UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) August 12, 2005
MCLEODUSA INCORPORATED
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(Exact Name of Registrant as Specified in Its Charter)
DELAWARE
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(State or Other Jurisdiction of Incorporation)
0-20763 42-1407240
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(Commission File Number) (IRS Employer Identification No.)
McLeodUSA Technology Park
4200 C. Street SW, P.O. Box 3177
Cedar Rapids, IA 52406-3177
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(Address of Principal Executive Offices) (Zip Code)
(319) 364-0000
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(Registrant's Telephone Number, Including Area Code)
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(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of
the following provisions (see General Instruction A.2. below):
|_| Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT
ITEM 1.02 TERMINATION OF A MATERIAL DEFINITIVE AGREEMENT
On August 12, 2005, Chris A. Davis resigned as Chief Executive Officer of
McLeodUSA Incorporated (the "Company") and G. Kenneth Burckhardt resigned as
the Company's Executive Vice President and Chief Financial Officer and as a
Director. On the same date, the Company entered into individual Separation
Agreements with Ms. Davis and Mr. Burckhardt that replace Ms. Davis and Mr.
Burckhardt's employment agreements with the Company. The Separation Agreements
are hereby incorporated by reference and are attached hereto as Exhibits 10.1
and 10.2, respectively. Neither the Company nor the executives have continuing
employment obligations under the former employment agreements.
The Separation Agreements require the Company, in lieu of amounts otherwise
due under their respective employment agreements, to make one-time payments,
on or before August 12, 2005, of $1,388,800 to Ms. Davis and $910,000 to Mr.
Burckhardt (plus any and all accrued and unpaid salary and vacation pay due as
of such date). The Company is also required under these agreements to maintain
through October 14, 2007 for the benefit of Ms. Davis and through August 12,
2007 for Mr. Burckhardt, and their respective families, the medical, dental,
prescription and group life insurance benefit plans and programs in which they
were participating prior to their resignations. In the event that such
participation is not allowed under the terms of such plans or programs, the
Company must make substantially similar alternative arrangements available at
no additional cost to Ms. Davis or Mr. Burckhardt.
In addition, the Separation Agreements provide that each of Ms. Davis and Mr.
Burckhardt will waive and release any rights against the Company that he or
she may have to indemnification, contribution or similar claims upon the
occurrence of certain specified conditions, including the grant of the same
releases to each of them by certain of the Company's lenders.
Also on August 12, 2005, the Company entered into the Second Amendment (the
"Amendment") to the McLeodUSA Incorporated Employment Security Severance Plan
(the "Plan"), such Amendment to be effective August 12, 2005. The Amendment is
hereby incorporated by reference and attached hereto as Exhibit 10.3. The
Amendment provides that if an eligible employee participating in the Plan
experiences a Qualifying Termination (as defined in the Plan) prior to the
occurrence of a Change in Control, then such Employee shall be entitled to
receive a Severance Benefit (as defined in the Plan) and for purposes of
determining the Severance Benefit, a Change in Control shall be deemed to have
occurred on August 12, 2005.
ITEM 5.02 DEPARTURE OF DIRECTORS OR PRINCIPAL OFFICERS; ELECTION OF
DIRECTORS; APPOINTMENT OF PRINCIPAL OFFICERS
On August 15, 2005, the Company issued a press release, which is hereby
incorporated by reference and attached hereto as Exhibit 99.1, announcing that
Chris A. Davis had notified the Company on August 12, 2005 of her resignation
as Chief Executive Officer, effective as of that date. Ms. Davis will remain
as Chairman of the Board of Directors. G. Kenneth Burckhardt also notified the
Company of his resignation as Executive Vice President, Chief Financial
Officer and a Director of the Company, effective August 12, 2005. Joseph H.
Ceryanec, age 44, Group Vice President - Controller and Treasurer of the
Company, has been appointed as the acting Chief Financial Officer. Mr.
Burckhardt has affirmed that he has no disagreements with the Board or the
Company's management.
Also on August 12, 2005, the Company appointed Stan Springel as Chief
Restructuring Officer. Stan Springel, age 58, is a Managing Director with
Alvarez & Marsal, LLC ("A&M"), a turnaround and restructuring consulting firm.
Prior to joining A&M in January 2003, Mr. Springel provided similar services
as an independent contractor. In the past five years, Mr. Springel has worked
with a variety of companies and industries to provide turnaround and
restructuring services, generally in the role of Chief Restructuring Officer
or Chief Executive Officer.
Mr. Springel, as an employee of A&M, was designated as an officer of the
Company pursuant to a letter agreement dated as of August 15, 2005, between
the Company and A&M (the "Letter Agreement"). The Letter Agreement amends and
restates a prior agreement dated March 29, 2005 between the parties pursuant
to which A&M was retained to provide restructuring advisory services to the
Company. Under the terms of the Letter Agreement, the Company will pay
$125,000 per month to A&M for the services of Mr. Springel as Chief
Restructuring Officer. In addition, the Company will pay to A&M an hourly rate
ranging from $175 to $675 for the services of other employees of A&M. The
Company will also compensate A&M for reasonable out-of-pocket expenses. The
Letter Agreement may be terminated by either party without cause upon two
weeks prior written notice, subject to the payment by the Company of any fees
and expenses due to A&M. If the Company terminates the Letter Agreement for
cause, it will be relieved of all of its payment obligations, except for the
payment of fees and expenses incurred by A&M through the effective date of
termination. A copy of the Letter Agreement is hereby incorporated by
reference and attached hereto as Exhibit 10.4.
The Company initially retained the services of A&M on March 29, 2005 to
provide restructuring advisory services. At such time, the Company paid A&M a
retainer fee of $350,000 and has since paid approximately $1,764,880 to A&M.
Under the terms of the Letter Agreement, Mr. Springel will continue to be
employed by A&M and, while rendering services to the Company, will continue to
work with A&M personnel in connection with other unrelated matters.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
Exhibit No. Description
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10.1 Separation Agreement, dated as of August 12, 2005, by and
between McLeodUSA Incorporated and Ms. Chris A. Davis
10.2 Separation Agreement, dated as of August 12, 2005, by and
between McLeodUSA Incorporated and Mr. G. Kenneth Burckhardt
10.3 Second Amendment to the McLeodUSA Incorporated Employment
Security Severance Plan, effective as of August 15, 2005
10.4 Letter Agreement, dated as of March 29, 2005 and amended and
restated as of August 12, 2005, by and between Alvarez &
Marsal, LLC and McLeodUSA, Incorporated
99.1 Press Release, dated August 15, 2005
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MCLEODUSA INCORPORATED
Dated: August 16, 2005 By: /s/ James E. Thompson
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Name: James E. Thompson
Title: Group Vice President and
General Counsel and
Secretary
EXHIBIT INDEX
Exhibit No. Description
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10.1 Separation Agreement, dated as of August 12, 2005, by and
between McLeodUSA Incorporated and Ms. Chris A. Davis
10.2 Separation Agreement, dated as of August 12, 2005, by and
between McLeodUSA Incorporated and Mr. G. Kenneth Burckhardt
10.3 Second Amendment to the McLeodUSA Incorporated Employment
Security Severance Plan, effective as of August 12, 2005
10.4 Letter Agreement, dated as of March 29, 2005 and amended and
restated as of August 15, 2005, by and between Alvarez &
Marsal, LLC and McLeodUSA, Incorporated
99.1 Press Release, dated August 15, 2005