers, key employees and
consultants and to preserve the current relationships of Seller with such of
the customers, suppliers, regulators and other persons and entities with which
Seller has significant business relations as is reasonably necessary to
preserve substantially intact its business organization.  As used herein, the “Principal Obligations”
shall be the obligations of Seller under the Agreement, as amended by this
Amendment, and all actions deemed necessary or appropriate by Servicer to be
taken by Seller in * * *.  Except for
any conduct necessary to discharge the Principal Obligations and which are
approved by Servicer and liabilities incurred or obligations created by
Servicer on Seller’s behalf after the date hereof and which will be funded by
Purchaser, Seller shall not incur any liability or create any obligation from
or after the date hereof until after the Closing.

 

3.4           Purchaser, at no risk, cost or
liability to Seller, agrees to provide such funding to Seller as Servicer shall
reasonably require to manage the Operations, including the payment of amounts
due to Seller’s employees, including taxes and related benefits, and
consultants from and after the date hereof, other than sums due to any employee
or consultant of

 

* * * = Confidential Treatment
Requested

2

 

Seller pursuant to an agreement who have provided services to Seller
prior to the date hereof and payable in connection with or related to the * * *  (the
“Success Fees”).  To accommodate the
funding required hereunder and Servicer’s administration of the payment of
Seller’s operating liabilities and the expenses of the Operations, Seller shall
on or before November 1, 2003 establish a mutually acceptable operating bank
account with appropriate signatories designated by Servicer.  Seller shall maintain, without alteration,
such account until the Closing and thereafter for such time as is mutually
agreed to accommodate the transition of the business and operations of Seller
to Purchaser.

 

4.     Indemnification.  In consideration for the change in this
Purchase Price and the elimination of the obligation to make Weekly Deposits,
the provisions of Sections 1.4 and 5.6 are hereby modified and amended as
follows:

 

4.1           The indemnification provided in
Section 1.4 is hereby amended and restated in its entirety to provide as
follows:

 

Except with respect to the Assumed
Liabilities and the liabilities disclosed to Purchaser in Schedule 4.1 to this
Amendment (collectively, the “Seller Indemnified Liabilities”) and provided that
a Closing occurs, Seller agrees to indemnify and hold harmless Purchaser, its
subsidiaries and its shareholders from and against any loss, liability or
expense arising from or related to (i) the Assets which arise prior to the date
hereof or (ii) the Success Fees.  The
foregoing indemnity shall include but not be limited to any loss, liability or
expense arising from or related to claims of creditors of Seller or any of its
subsidiaries.  The amount of any
indemnification due pursuant to this Section shall be calculated after taking
into account the amount of all insurance, cash or other direct financial
benefits paid to any indemnified person (including any such benefits paid by
third parties) and after taking into account the United States federal, state
and local and foreign national, provincial and local tax benefits or detriments
to such indemnified person, calculated assuming such indemnified person was a
taxpayer subject to tax at the highest marginal rate in effect when the payment
is made, of the payments made in respect of such loss, claim, demand, cost or
expense giving rise to the indemnification and the payments, including
indemnification payments made in respect thereto.

 

4.2           Except with respect to the Seller
Indemnified Liabilities and provided that a Closing occurs, Purchaser agrees to
indemnify and hold harmless Seller, its subsidiaries and its shareholders from
and against any loss, liability or expense arising from or related to the
Assets which arise prior to or after the date hereof.  The foregoing indemnity shall include but not be limited to any
loss, liability or expense arising from or related to claims of creditors of
Seller or Purchaser or any of its subsidiaries that are not Seller Indemnified
Liabilities.  The amount of any indemnification
due pursuant to this Section shall be calculated after taking into account the
amount of all insurance, cash or other direct financial benefits paid to any
indemnified person

 

* * * = Confidential Treatment
Requested

 

3

 

(including any such benefits paid by third parties) and after taking
into account the United States federal, state and local and foreign national,
provincial and local tax benefits or detriments to such indemnified person,
calculated assuming such indemnified person was a taxpayer subject to tax at
the highest marginal rate in effect when the payment is made, of the payments
made in respect of such loss, claim, demand, cost or expense giving rise to the
indemnification and the payments, including indemnification payments made in
respect thereto.

 

4.3           Section 5.6(a)(1)(C) of the Agreement
is hereby amended and restated in its entirety to provide as follows:

 

(C)           except
with respect to the Seller Indemnified Liabilities, the business, operations or
assets of Seller prior to the date of this Amendment or the actions or
omissions of Seller’s directors, officers, shareholders, employees or agents
prior to the Closing Date (other than such actions or omissions taken at the
direction of Servicer);

 

4.4           Purchaser hereby covenants and agrees
to indemnify, defend, protect and hold harmless Seller and its officers,
directors, employees, shareholders, assigns, successors and affiliates
(individually, an “Indemnified Party” and collectively, “Indemnified Parties”)
from, against and in respect of:

 

(a)           all
liabilities, losses, claims, damages, punitive damages, causes of action,
lawsuits, administrative proceedings (including informal proceedings),
investigations, audits, demands, assessments, adjustments, judgments,
settlement payments, deficiencies, penalties, fines, interest (including
interest from the date of such damages) and costs and expenses (including
reasonable attorneys’ fees and disbursements of every kind, nature and
description) (collectively, “Damages”) suffered, sustained, incurred or paid by
the Indemnified Parties in connection with, resulting from or arising out of,
directly or indirectly:

 

(1)           any breach of any representation or
warranty of Purchaser set forth in this Agreement (as amended) or any Schedule
or certificate delivered by or on behalf of Purchaser in connection herewith;

 

(2)           any nonfulfillment of any covenant or
agreement by Purchaser under the Agreement (as amended);

 

(3)           except as provided in Section
5.6(a)(1)(C) of the Agreement (as amended), the Seller Indemnified Liabilities
and the business, operations or assets of Seller prior to the Closing Date or
the actions or omissions of Purchaser’s or Servicer’s directors, officers,
shareholders, employees or agents prior to or after the date hereof; and

 

(4)           any and all Damages incident to any
of the foregoing or to the enforcement of this Section 4.4.

 

4.5           Notwithstanding anything to the
contrary in Section 4.4 above:

 

4

 

(a)           there shall be no liability for
indemnification under Section 4.4 unless and until, the aggregate amount of
Damages exceeds $10,000 upon which Purchaser shall be liable for all Damages
including the $10,000 (the “Indemnification Threshold”).

 

(b)           the indemnification obligations under
Section 4.4, or under any certificate or writing furnished in connection
herewith, shall terminate at the date that is the later of clause (1) or (2) of
this Section 4.4(b):

 

(1)           the third anniversary of the Closing
Date; or

 

(2)           the final resolution of Claims (as
defined in Section 4.6 below) pending as of the date described in clause (1) of
this Section 4.5(b) (such Claims referred to as “Pending Claims”).

 

4.6           All claims or demands for
indemnification under Section 4.4 (“Claims”) shall be asserted and resolved as
follows:

 

(a)           In the event that any Indemnified
Party has a Claim against any party obligated to provide indemnification
pursuant to Section 4.4 hereof (the “Indemnifying Party”) which does not
involve a Claim being asserted against or sought to be collected by a third
party, the Indemnified Party shall with reasonable promptness notify Purchaser
of such Claim, specifying the nature of such Claim and the amount or the
estimated amount thereof to the extent then feasible (the “Claim Notice”).  If Purchaser does not notify the Indemnified
Party within 30 days after the date of delivery of the Claim Notice that
Purchaser disputes such Claim, with a detailed statement of the basis of such
position, the amount of such Claim shall be conclusively deemed a liability of
Purchaser hereunder.  In case an
objection is made in writing in accordance with this Section 4.6(a), the
Indemnified Party shall respond in a written statement to the objection within
30 days and, for 60 days thereafter, attempt in good faith to agree upon the
rights of the respective parties with respect to each of such Claims (and, if
the parties should so agree, a memorandum setting forth such agreement shall be
prepared and signed by both parties).

 

(b)           (1) In the event that any Claim for
which Purchaser would be liable to an Indemnified Party hereunder is asserted
against an Indemnified Party by a third party (a “Third-Party Claim”),
the Indemnified Party shall deliver a Claim Notice to Purchaser.  Purchaser shall have 30 days from the date
of delivery of the Claim Notice to notify the Indemnified Party (i) whether the
Indemnifying Party disputes liability to the Indemnified Party hereunder with
respect to the Third-Party Claim, and, if so, the basis for such a
dispute, and (ii) if such party does not dispute liability, whether or not
Purchaser desires, at the sole cost and expense of Purchaser, to defend against
the Third-Party Claim, provided that the Indemnified Party is hereby
authorized (but not obligated) to file any motion, answer or other pleading and
to take any other action which the Indemnified Party shall deem necessary or
appropriate to protect the Indemnified Party’s interests.

 

5

 

(c)           In the event that Purchaser timely
notifies the Indemnified Party that Purchaser, as the Indemnifying Party, does
not dispute Purchaser’s obligation to indemnify with respect to the Third-Party
Claim, Purchaser shall defend the Indemnified Party against such Third-Party
Claim by appropriate proceedings, provided that, unless the Indemnified Party
otherwise agrees in writing, Purchaser may not settle any Third-Party
Claim (in whole or in part) if such settlement does not include a complete and
unconditional release of the Indemnified Party.  Purchaser shall have the right to control all aspects of any
litigation, including, but not limited to, the final consent with respect to
any settlement discussions (in accordance with the previous sentence) as well
as the selection of counsel.  If the
Indemnified Party desires to participate in, but not control, any such defense
or settlement the Indemnified Party may do so at its sole cost and expense. If
Purchaser elects not to defend the Indemnified Party against a Third-Party
Claim, whether by failure of such party to give the Indemnified Party timely
notice as provided herein or otherwise, then the Indemnified Party, without
waiving any rights against such party, may settle or defend against such Third-Party
Claim in the Indemnified Party’s sole discretion and the Indemnified Party
shall be entitled to recover from Purchaser the amount of any settlement or
judgment and, on an ongoing basis, all indemnifiable costs and expenses of the
Indemnified Party with respect thereto, including interest from the date such
costs and expenses were incurred.

 

(d)           If at any time, in the reasonable
opinion of the Indemnified Party, notice of which shall be given in writing to
Purchaser, any Third-Party Claim seeks material prospective relief which
could have an adverse effect on any Indemnified Party or Seller or any
affiliate, the Indemnified Party shall have the right but not the obligation to
control or assume (as the case may be) the defense of any such Third-Party
Claim and the amount of any judgment or settlement and the reasonable costs and
expenses of defense shall be included as part of the indemnification
obligations of Purchaser hereunder. If the Indemnified Party elects to exercise
such right, Purchaser shall have the right to participate in, but not control,
the defense of such Third-Party Claim at the sole cost and expense of
Seller.

 

(e)           Nothing herein shall be deemed to
prevent the Indemnified Party from making a Claim, and an Indemnified Party may
make a Claim hereunder, for potential or contingent Damages provided the Claim
Notice sets forth the specific basis for any such potential or contingent claim
or demand to the extent then feasible and the Indemnified Party has reasonable
grounds to believe that such Claim may be made.

 

(f)            Subject to the provisions of Section
4.5, the Indemnified Party’s failure to give reasonably prompt notice as
required by this Section 4.6 of any actual, threatened or possible claim or
demand which may give rise to a right of indemnification hereunder shall not
relieve Purchaser of any liability which Purchaser may have to the Indemnified
Party unless and to the extent the failure to give such notice prejudiced
Purchaser.

 

6

 

(g)           The amount of any indemnification due
to an Indemnified Party pursuant to Section 4.4 shall be calculated after
taking into account the amount of all insurance, cash or other direct financial
benefits payable to such Indemnified Party (including any such benefits payable
to third parties) and after taking into account the United States federal,
state and local and foreign national, provincial and local tax benefits or
detriments to the Indemnified Party, as the case may be, calculated assuming
the Indemnified Party were a taxpayer subject to tax at the highest marginal
rate in effect when the payment is made, of the payments made in respect of
such loss, claim, demand, cost or expense giving rise to the indemnification
and the payments, including indemnification payments made in respect thereto.
Seller or its affiliates shall, in addition to the obligations of Purchaser
pursuant to Section 4.4, have a right to set off the amount of any
indemnification due to an Indemnified Party pursuant to Section 4.4, as the
case may be, against any payment to Purchaser or its affiliates from Seller or
its affiliates under the Agreement (as amended) or otherwise, if and when such
payment obligation ever comes due at any time in the future.

 

5.     Effect.  Except as and to the extent amended by this Amendment, the
Agreement shall remain in full force and effect in accordance with its terms.

 

6.     Miscellaneous.

 

6.1           Successors and Assigns.  This Amendment shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns.  No party hereto may assign
this Amendment or any rights or obligations hereunder without the prior written
consent of the other party; provided, however, that Purchaser and Servicer may
assign their respective rights and obligations hereunder to an affiliate
without the consent of Seller.

 

6.2           Entire Agreement.  This Amendment and the Agreement, as
amended, sets forth the entire understanding of the parties hereto with respect
to the transactions contemplated hereby and thereby.

 

6.3           Amendment; Waiver.  This Amendment shall not be amended or
modified except by a written instrument duly executed by each of the parties
hereto.  Any extension or waiver by any
party of any provision hereto shall be valid only if set forth in an instrument
in writing signed on behalf of such party.

 

6.4           Counterparts.  This Amendment may be executed in any number
of counterparts and any party hereto may execute any such counterpart,
including by electronic facsimile, each of which when executed and delivered
shall be deemed to be an original, and all of which counterparts taken together
shall constitute but one and the same instrument.

 

6.5           Governing Law.  This Amendment and the rights and
obligations of the parties hereunder shall be governed by and construed and
interpreted in accordance with the laws of the State of California, without
regard to the conflict of laws principles thereof.

 

6.6           Severability.  If one or more provisions of this Amendment
are held to be unenforceable under applicable law, such provision shall be
excluded from this Amendment and 

 

7

 

the balance of the Amendment shall be interpreted as if such provision
were so excluded and shall be enforceable in accordance with its terms.

 

[Signature
page follows]

 

8

 

In WITNESS WHEREOF,
the parties hereto have executed this Amendment No. 2 to Asset Purchase
Agreement as of the date first above written.

 

	
   

  	
  INTERNATIONAL INTEGRATED

  
	
   

  	
  INCORPORATED, a British Virgin

  Islands company

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:  Donald K. McGhan

  
	
   

  	
  Title:  Chairman

  
	
   

  	
   

  
	
   

  	
  INTERNATIONAL INTEGRATED

  DEVELOPMENT COMPANY,
  a

  Delaware corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:  Donald K. McGhan

  
	
   

  	
  Title:  Chairman

  
	
   

  	
   

  
	
   

  	
  * * *

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:  * * *

  
	
   

  	
  Title:  President

  

 

* * * = Confidential Treatment
Requested

 

9Exhibit 4.1

 

 

CONFORMED COPY

 

 

FIRST AMENDMENT dated as of October 3,
2003 (this “Amendment”), to the Credit Agreement dated as of
April 16, 2002 (as heretofore amended, the “Credit  Agreement”) among
MCLEODUSA INCORPORATED, a Delaware corporation (the “Borrower”), the
lenders party thereto (the “Lenders”) and JPMORGAN CHASE BANK (formerly
known as The Chase Manhattan Bank), as Administrative Agent (in such capacity,
the “Administrative Agent”) and Collateral Agent.

 

The Borrower
has requested that the Lenders agree to amend certain provisions of the Credit
Agreement.  The Lenders party hereto are
willing so to amend the Credit Agreement on the terms and subject to the
conditions set forth herein. 
Capitalized terms used but not defined herein have the meanings assigned
to them in the Credit Agreement, amended hereby.

 

Accordingly,
in consideration of the mutual agreements herein contained and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

 

SECTION 1.  Amendment of
Credit Agreement.  Upon
effectiveness of this Amendment in accordance with Section 4 hereof, the
Credit Agreement is amended as follows:

 

(a)  Amendment of
Section 5.01. 
Section 5.01 of the Credit Agreement is amended by replacing the
word “quarterly” in clause (e) with the word “monthly”, deleting the word
“and” immediately after the semicolon in clause (f), redesignating clause (g)
as clause (h) and adding a new clause (g) to read as follows:

 

“(g) (i) on or prior to October 31, 2003, a financial forecast for
the Borrower and its Restricted Subsidiaries covering the periods from
(x) October 1, 2003 through December 31, 2003, prepared to show
information on a monthly basis, and (y) January 1, 2004 through December 31,
2005, prepared to show information on a quarterly basis, (ii) on or prior
to January 31, 2004, a financial forecast of the Borrower and its
Restricted Subsidiaries covering the period from January 1, 2004 through
December 31, 2004, prepared to show information on a monthly basis and
(iii)  within 30 days after the end of each fiscal month (or 50 days
if such fiscal month is the last month of a fiscal quarter or 60 days if
such fiscal month is the last month of a fiscal year) of the Borrower, (A) an unaudited
consolidated balance sheet of the Borrower and its Restricted Subsidiaries as
of the end of

 

 

such fiscal month, setting forth in comparative form (including a
column indicating percentage variance) the figures as of the end of the
previous fiscal year and the applicable month end as set forth in the
applicable financial forecast delivered pursuant to this clause (g),
(B) unaudited consolidated statements of operations and cash flows of the
Borrower and its Restricted Subsidiaries for such fiscal month and the then
elapsed portion of such fiscal year, setting forth in each case in comparative
form (including a column indicating percentage variance) the figures for the
corresponding monthly period and year-to-date period of the previous fiscal year
and the applicable monthly and year-to-date figures set forth in the applicable
financial forecast delivered pursuant to this clause (g), (C) a reasonably
detailed managements’ discussion and analysis, including a narrative discussion
of key balance sheet accounts and key income statement line items (including,
but not limited to, a description and discussion of each significant factor
contributing to revenue changes), in each case, including a comparison to the
relevant accounts and line items included in the applicable financial forecast
delivered pursuant to this clause (g) and (D) a reasonably detailed cash
flow discussion and analysis (including operating cash flow, working capital,
Capital Expenditures, actual Borrowings hereunder during such period compared
to projected Borrowings as set forth in the applicable financial forecast
delivered pursuant to this clause (g) and unused Revolving Commitments as
of the end of such fiscal month).  The
financial statements delivered pursuant to clauses (A) and (B) above shall be
certified by one of the Borrower’s Financial Officers as presenting fairly in
all material respects the financial condition and results of operations of the
Borrower and its Restricted Subsidiaries on a consolidated basis and as having
been prepared in accordance with GAAP consistently applied, subject to normal
year-end audit adjustments, regular quarterly adjustments, adjustments
resulting from differences in procedures in the closing of the Borrower’s
month-end and quarter-end books (including, but not limited to, accrual of line
costs) and the absence of footnotes.  It
is understood and agreed that the Administrative Agent may at any time, upon
reasonable advance notice to the Borrower, elect to have the benchmark for the
comparative information required under this clause (g) be the information set
forth in the most recent budget provided under clause (e) above instead of
the applicable financial forecast delivered pursuant this clause (g), and
that the benchmark for the comparative information required under this
clause (g) for the fiscal year 2005 and thereafter shall be the
information set forth in the budget provided under clause (e) for such
fiscal year; and”

 

(b)  Amendment of
Section 6.13.  The table set
forth in Section 6.13 of the Credit Agreement is amended to read as
follows:

 

2

 

	
  Period

  	
   

  	
  Ratio

  
	
   

  	
   

  	
   

  
	
  July 1,
  2003 through September 30, 2003

  	
   

  	
  13.00 to 1.00

  
	
   

  	
   

  	
   

  
	
  October 1,
  2003 through December 31, 2003

  	
   

  	
  15.00 to 1.00

  
	
   

  	
   

  	
   

  
	
  January 1,
  2004 through June 30, 2004

  	
   

  	
  13.50 to 1.00

  
	
   

  	
   

  	
   

  
	
  July 1,
  2004 through September 30, 2004

  	
   

  	
  11.00 to 1.00

  
	
   

  	
   

  	
   

  
	
  October 1,
  2004 through December 31, 2004

  	
   

  	
  8.50 to 1.00

  
	
   

  	
   

  	
   

  
	
  January 1,
  2005 through March 31, 2005

  	
   

  	
  6.00 to 1.00

  
	
   

  	
   

  	
   

  
	
  April 1,
  2005 to September 30, 2005

  	
   

  	
  5.00 to 1.00

  
	
   

  	
   

  	
   

  
	
  October 1,
  2005 and thereafter

  	
   

  	
  4.00 to 1.00

  

 

(c)  Amendment of
Section 6.14. 
Section 6.14 of the Credit Agreement is amended to read as follows:

 

SECTION 6.14.  Capital Expenditure Limitation.  The Borrower shall not permit the Capital
Expenditures of the Borrower and the Restricted Subsidiaries for any fiscal
year of the Borrower to exceed (i) with respect to the fiscal years ending
December 31, 2003 and 2004, $100,000,000 and (ii) with respect to the
fiscal years ending December 31, 2005 and thereafter, $200,000,000 (the
applicable amount under clause (i) or clause (ii), the “Capex Limit”).  The Capex Limit in respect of any fiscal
year commencing with the fiscal year ending on December 31, 2004, shall be
increased (but not decreased) by the amount of unused permitted Capital
Expenditures for the immediately preceding fiscal year (such amount, the “Capex
Carryforward”); provided, however, that in no event shall the
Capex Limit for any fiscal year be increased by more than $50,000,000.  Any Capex Carryforward that is not permitted
to be used in any fiscal year as a result of the proviso to the preceding
sentence may, subject to such proviso, be applied to any subsequent fiscal
year.

 

(d)  Amendment of
Section 6.18.  The table set
forth in Section 6.18 of the Credit Agreement is amended to read as
follows:

 

	
  Period

  	
   

  	
  Minimum

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  July 1, 2003 through
  September 30, 2003

  	
   

  	
  $

  	
  900,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  October 1, 2003 through March 31,
  2004

  	
   

  	
  $

  	
  850,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  April 1, 2004 through June 30,
  2004

  	
   

  	
  $

  	
  875,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  July 1, 2004 through
  September 30, 2004

  	
   

  	
  $

  	
  900,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  October 1, 2004 through
  December 31, 2004

  	
   

  	
  $

  	
  950,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  January 1, 2005 and thereafter

  	
   

  	
  no minimum

  	
   

  

 

3

 

SECTION 2.  Limitation on Borrowings. 
The Borrower agrees that for the period from October 1, 2003
through December 31, 2003 the total Revolving Exposure shall not exceed
$50,000,000 (no more than $40,000,000 of which shall be in the form of Loans)
in the aggregate at any time outstanding. 
The Borrower further agrees that it shall not request any Borrowing or
request the issuance of any Letter of Credit that would result in the total
Revolving Exposure exceeding the amount set forth in the preceding sentence,
and that any such request delivered during such period shall be ineffective.

 

SECTION 3.  Representations and Warranties.  To induce the other parties hereto to enter into this Amendment,
the Borrower represents to each of the Lenders and the Administrative Agent
that, as of the Effective Date:

 

(a)  after giving effect to this
Amendment, the representations and warranties of the Borrower set forth in
Article III of the Credit Agreement are true and correct on and as of the
Effective Date with the same effect as if made on and as of the Effective Date,
except to the extent such representations and warranties expressly relate to an
earlier date, in which case such representations and warranties were true and
correct as of such earlier date;

 

(b)  after giving effect to this
Amendment, no Default has occurred and is continuing under the Credit
Agreement; and

 

(c)  this Amendment has been
duly executed and delivered by the Borrower and the Credit Agreement, as
amended hereby, constitutes a legal, valid and binding obligation of the
Borrower, enforceable against the Borrower in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting creditors’ rights generally and subject to general
principles of equity, regardless of whether considered in a proceeding in
equity or at law.

 

SECTION 4.  Conditions to Effectiveness.  This Amendment
shall become effective as of the date (the “Effective Date”) on which
each of the following conditions has been satisfied:

 

(a)  the Administrative Agent
shall have received counterparts of this Amendment that, when taken together,
bear the signatures of the Borrower and the Required Lenders;

 

(b)  the Administrative Agent
shall have received a certificate of a Financial Officer of the Borrower, dated
the Effective Date, to the effect that the representations and warranties set
forth in Section 3 hereof are true and correct;

 

4

 

(c)  the Borrower shall have
paid to the Administrative Agent, in immediately available funds, for the
account of each of the Lenders entitled thereto, the Amendment Fee referred to
in Section 5 hereof; and

 

(d)  the Borrower’s Credit
Agreement dated as of May 31, 2000 shall have been amended to effect
modifications to the covenants therein equivalent to those effected to the
Credit Agreement by this Amendment, and all conditions to the effectiveness of
such amendment shall have been satisfied on the Effective Date.

 

SECTION 5.  Amendment Fee.  The
Borrower agrees to pay to the Administrative Agent, for the account of each
Lender that delivers (including by fax) an executed counterpart of this
Amendment prior to 12:00 p.m., New York City time, on October 15, 2003, an
amendment fee (the “Amendment Fee”) in an amount equal to 1.00% of the
sum of such Lender’s outstanding Loans and unused Commitments.

 

SECTION 6.  Effect of Amendment. 
Except as expressly set forth herein, this Amendment shall not by
implication or otherwise limit, impair, constitute a waiver of, amend, or
otherwise affect the rights and remedies of the Lenders or the Administrative
Agent under the Credit Agreement or any other Loan Document and shall not
alter, modify, amend or in any way affect any of the terms, conditions,
obligations, covenants or agreements contained in the Credit Agreement or any
other Loan Document, all of which are ratified and affirmed in all respects and
shall continue in full force and effect. 
This Amendment shall apply and be effective with respect only to the
matters expressly referred to herein, and nothing herein shall be deemed to
entitle the Borrower to a consent to, or a waiver, amendment, modification or
other change of, any of the terms, conditions, obligations, covenants or
agreements contained in the Credit Agreement or any other Loan Document in
similar or different circumstances.  The
modifications to the covenants effected by this Amendment shall apply
retroactively to the periods covered thereby, and the Lenders hereby waive any
Default or Event of Default that may have arisen under the Credit Agreement
(absent such retroactive modification) to the extent, but only to the extent,
that such Default or Event of Default would be, and is, cured solely as a
result of such retroactive modifications. 
This Amendment shall constitute a “Loan Document” for all purposes of
the Credit Agreement.

 

SECTION 7.  Applicable Law.  THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

 

SECTION 8.  Counterparts.  This
Amendment may be executed in any number of counterparts and by different
parties hereto in separate counterparts, each of which when so executed and
delivered shall be deemed an original but all of which when taken together
shall constitute but one and the same instrument.  Delivery of an executed signature page of this Amendment by
facsimile transmission shall be effective as delivery of a manually executed
counterpart hereof.

 

5

 

SECTION 9.  Costs and Expenses. 
The Borrower agrees to reimburse the Administrative Agent for its
reasonable out-of-pocket expenses in connection with this Amendment, including
the reasonable fees, charges and disbursements of counsel for the Administrative
Agent.

 

SECTION 10.  Headings.  The
headings of this Amendment are for purposes of reference only and shall not
limit or otherwise affect the meaning hereof.

 

6

 

IN WITNESS
WHEREOF, the parties hereto have caused this Amendment to be duly executed by
their authorized officers as of the day and year first written above.

 

	
   

  	
  MCLEODUSA INCORPORATED,

  
	
   

  
	
   

  
	
   

  	
  by:

  
	
   

  	
  /s/ G. Kenneth Burckhardt

  
	
   

  	
  Name:

  	
  G. Kenneth Burckhardt

  
	
   

  	
  Title:

  	
  Executive Vice President and

  Chief Financial Officer

  
	
   

  
	
   

  
	
   

  	
  JPMORGAN CHASE BANK,

  
	
   

  	
  individually and as Administrative Agent,

  
	
   

  
	
   

  
	
   

  	
  by:

  
	
   

  	
  /s/ John Kowalczak

  
	
   

  	
  Name:

  	
  John Kowalczak

  
	
   

  	
  Title:

  	
  Vice President

  
					

 

7

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