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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 1)*
McLeod, Inc.
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(Name of Issuer)
Class A Common Stock
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(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
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(Name, Address and Telephone Number of Person Authorized to Receive Notices and
Communications)
January 30, 1997
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(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).
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SCHEDULE 13D
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CUSIP No. 582266 10 2 Page 2 of 7 Pages
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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
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X]
(b) [ ]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
PF, OO
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e) [ ]
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States of America
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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
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
9,249,126
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
25.0%/1/
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14 TYPE OF REPORTING PERSON*
IN
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*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.
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CUSIP No. 582266 10 2 Page 3 of 7 Pages
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SCHEDULE 13D
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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
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X]
(b) [ ]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
PF, OO
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e) [ ]
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States of America
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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
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
4,446,530
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
12.0%
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14 TYPE OF REPORTING PERSON*
IN
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*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.
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CUSIP No. 582266 10 2 Page 4 of 7 Pages
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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.
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CUSIP No. 582266 10 2 Page 5 of 7 Pages
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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.
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CUSIP No. 582266 10 2 Page 6 of 7 Pages
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Item 6. Contracts, Arrangements, Understandings or Relationships with
Respect to Securities of the Issuer.
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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.
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CUSIP No. 582266 10 2 Page 7 of 7 Pages
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Signature
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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
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MARY E. MCLEOD
/s/ MARY E. MCLEOD
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<PAGE>
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)
<PAGE>
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
<PAGE>
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
<PAGE>
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.
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. 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.
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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:
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