-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, A3d+Cs0vVabPgGZ5r6I18Fwq7ZRa3H0FRFQHonAx56dtBp6w+hRudRRlndTYgsvu 9YqovPSUPB4mRBmjMIPnwg== 0000928385-97-000647.txt : 19970411 0000928385-97-000647.hdr.sgml : 19970411 ACCESSION NUMBER: 0000928385-97-000647 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 19970410 SROS: NONE GROUP MEMBERS: MARY E. MCLEOD GROUP MEMBERS: MCLEOD CLARK E SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: MCLEOD INC CENTRAL INDEX KEY: 0000919943 STANDARD INDUSTRIAL CLASSIFICATION: RADIO TELEPHONE COMMUNICATIONS [4812] IRS NUMBER: 584214072 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-46203 FILM NUMBER: 97578307 BUSINESS ADDRESS: STREET 1: TOWN CENTRE STREET 2: 221 THIRD AVENUE S E SUITE 500 CITY: CEDAR RAPIDS STATE: IA ZIP: 52401-1522 BUSINESS PHONE: 319-398-70 MAIL ADDRESS: STREET 1: TOWNE CENTRE STREET 2: 221 THIRD AVENUE SE SUITE 500 CITY: CEDAR RAPIDS STATE: IA ZIP: 52401-1522 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: MCLEOD CLARK E CENTRAL INDEX KEY: 0001017448 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 221 THIRD AVENUE S E STREET 2: SUITE 500 CITY: CEDAR RAPIDS STATE: IA ZIP: 52401 BUSINESS PHONE: 3193987000 MAIL ADDRESS: STREET 1: 221 THIRD AVENUE S E STREET 2: SUITE 500 CITY: CEDAR RAPIDS STATE: IA ZIP: 52401 SC 13D/A 1 SCHEDULE 13D/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 13D UNDER THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. 1)* McLeod, Inc. - ------------------------------------------------------------------------------- (Name of Issuer) Class A Common Stock - ------------------------------------------------------------------------------- (Title of Class of Securities) 582266 10 2 -------------- (CUSIP Number) Casey D. Mahon, c/o McLeod, Inc., 221 Third Ave. S.E., Suite 500, Cedar Rapids, IA 52401 (319) 298-7000 - ------------------------------------------------------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) January 30, 1997 ------------------------------------------------------- (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(b)(3) or (4), check the following box [ ]. NOTE: Six copies of this statement, including all exhibits, should be filed with the Commission. See Rule 13d-1(a) for other parties to whom copies are to be sent. *The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). SCHEDULE 13D - --------------------- ----------------- CUSIP No. 582266 10 2 Page 2 of 7 Pages - --------------------- ----------------- - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON Clark E. McLeod c/o McLeod, Inc., 221 Third Avenue SE, Suite 500 Cedar Rapids, Iowa 52401 - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X] (b) [ ] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* PF, OO - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ] - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION United States of America - -------------------------------------------------------------------------------- 7 SOLE VOTING POWER 4,802,596 NUMBER OF ---------------------------------------------------- SHARES 8 SHARED VOTING POWER BENEFICIALLY 4,446,530 See Item 5 OWNED BY ---------------------------------------------------- EACH 9 SOLE DISPOSITIVE POWER REPORTING 4,802,596 PERSON ---------------------------------------------------- WITH 10 SHARED DISPOSITIVE POWER 0 ---------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 9,249,126 - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 25.0%/1/ - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* IN - -------------------------------------------------------------------------------- *SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION. /1/ Includes shares owned by Mary McLeod representing 12.0% of the Class A Common Stock of McLeod Inc. - --------------------- ----------------- CUSIP No. 582266 10 2 Page 3 of 7 Pages - --------------------- ----------------- SCHEDULE 13D - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON Mary E. McLeod c/o McLeod, Inc. 221 Third Avenue SE, Suite 500 Cedar Rapids, Iowa 52401 - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X] (b) [ ] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* PF, OO - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ] - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION United States of America - -------------------------------------------------------------------------------- 7 SOLE VOTING POWER 0 NUMBER OF ---------------------------------------------------- SHARES 8 SHARED VOTING POWER BENEFICIALLY 4,446,530 See Item 5 OWNED BY ---------------------------------------------------- EACH 9 SOLE DISPOSITIVE POWER REPORTING 4,446,530 PERSON ---------------------------------------------------- WITH 10 SHARED DISPOSITIVE POWER 0 - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 4,446,530 - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 12.0% - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* IN - -------------------------------------------------------------------------------- *SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION. - --------------------- ----------------- CUSIP No. 582266 10 2 Page 4 of 7 Pages - --------------------- ----------------- This statement amends the Schedule 13D filed with the Securities and Exchange Commission on June 24, 1996 by Clark E. McLeod and his wife, Mary E. McLeod (collectively, the "Reporting Persons"), relating to the Class A Common Stock, par value $.01 (the "Class A Common Stock"), of McLeod, Inc. (the "Company"). Item 3. Source and Amount of Funds or Other Consideration ------------------------------------------------- Item 3 is hereby amended by adding the following supplemental information: On July 15, 1996, in exchange for the surrender of shares of Ruffalo, Cody & Associates, Inc. ("Ruffalo, Cody") common stock owned by the Reporting Persons and in connection with the acquisition of Ruffalo, Cody by the Company, Clark McLeod and Mary McLeod each acquired 38,609 shares of Class A Common Stock having a value of $24.00 per share (based on the price range of the Class A Common Stock reported by the Nasdaq Stock Market prior to July 12, 1996). According to the terms of the acquisition, 11,584 shares of the 77,218 shares of Class A Common Stock received by the Reporting Persons were placed in escrow to be released, if at all, over a period of 18 months, contingent upon the fulfillment of certain conditions relating to Ruffalo, Cody's ongoing revenues. In January 1997, 5,792 shares of Class A Common Stock were released to Mrs. McLeod pursuant to the escrow agreement. On November 20, 1996, Clark McLeod purchased 53,572 shares of Class A Common Stock and Mary McLeod purchased 53,571 shares of the Class A Common Stock (for a total of 107,143 shares of Class A Common Stock) for a purchase price of $28.00 per share in the November 1996 public offering of Class A Common Stock by the Company (the "November 1996 Public Offering") as described in Item 5 below. The funds used to purchase these shares came from the Reporting Persons' personal funds. On January 30, 1997, in exchange for the surrender of shares of Digital Communications of Iowa, Inc. ("Digital Communications") common stock owned by the Reporting Persons and in connection with the acquisition of Digital Communications by the Company, Clark McLeod and Mary McLeod each acquired 24,625 shares of Class A Common Stock having a value of $26.65 per share (based on the average price of the Class A Common Stock reported by the Nasdaq Stock Market at the time of the transaction). Item 4. Purpose of Transaction ---------------------- Item 4 is hereby amended by adding the following supplemental information: The Reporting Persons have acquired the shares of Class A Common Stock described in Item 3 above for investment. The Reporting Persons may, from time to time, depending upon market conditions and other factors deemed relevant by the Reporting Persons, acquire additional shares of Class A Common Stock. Except as described in this Schedule 13D report, the Reporting Persons have no present plans or proposals that relate to or would result in any of the actions described in subparagraphs (a) through (j) of Item 4 of Schedule 13D. Item 5. Interest in Securities of the Issuer ------------------------------------ Item 5 is hereby amended and restated in its entirety as follows: (a) As of March 19, 1997, Clark McLeod beneficially owns an aggregate of 9,249,126 shares of Class A Common Stock which represents approximately 25.0% of the shares of Class A Common Stock outstanding on March 19, 1997. The shares beneficially owned by Clark McLeod include 4,446,530 shares owned by Mary McLeod. Mary McLeod has granted Clark McLeod a power of attorney to vote her respective shares. The amount reported as beneficially owned by Clark McLeod also includes 183,752 shares of Class A Common Stock that Mr. McLeod has the right to purchase within 60 days pursuant to outstanding options.exit As of March 19, 1997, Mary McLeod beneficially owns an aggregate of 4,446,530 shares of Class A Common Stock which represents approximately 12.0% of the shares of Class A Common Stock outstanding on March 19, 1997. - --------------------- ----------------- CUSIP No. 582266 10 2 Page 5 of 7 Pages - --------------------- ----------------- As a result of an Investor Agreement among the Reporting Persons, Midwest Capital Group, Inc., MWR Investments Inc. ("MWR") and IES Investments Inc. ("IES") (collectively, the "Investor Stockholders"), the Investor Stockholders may be deemed to comprise a group within the meaning of Section 1 3(d)(3) of the Securities Exchange Act of 1934. Collectively, this group beneficially owns a total of 28,390,029 shares of Class A Common Stock which represents approximately 54.0% of the shares of Class A Common Stock outstanding on March 19, 1997 (assuming all Class B Common Stock shares are converted into Class A Common Stock shares). (b) The number of shares of Class A Common Stock as to which Clark McLeod has (i) sole power to vote or direct the vote 4,802,596 (ii) shared power to vote or direct the vote 4,446,530 (iii) sole power to dispose or direct the disposition 4,802,596 (iv) shared power to dispose or direct the disposition 0 The number of shares of Class A Common Stock as to which Mary McLeod has (i) sole power to vote or direct the vote 0 (ii) shared power to vote or direct the vote 4,446,530 (iii) sole power to dispose or direct the disposition 4,446,530 (iv) shared power to dispose or direct the disposition 0 (c) Clark McLeod and Mary McLeod each acquired 38,609 shares of Class A Common Stock having a value of $24.00 per share (based on the price range of the Class A Common Stock reported by the Nasdaq Stock Market prior to July 12, 1996) in exchange for the surrender of shares of Ruffalo, Cody common stock in connection with a merger of a wholly owned subsidiary of the Company and Ruffalo, Cody. According to the terms of the acquisition, 11,584 shares of the 77,218 shares of Class A Common Stock received by the Reporting Persons were placed in escrow to be released, if at all, over a period of 18 months, contingent upon the fulfillment of certain conditions relating to Ruffalo, Cody's ongoing revenues. In January 1997, 5,792 shares of class A Common Stock were released to Mary McLeod pursuant to the escrow agreement. Clark McLeod purchased 53,572 shares of Class A Common Stock and Mary McLeod purchased 53,571 shares of the Class A Common Stock (for a total of 107,143 shares of Class A Common Stock) for a purchase price of $28.00 per share in the November 1996 Public Offering of Class A Common Stock of the Company. Clark McLeod and Mary McLeod each made a gift of 83,125 shares of Class A Common Stock during December 1996 to certain individuals and charitable institutions, thus reducing their aggregate overall equity interest in the Company by 166,250 shares of Class A Common Stock. Clark McLeod and Mary McLeod each acquired 24,625 shares of Class A Common Stock on January 30, 1997 having a value of $26.65 per share (based on the average price of the Class A Common Stock reported by the Nasdaq Stock Market at the time of the transaction) in exchange for the surrender of Digital Communications common stock in connection with a merger of a wholly-owned subsidiary of McLeod, Inc. and Digital Communications of Iowa, Inc. Except for the transactions described in this Item 5(c), neither Clark McLeod nor Mary McLeod have effected any other transactions in the Class A Common Stock during the past 60 days. (d) Not applicable. - --------------------- ----------------- CUSIP No. 582266 10 2 Page 6 of 7 Pages - --------------------- ----------------- Item 6. Contracts, Arrangements, Understandings or Relationships with Respect to Securities of the Issuer. ------------------------------------------------------------- Item 6 is hereby amended by adding the following supplemental information: Effective as of October 23, 1996, the Investor Stockholders and the Company entered into an amendment ("Amendment No. 1") to the existing investor agreement between the Investor Stockholders and the Company, effective as of June 10, 1996. Amendment No. 1 provides that in the event that either IES or MidAmerican Energy Holdings Company ("MidAmerican") becomes the beneficial owner of 50% or more of the shares of capital stock of the Company beneficially owned by the other (the "Acquired Investor Stockholder"), (i) the Acquired Investor Stockholder will lose the right to nominate a director to the Board, (ii) until October 23, 1999, the acquiring party (the "Acquiring Investor Stockholder") will vote all shares beneficially owned by such party in excess of 25% of the voting power of the outstanding capital stock of the Company either (A) in accordance with the recommendations of the Board or (B) for or against or abstaining in the same proportion as the shares owned by all other stockholders, (iii) the Acquiring Investor Stockholder will cause, or use its best efforts to cause, all shares of capital stock of the Company beneficially owned by it to be represented in person or by proxy at all stockholder meetings through October 23, 1999, and (iv) the Acquiring Investor Stockholder will not, and will use its best efforts to cause its affiliates and its associates not to, deposit any such shares of capital stock of the Company in a voting trust or enter into a voting agreement or other agreement of similar effect with any other person prior to October 23, 1999. In the event a third party becomes the beneficial owner of 50% or more of the shares of capital stock of the Company beneficially owned by MidAmerican and 50% or more of the shares of capital stock of the Company beneficially owned by IES, Amendment No. 1 provides that IES and MWR (i) will lose the right to nominate any directors to the Board, (ii) until October 23, 1999, will vote, or use their respective best efforts to direct the voting of, all shares beneficially owned by such third party in excess of 25% of the voting power of the outstanding capital stock of the Company either (A) in accordance with the recommendations of the Board of Directors of the Company (the "Board of Directors") or (B) for or against or abstaining in the same proportions as the shares owned by all other stockholders, (iii) will cause, or use their best efforts to cause, all shares of capital stock of the Company beneficially owned by them to be represented in person or by proxy at all meetings of the Company's stockholders through October 23, 1999, and (iv) will not, and will use their respective best efforts to cause their affiliates and associates not to, deposit any such shares of capital stock of the Company in a voting trust or enter into a voting agreement or other agreement of similar effect with any other person prior to October 23, 1999. In connection with the November 1996 Public Offering, Clark McLeod has entered into an agreement (the "November 1996 Lock-up Agreement") with the underwriters of the November 1996 Public Offering pursuant to which he has agreed that for a 120-day period commencing on November 15, 1996, he will not sell or otherwise dispose of any equity security of the Company without the consent of such underwriters. Mr. McLeod obtained the consent of such underwriters to permit his gift of the 83,125 shares of Class A Common Stock reported above. The foregoing descriptions of Amendment No. 1 and the November 1996 Lock-up Agreement are qualified in their entirety by reference to Amendment No. 1 and the November 1996 Lock-up Agreement which are filed as exhibits to this Schedule, and are incorporated herein by reference. On January 27, 1996, the Reporting Persons entered into an agreement (the "Loan Agreement") with Morgan Stanley & Co. International Limited ("MSIL") and Morgan Stanley & Co. Incorporated as agent, (together, with MSIL, "Morgan Stanley"), pursuant to which Morgan Stanley agreed to extend to the Reporting Persons, who are the beneficial owners of an account held at Morgan Stanley (the "Account"), a loan for up to twenty-five million dollars ($25,000,000) (the "Loan"), subject to certain conditions set forth in the Loan Agreement. In consideration of Morgan Stanley's extension of the Loan, the Reporting Persons agreed to deposit with Morgan Stanley as collateral for the Loan (1) that number of shares of the Company's Class A Common Stock with a current market value of not less than $75 million (the "Shares"), (2) cash and securities acceptable to Morgan Stanley with a value of at least $4 million (the "Additional Securities"), and (3) all of the proceeds of the Loan (the "Reinvestment Securities"), which may be invested in the Account in securities acceptable to Morgan Stanley. The Loan Agreement, the Shares, the Additional Securities and the Reinvestment Securities constitute "Collateral" in connection with the Loan Agreement, pursuant to which the Reporting Persons promise to pay interest on the unpaid principal amount of the Loan (including any unpaid interest) from the date the Loan was made until it is paid in full at a rate equal to Morgan Stanley's base rate as customarily applied to its margin accounts minus .25% (7.0% at the time of the Loan, for a total base rate of 6.75%). In December 1996, the Reporting Persons obtained the consent of the Board of Directors to permit the pledge of the Shares to MSIL. The foregoing description is qualified in its entirety by reference to the Form of Loan Agreement filed as Exhibit 3 to this Schedule. Item 7. Material to be Filed as Exhibits -------------------------------- 1. Amendment No. 1 to Investor Agreement dated as of October 23, 1996, by and among the Company, IES Investments, Inc., Midwest Capital Group Inc., MWR Investments Inc., Clark E. McLeod and Mary E. McLeod (previously filed with the Securities and Exchange Commission as Exhibit 4.3 to the Company's Registration Statement on Form S-1, File No. 333-13885, and incorporated by reference herein). 2. Lock-up Letter from Clark E. McLeod to Salomon Brothers Inc., Morgan Stanley & Co. Incorporated and Bear Stearns & Co. Inc. dated November 14, 1996. 3. Form of Loan Agreement by and between Clark E. McLeod, Mary E. Mcleod and Morgan Stanley International Limited with Morgan Stanley & Co. Incorporated, as agent. - --------------------- ----------------- CUSIP No. 582266 10 2 Page 7 of 7 Pages - --------------------- ----------------- Signature - --------- After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Date: April 10, 1997 CLARK E. MCLEOD /s/ CLARK E. MCLEOD - -------------------------- MARY E. MCLEOD /s/ MARY E. MCLEOD - -------------------------- EX-2 2 EXHIBIT 2 Exhibit 2 McLeod, Inc. ----------- Public Offering of Class A Common Stock --------------------------------------- November 14, 1996 Salomon Brothers Inc Bear, Stearns & Co. Inc. Morgan Stanley & Co. Incorporated As Representatives of the several Underwriters c/o Salomon Brothers Inc Seven World Trade Center New York, New York 10048 Dear Sirs: This letter is being delivered to you in connection with the proposed Underwriting Agreement (the "Underwriting Agreement"), between McLeod, Inc., a Delaware corporation (the "Company"), certain Selling Stockholders named therein and each of you as Representatives of a group of Underwriters named therein, relating to an underwritten public offering of Class A Common Stock, $.01 par value (the "Common Stock"), of the Company. In order to induce you and the other underwriters to enter into the Underwriting Agreement, the undersigned agrees not to offer, sell or contract to sell, or otherwise dispose of, directly or indirectly, or announce an offering of, any shares of Common Stock beneficially owned by the undersigned or any securities convertible into, or exchangeable for, shares of Common Stock for a period of 120 days following the day on which the Underwriting Agreement is executed without the prior written consent of Salomon Brothers Inc, except shares of Common Stock disposed of as bona fide gifts or pledges where the recipients of such gifts or the pledgees, as the case may be, agree in writing with the Underwriters to be bound by the terms of this letter. If for any reason the Underwriting Agreement shall be terminated prior to the Closing Date (as defined in the Underwriting Agreement), the agreement set forth above shall likewise be terminated. Yours very truly, /s/ Clark E. McLeod ------------------------------ (Sign Name) Clark E. McLeod ------------------------------ (Print Name) EX-3 3 EXHIBIT 3 Exhibit 3 FORM OF LOAN AGREEMENT Morgan Stanley & Co. International Limited ("MSIL"), with Morgan Stanley & Co. Incorporated ("MS&Co.") as agent, (together with MSIL, "Morgan Stanley") agrees to extend to Mary E. McLeod and Clark E. McLeod, (together, the "Borrowers") who are the beneficial owners of an account held at Morgan Stanley numbered _______________ (the "Account"), for the consideration described below, a loan (the "Loan") for up to twenty-five million dollars ($25,000,000) subject to the following terms and representations: 1. In consideration of Morgan Stanley's extension of the Loan, Borrowers agree to deposit with Morgan Stanley as collateral for the Loan (1) that number of shares of Class A common stock of McLeod, Inc. (the "Company") with a current market value of not less than $75 million, (2) cash and securities acceptable to Morgan Stanley with a value of at least $4 million (the "Additional Securities"), and (3) all of the proceeds of the Loan (the "Reinvestment Securities"), which may be invested in the Account in securities acceptable to Morgan Stanley. The Shares, the Additional Securities and the Reinvestment Securities shall constitute the "Collateral." 2. Borrowers promise to pay interest on the unpaid principal amount of the Loan (including any unpaid interest) from the date the Loan is made until it is paid in full at a rate equal to Morgan Stanley's base rate as customarily applied to its margin accounts minus .25% (currently, a base rate of 7.0% for a total of 6.75%). Interest shall be computed on the basis of the actual number of days elapsed over a year of 360 days and the base rate (broker's call) is subject to change without notice, however, Morgan Stanley shall not otherwise change the rate without notice. 3. All payments hereunder shall be made at the office of Morgan Stanley set forth above or such other office as Morgan Stanley may notify Borrowers, in lawful money of the United States of America and in immediately available funds. 4. Borrowers agree and represent that, as of the date of execution of this Agreement, there are no existing liens, pledges or encumbrances against the Collateral, other than (1) an Underwriter's Lock-Up Agreement ("Lock-Up") applicable to the Shares, which shall expire on June 10, 1997, and (2) the Investor Agreement, dated as of April 1, 1996 and amended on October 23, 1996, by and among the Company, IES Investments Inc., Midwest Capital Group, Inc., MWR Investments, Inc., Clark E. McLeod, Mary E. McLeod and the stockholders of the Company whose signatures appear on Appendix I to the Investor Agreement, which will expire on ________________. Borrowers further agree and represent that they have obtained a consent from the Company in order to permit the Borrowers to pledge the Shares to Morgan Stanley or any affiliate. The parties agree that the Lock-up does not restrict Borrowers' ability to pledge the Collateral to Morgan Stanley and Morgan Stanley agrees to abide by the terms of the Lock-up as Pledgee. Borrowers agree and represent that the Collateral deposited with Morgan Stanley will not be withdrawn unless either the Loan is satisfied in full or Morgan Stanley consents to such withdrawal. Borrowers represent that Borrowers will not sell any shares of the Company through Morgan Stanley, any other broker or dealer, or through any other means, or pledge additional shares of the Company to any other broker or dealer, during the term of this Agreement without the first giving notice to and requesting consent from Morgan Stanley in the form attached hereto as Exhibit A and any sale or pledge without 1 Morgan Stanley's consent, shall be considered an event of default, triggering Borrowers' obligation to immediately repay the Loan and interest in full; except that Borrowers may make gifts of shares of the Company to family members, charities or foundations without notice to or consent from Morgan Stanley. 5. The Borrowers agree that to the extent that the market value of the Reinvestment Securities, together with the Additional Securities, falls, such that the market value is less than or equal to 75% of the proceeds of this Loan, the Borrowers shall deposit additional cash and/or securities of a type acceptable to Morgan Stanley which shall also constitute Collateral, so the value of the Reinvestment Securities together with the additional deposit is at least equal to 85% of the proceeds of this Loan. Morgan Stanley agrees that to the extent that the market value of the Reinvestment Securities, together with the Additional Securities, rises, such that the market value is greater than 105% of that total, the Borrowers shall have the right to withdraw cash and/or securities representing such excess. Morgan Stanley's rights and remedies under the Customer's Agreement signed by the Borrowers shall not be limited by this provision or any other term of this Agreement. The representations and warranties of the Borrowers contained in this Agreement will be deemed repeated on each date on which Collateral is transferred to Morgan Stanley. 6. Borrowers represent and warrant that (i) Borrowers acquired the Shares on the dates listed on the Schedule to this Agreement and, as of those dates, made full payment of the purchase price, (ii) Borrowers do not know or have reason to believe that the Company has not complied with the reporting requirements contained in Rule 144(c)(1) under the Securities Act of 1933; (iii) Borrowers have the requisite power and authority to execute and deliver this Agreement and any agreements or other documents executed by them or to be executed by them in connection herewith (collectively, the "Loan Documents"), (iv) Borrowers' execution, delivery and performance of the Loan Documents will not violate any law, rule, regulation or judgment applicable to or agreement binding upon him; and (v) each of the Loan Documents constitutes their legal, valid and binding obligation enforceable in accordance with its terms except as enforcement thereof may be limited by applicable bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally or by general equity principles. Borrowers undertake to inform Morgan Stanley of any changes in any of the representations or warranties made by Borrowers under any section of this Agreement. 7. Morgan Stanley shall have a security interest in the Collateral, and its interest therein shall be first and fully perfected. Further, Morgan Stanley shall have a continuing security interest in the proceeds of any sales of the Collateral and its interest therein shall be first and fully perfected and subject to no other liens, pledges and encumbrances until such time as the Loan has been repaid in full. In the event of a breach or default under this Agreement or the Customer Agreement, Morgan Stanley shall have all rights and remedies available to a secured creditor under any applicable law in addition to the rights and remedies provided herein. 8. Borrowers agree to repay the Loan at any time upon Morgan Stanley's written demand or in the event that Borrowers are in default with respect to any of the provisions of this Agreement or upon any of the events listed in paragraph 9 of this Agreement. If Borrowers refuse or are unable to repay the Loan as provided herein, Morgan Stanley shall have the right to liquidate the Collateral (in addition to the rights specified in paragraph 9 of this 2 Agreement), and any resulting deficit shall be for Borrowers' account and risk. Any loan made pursuant to this Agreement may be prepaid voluntarily without penalty at any time. 9. Morgan Stanley is hereby authorized, in its discretion, (a) upon Mr. McLeod's death, or the undersigned's breach of this Agreement, (b) upon a breach, repudiation, misrepresentation or default (howsoever characterized) by the undersigned of any other Agreement with MSIL, MS&Co., or any affiliate of either entity, (c) upon the filing by or against the undersigned of a petition or other proceeding in bankruptcy, insolvency, or for the appointment of a receiver, (d) upon the levy of an attachment against the accounts of the undersigned, (e) upon the failure of the undersigned to fulfill or discharge any obligations relating to the purchase or sale of securities or commodities, including but not limited to the failure to make a payment on demand, or (f) should Morgan Stanley for any reason whatsoever deem it necessary or desirable for its protection, to cancel any outstanding orders for the purchase or sale of any securities or other property, or to sell any or all of the securities and commodities or other property which may be in its possession or control (either individually or jointly with others), or to buy in any securities, commodities or other property of which the account or accounts of Borrowers may be short. Such sale, purchase or cancellation may be made on the exchange or other market where such business is then usually transacted, or at public auction or at private sale, without advertising the same and with two days notice to Borrowers of the time or place of sale or to the personal representatives of Borrowers, and without prior tender, demand or call of any kind upon Borrowers or upon the personal representatives of Borrowers, all of which are expressly waived, and Morgan Stanley may purchase the whole or any part thereof free from any right of redemption, and Borrowers shall remain liable for any deficiency; it being understood that a prior tender, demand or call of any kind from Morgan Stanley, or prior notice from Morgan Stanley, of the time and place of such sale or purchase shall not be considered a waiver of its right to sell or buy any securities and/or commodities and/or other property held by Morgan Stanley or any of its affiliates, or which Borrowers may owe to Morgan Stanley, at any time as provided herein. 10. CHOICE OF DISPUTE RESOLUTION. ANY DISPUTE BORROWERS MAY HAVE WITH MORGAN STANLEY ARISING OUT OF, RELATING TO OR IN CONNECTION WITH THIS AGREEMENT SHALL BE DETERMINED BY ARBITRATION OR LITIGATION IN COURT AT THE ELECTION OF BORROWER. REGARDLESS OF WHETHER BORROWERS CHOOSE TO PROCEED BY ARBITRATION OR LITIGATION, BORROWERS AND MORGAN STANLEY AGREE TO FOLLOW THE PROCEDURES AND ABIDE BY THE REQUIREMENTS LISTED BELOW. 11. ARBITRATION: . ARBITRATION IS FINAL AND BINDING ON THE PARTIES. . THE PARTIES ARE WAIVING THEIR RIGHT TO SEEK REMEDIES IN COURT, INCLUDING THE RIGHT TO JURY TRIAL. . PRE-ARBITRATION DISCOVERY IS GENERALLY MORE LIMITED THAN AND DIFFERENT FROM COURT PROCEEDINGS. 3 . THE ARBITRATORS' AWARD IS NOT REQUIRED TO INCLUDE FACTUAL FINDINGS OR LEGAL REASONING AND ANY PARTY'S RIGHT TO APPEAL OR TO SEEK MODIFICATION OF RULINGS BY THE ARBITRATORS IS STRICTLY LIMITED. . THE PANEL OF ARBITRATORS WILL TYPICALLY INCLUDE A MINORITY OF ARBITRATORS WHO WERE OR ARE AFFILIATED WITH THE SECURITIES INDUSTRY. ANY ARBITRATION SHALL BE CONDUCTED ONLY BEFORE THE NEW YORK STOCK EXCHANGE, INC., THE AMERICAN STOCK EXCHANGE, INC., THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. OR ANY OTHER SELF-REGULATORY ORGANIZATION OF WHICH MORGAN STANLEY IS A MEMBER. BORROWER HAS THE RIGHT TO ELECT ARBITRATION BEFORE ONE OF THE FOREGOING ORGANIZATIONS, BUT IF BORROWER FAILS TO MAKE SUCH ELECTION BY CERTIFIED LETTER ADDRESSED TO MORGAN STANLEY BEFORE THE EXPIRATION OF TEN DAYS AFTER RECEIPT OF A WRITTEN REQUEST FROM MORGAN STANLEY TO MAKE SUCH ELECTION, THEN MORGAN STANLEY MAY MAKE SUCH ELECTION. NOTHING IN THIS AGREEMENT SHALL BE CONSTRUED AS CONSENT BY MORGAN STANLEY TO AN AWARD OF PUNITIVE DAMAGES. THE AWARD OF THE ARBITRATORS, OR THE MAJORITY OF THEM, SHALL BE FINAL, AND JUDGMENT UPON THE AWARD RENDERED MAY BE ENTERED IN ANY COURT, STATE OR FEDERAL, HAVING JURISDICTION. NO PERSON SHALL BRING A PUTATIVE OR CERTIFIED CLASS ACTION TO ARBITRATION, NOR SEEK TO ENFORCE ANY PRE-DISPUTE ARBITRATION AGREEMENT AGAINST ANY PERSON WHO HAS INITIATED IN COURT A PUTATIVE CLASS ACTION; WHO IS A MEMBER OF A PUTATIVE CLASS WHO HAS NOT OPTED OUT OF THE CLASS WITH RESPECT TO ANY CLAIMS ENCOMPASSED BY THE PUTATIVE CLASS ACTION UNTIL: (i) THE CLASS CERTIFICATION IS DENIED; (ii) THE CLASS IS DECERTIFIED; OR (iii) THE CUSTOMER IS EXCLUDED FROM THE CLASS BY THE COURT. SUCH FORBEARANCE TO ENFORCE AN AGREEMENT TO ARBITRATE SHALL NOT CONSTITUTE A WAIVER OF ANY RIGHTS UNDER THIS AGREEMENT EXCEPT TO THE EXTENT STATED HEREIN. 12. LITIGATION IN COURT: (A) UNLESS THE PARTIES OTHERWISE AGREE IN WRITING WHEN ANY DISPUTE ARISES, ANY LITIGATION MUST BE INSTITUTED IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK OR THE SUPREME COURT OF THE STATE OF NEW YORK FOR THE COUNTY OF NEW YORK. (B) ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY CLAIM OR ACTION IS HEREBY WAIVED BY ALL PARTIES TO THIS AGREEMENT. 4 13. Borrowers hereby waives presentment, demand (except as expressly required herein), notice, protest and all other demands or notices in connection with the delivery, acceptance, performance, default or enforcement of this Agreement. No course of action or delay or omission of the holder in exercising any right or remedy hereunder or under the Loan Documents shall constitute or be deemed to be a waiver of any right or remedy hereunder or under the Loan Documents, and a waiver on one occasion shall not operate as a bar to or waiver of any such right or remedy on any future occasion. 14. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to the principles of conflicts of laws. WHEREFORE, the parties have made and entered into this Agreement as of the date first herein below written. NOTICE: THIS AGREEMENT CONTAINS A PRE-DISPUTE ARBITRATION CLAUSE IN PARAGRAPH 11. NOTICE OF AND REQUEST FOR CONSENT TO SALE OR PLEDGE Pursuant to the Loan agreement executed among Morgan Stanley & Co. International Limited ("MSIL"), Morgan Stanley & Co. Incorporated ("MS&Co." and with MSIL, "Morgan Stanley") and Mary E. McLeod and Clark E. McLeod ("Borrowers"), Borrowers hereby notify Morgan Stanley of Borrowers' intention to sell or pledge ________ shares of Class A common stock of McLeod, Inc. to or through _________. Morgan Stanley shall have 5 days from the date of receipt of the Notice to respond to Borrowers. By: ------------------------------- ------------------------------- -----END PRIVACY-ENHANCED MESSAGE-----