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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 15, 1999
PRELIMINARY COPY
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 1)
---------------------
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, For Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
MIDAMERICAN ENERGY HOLDINGS COMPANY
(Name of Registrant as Specified in Its Charter)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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PRELIMINARY COPY
[LOGO]
MIDAMERICAN ENERGY HOLDINGS COMPANY
666 GRAND AVENUE
DES MOINES, IOWA 50309
December , 1999
Dear MidAmerican Shareholder:
We invite you to attend a special meeting of shareholders of MidAmerican
Energy Holdings Company to be held at 9:00 a.m., Central time, on January 27,
2000, at .
At the special meeting, we will ask you to approve the merger of a company
formed by an investor group including Berkshire Hathaway Inc., Walter Scott,
Jr., a director of MidAmerican, and David L. Sokol, MidAmerican's Chairman and
Chief Executive Officer, with MidAmerican pursuant to a merger agreement that
we entered into on October 24, 1999. If we complete the merger, MidAmerican
shareholders will receive $35.05 in cash for each MidAmerican share they own
and MidAmerican will become 100% owned by Berkshire Hathaway, Mr. Scott, Mr.
Sokol and, possibly, other members of MidAmerican's current management. The
$35.05 per share being paid in the merger represents a premium of approximately
29% over the $27.25 closing price of MidAmerican common stock on October 22,
1999, the last trading day before we announced the signing of the merger
agreement.
We cannot complete the merger unless the conditions to closing are
satisfied, including obtaining the approval of holders of a majority of the
outstanding shares of MidAmerican common stock and satisfying various
regulatory requirements. We currently expect that the regulatory approvals will
be obtained, and that the closing of the merger will occur, by no later than the
end of April 2000.
A special committee consisting of four independent members of
MidAmerican's Board of Directors carefully reviewed, considered and negotiated
the terms and conditions of the proposed merger. Based on its review, the
special committee has unanimously determined that the terms of the merger
agreement and the merger are fair to and in the best interests of MidAmerican
and its unaffiliated shareholders. In making this determination, the special
committee considered, among other things, opinions received from Lehman
Brothers Inc. and Warburg Dillon Read LLC, the special committee's independent
financial advisors, to the effect that the $35.05 per share to be received by
you in the merger is fair to you from a financial point of view.
THE BOARD OF DIRECTORS OF MIDAMERICAN, TAKING INTO ACCOUNT THE UNANIMOUS
RECOMMENDATION OF THE SPECIAL COMMITTEE, HAS UNANIMOUSLY DETERMINED (WITH THREE
DIRECTORS AFFILIATED WITH THE INVESTOR GROUP RECUSING THEMSELVES) THAT THE
MERGER AGREEMENT AND THE MERGER ARE FAIR TO AND IN THE BEST INTERESTS OF
MIDAMERICAN AND ITS UNAFFILIATED SHAREHOLDERS AND HAS APPROVED THE MERGER
AGREEMENT AND THE MERGER. ACCORDINGLY, THE BOARD RECOMMENDS THAT YOU VOTE "FOR"
APPROVAL OF THE MERGER AGREEMENT AND THE MERGER.
The attached notice of special meeting and proxy statement explain the
proposed merger and provide specific information concerning the special
meeting. Please read these materials (including the appendices) carefully.
Your vote is important. Whether or not you plan to attend the special
meeting, you should complete, sign, date and promptly return the enclosed proxy
card to ensure that your shares will be represented at the meeting. If you
attend the special meeting and wish to vote in person, you may withdraw your
proxy and do so.
<PAGE>
If you have any questions regarding the proposed transaction, please call
MacKenzie Partners, Inc., our proxy solicitors, toll-free at 1-800-322-2885 or
collect at (212) 929-5500, or our investor relations department at (515)
281-2204.
Very truly yours,
Stanley J. Bright
Vice Chairman of the Board of Directors and
Chairman of the Special Committee
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS
OF THIS TRANSACTION OR THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
This proxy statement is dated December , 1999 and was first mailed to
MidAmerican shareholders on December , 1999.
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MIDAMERICAN ENERGY HOLDINGS COMPANY
666 GRAND AVENUE
DES MOINES, IOWA 50309
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JANUARY 27, 2000
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To the Shareholders of MidAmerican Energy Holdings Company:
A special meeting of shareholders of MidAmerican Energy Holdings Company
will be held at 9:00 a.m., Central time, on January 27, 2000, at , for the
following purposes:
1. To consider and vote upon a proposal to approve an Agreement and Plan
of Merger, dated as of October 24, 1999, among Teton Formation L.L.C.,
Teton Acquisition Corp. and MidAmerican, and the merger of Teton
Acquisition Corp. with and into MidAmerican. In the merger, (a) each
issued and outstanding share of MidAmerican common stock (other than
shares held by MidAmerican, Teton Formation, Teton Acquisition and their
respective subsidiaries and other than shares held by shareholders who
perfect dissenters' rights under Iowa law) will be converted into the
right to receive $35.05 per share in cash and (b) the articles of
incorporation of MidAmerican will be amended and restated to be
substantially in the form attached as Appendix B to the proxy statement.
We refer to this proposal in the proxy statement as the "merger
proposal;" and
2. To transact any other business that may properly come before the
meeting or any adjournment or postponement of the meeting.
The close of business on December 27, 1999 has been selected as the record
date for determining shareholders entitled to notice of, and to vote at, the
special meeting and any adjournment or postponement of the meeting. A list of
shareholders entitled to vote at the special meeting will be available for
examination at MidAmerican's principal executive offices, during ordinary
business hours, from December , 1999 until the meeting.
You have the right to dissent from the proposed merger and, upon
compliance with the procedural requirements of the Iowa Business Corporation
Act, to receive the "fair value" of your shares if the merger is completed. See
"Special Factors--Dissenters' Rights of Shareholders" and Appendix E (which
contains the relevant provisions of the Iowa Act) in the attached proxy
statement.
You should not send any certificates representing common stock with your
proxy card.
Whether or not you plan to attend the special meeting, you should
complete, sign, date and promptly return the enclosed proxy card to ensure that
your shares will be represented at the meeting. If you attend the special
meeting and wish to vote in person, you may withdraw your proxy and vote in
person.
By Order of the Board Directors
Steven A. McArthur
Senior Vice President, Mergers and Acquisitions,
and Corporate Secretary
Dated: December , 1999
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TABLE OF CONTENTS
<TABLE>
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QUESTIONS AND ANSWERS
ABOUT THE MERGER ......................... 1
SUMMARY ..................................... 3
The Parties .............................. 3
The Special Meeting ...................... 3
The Merger ............................... 4
Selected Historical Financial Data of
MidAmerican ........................... 10
INFORMATION CONCERNING THE
SPECIAL MEETING .......................... 11
Date, Time and Place of the Special
Meeting ............................... 11
Purpose of the Special Meeting ........... 11
Record Date; Quorum; Outstanding
Common Stock Entitled to Vote ......... 11
Voting Rights ............................ 11
Voting and Revocation of Proxies ......... 11
Solicitation of Proxies .................. 12
Other Matters ............................ 12
SPECIAL FACTORS ............................. 13
Background of the Merger ................. 13
Purpose of the Merger; Certain
Effects of the Merger ................. 20
Recommendations of the Special
Committee and the Board of
Directors; Reasons for the Merger ..... 21
Fairness Opinions of Lehman
Brothers and Warburg Dillon Read....... 25
Position of the Investor Group as to
the Fairness of the Merger ............ 36
Certain Projections Provided to
Financial Advisors and the Investor
Group ................................. 37
Interests in the Merger That Differ
From Your Interests ................... 38
Plans for MidAmerican Following the
Merger ................................ 41
Merger Financing; Source of Funds ........ 42
Certain Federal Income Tax
Consequences .......................... 44
Accounting Treatment ..................... 45
Dissenters' Rights of Shareholders ....... 45
THE MERGER AGREEMENT ........................ 48
The Merger ............................... 48
Representations and Warranties ........... 49
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Certain Covenants ........................ 50
Other Agreements ......................... 51
No Solicitation of Transactions .......... 51
Employee Benefit Plans ................... 52
Conditions to the Merger ................. 52
Termination of the Merger
Agreement ............................. 53
Termination Fees ......................... 54
Expenses ................................. 55
Amendment; Waiver ........................ 55
REGULATORY MATTERS .......................... 56
Antitrust Considerations ................. 56
Federal Power Act ........................ 56
Iowa Public Utility Regulation ........... 56
Illinois Public Utility Regulation ....... 56
Public Utility Holding Company Act
of 1935 ............................... 57
Nuclear Regulatory Commission
Regulation ............................ 57
European/U.K. Competition Filings ........ 57
Other Regulatory Matters ................. 57
PARTIES TO THE MERGER ....................... 58
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT .................... 60
PRICE RANGE OF COMMON
STOCK AND DIVIDENDS ...................... 61
CAUTIONARY STATEMENT
REGARDING FORWARD-
LOOKING STATEMENTS ....................... 63
OTHER INFORMATION ........................... 63
Proposals by Shareholders of
MidAmerican ........................... 63
Independent Auditors ..................... 64
Where You Can Find More
Information ........................... 64
Incorporation by Reference ............... 64
APPENDIX A: Agreement and Plan
of Merger ................................ A-1
APPENDIX B: Form of Amended
and Restated Articles of
Incorporation of MidAmerican ............. B-1
APPENDIX C: Opinion of Lehman
Brothers Inc. ............................ C-1
</TABLE>
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APPENDIX D: Opinion of Warburg
Dillon Read LLC .......................... D-1
APPENDIX E: Dissenters' Rights
Under Iowa Law ........................... E-1
APPENDIX F: Transactions Involving
MidAmerican Common Stock by
Berkshire Hathaway Inc., Walter
Scott, Jr., David L. Sokol, Teton
Formation L.L.C., Teton Acquisition
Corp., MidAmerican and Certain
Executive Officers and Directors ......... F-1
</TABLE>
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APPENDIX G: Information Relating
to Berkshire Hathaway Inc., Walter
Scott, Jr., David L. Sokol, Teton
Formation L.L.C., Teton Acquisition
Corp., MidAmerican and Certain
Executive Officers and Directors ......... G-1
</TABLE>
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QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHAT EFFECT WILL THE MERGER HAVE ON MIDAMERICAN?
A: MidAmerican will be merged with Teton Acquisition Corp., a corporation
formed by an investor group that includes Berkshire Hathaway Inc.,
Walter Scott, Jr., a director of MidAmerican, and David L. Sokol,
MidAmerican's Chairman and Chief Executive Officer. MidAmerican will be
the surviving company in the merger. After the merger has been
completed, the common stock of MidAmerican will be 100% owned by
members of the investor group and will no longer be publicly traded. In
addition, at the effective time of the merger, the articles of
incorporation of MidAmerican will be amended and restated to permit the
issuance to Berkshire Hathaway of certain preferred securities of
MidAmerican.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: If the merger is completed, you will receive $35.05 in cash in exchange
for each share of MidAmerican common stock that you own at the time of
the merger. The $35.05 per share to be paid in the merger represents a
premium of approximately 29% over the $27.25 closing price of
MidAmerican common stock on October 22, 1999, the last trading day
before we announced the signing of the merger agreement.
Q: WHAT IS THE BOARD'S RECOMMENDATION?
A: The Board has unanimously determined (with three directors affiliated
with the investor group recusing themselves) that the merger agreement
and the merger are fair to you and in your and MidAmerican's best
interests and recommends that you vote "FOR" approval of the merger
proposal. In making this determination, the Board took into account the
recommendation of a special committee consisting of four independent
members of the Board following the special committee's review and
evaluation of the fairness of the merger. The special committee and the
Board considered the opinions of their financial advisors, Lehman
Brothers and Warburg Dillon Read, to the effect that the $35.05 per
share to be received by you in the merger is fair to you from a
financial point of view.
Q. WHAT VOTE OF SHAREHOLDERS IS REQUIRED TO APPROVE THE MERGER PROPOSAL?
A: The merger proposal must be approved by the affirmative vote of the
holders of a majority of the outstanding shares of MidAmerican common
stock.
Q. WHAT DO I NEED TO DO NOW?
A: You should complete, date and sign your proxy card and mail it in the
enclosed return envelope as soon as possible so that your shares may be
represented at the special meeting, even if you plan to attend the
meeting in person.
Q. MAY I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A: Yes. You may change your vote by sending in a later dated, signed proxy
card or a written revocation before the special meeting or by attending
the special meeting and voting in person. Your attendance at the
meeting will not, by itself, revoke your proxy. If you have instructed
a broker to vote your shares, you must follow the directions received
from your broker to change those instructions.
Q: SHOULD I SEND MY STOCK CERTIFICATES NOW?
A: No. If the merger is completed, we will send you written instructions
for exchanging your stock certificates for the merger consideration.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER
VOTE MY SHARES FOR ME?
A: Your broker will vote your shares only if you provide instructions on
how to vote. You should follow the procedures provided by your broker
as to how to vote your shares.
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Q: WHAT HAPPENS IF I DO NOT SEND IN MY PROXY OR IF I ABSTAIN FROM VOTING?
A: If you do not send in your proxy or do not instruct your broker to vote
your shares or if you abstain from voting, it will have the same effect
as a vote against the merger proposal.
Q: WHAT REGULATORY APPROVALS AND FILINGS ARE NEEDED TO COMPLETE THE MERGER?
A: Before we can complete the merger, we will be required to:
o await the expiration or termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976;
o receive approvals from the Federal Energy Regulatory Commission and
the Nuclear Regulatory Commission;
o receive orders from Iowa and Illinois utility regulators permitting
the merger;
o notify utility regulators in Nebraska and South Dakota regarding
the merger; and
o await the receipt by the members of the investor group of evidence
reasonably satisfactory to them that neither they nor their
affiliates will be subject to regulation as a registered holding
company under the Public Utility Holding Company Act of 1935, as
amended (referred to in this proxy statement as the "1935 Act").
Q: WHEN DO YOU EXPECT TO MAKE THE REQUIRED REGULATORY FILINGS AND OBTAIN
THE REQUIRED REGULATORY APPROVALS?
A: We currently expect that the above regulatory filings will be made and
that the required approvals will be obtained by the end of April 2000.
However, we cannot assure you that all required approvals will be
obtained by this time.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE MERGER?
A: The merger will be a taxable transaction to you for federal income tax
purposes. A brief summary of the possible tax consequences to you
appears on pages 43-44 of this proxy statement. You should consult your
tax advisor as to the tax effect of your particular circumstances.
Q: WHAT RIGHTS DO I HAVE TO DISSENT FROM THE MERGER?
A: If you wish, you may dissent from the merger and seek an appraisal of
the fair value of your shares, but only if you comply with all
requirements of Iowa law which are set forth in Appendix E and
summarized on pages 44-46 of this proxy statement. The appraised fair
value of your shares may be more or less than the price per share to be
paid in the merger.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you have additional questions about the merger or would like
additional copies of the proxy statement, you should call MacKenzie
Partners, our proxy solicitors, toll-free at 1-800-322-2885 or collect
at (212) 929-5500, or our investor relations department at (515)
281-2204.
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SUMMARY
This summary highlights selected information from this proxy statement and
may not contain all of the information that is important to you. For additional
information concerning the merger and the terms and conditions of the merger
agreement, you should read this entire proxy statement, including the
appendices, and the other documents referred to or incorporated by reference
into this proxy statement. A copy of the merger agreement is attached to this
proxy statement as Appendix A.
THE PARTIES (PAGES 58-59)
MIDAMERICAN ENERGY HOLDINGS COMPANY
MidAmerican is headquartered in Des Moines, Iowa and has approximately 9,800
employees. Through its retail utility subsidiaries, MidAmerican provides
electric service to 2.2 million customers and natural gas service to 1.2
million customers worldwide. MidAmerican also manages and owns interests in
approximately 8,300 megawatts of diversified power generation facilities in
operation, construction and development. MidAmerican's common stock is traded
on the New York Stock Exchange, the Pacific Exchange and the London Stock
Exchange under the symbol "MEC." Information about MidAmerican and its three
principal subsidiary companies is available on the Internet at
http://www.midamerican.com.
TETON FORMATION L.L.C.
TETON ACQUISITION CORP.
Teton Formation. Teton Formation L.L.C. was formed as an Iowa limited liability
company on October 14, 1999 by an investor group consisting of Berkshire
Hathaway Inc., Walter Scott, Jr. and David L. Sokol for the purpose of entering
into the merger agreement. Teton Formation has not engaged in any business
activity other than in connection with the merger and the related transactions.
Teton Acquisition. Teton Acquisition Corp. was formed as an Iowa corporation on
October 13, 1999 for the purpose of entering into the merger agreement. Teton
Acquisition is a wholly owned subsidiary of Teton Formation and has not engaged
in any business activity other than in connection with the merger and related
transactions. Substantially all of the assets of Teton Acquisition consist of
subscription agreements with the members of the investor group, under which
such members have agreed to provide the financing required to complete the
merger.
The Investor Group. Berkshire Hathaway is a holding company owning subsidiaries
engaged in a number of diverse business activities, the most important of which
is the property and casualty insurance and reinsurance business. Warren E.
Buffett is Chairman of the Board and Chief Executive Officer of Berkshire
Hathaway. Berkshire Hathaway is traded on the New York Stock Exchange under the
symbols "BRKA" for its Class A Common Stock and "BRKB" for its Class B Common
Stock.
Mr. Scott is a director of both MidAmerican and Berkshire Hathaway and has
served as Chairman of the Board of Level 3 Communications, Inc., a
communications and information services company, since September 1979. Level 3
Communications was formerly known as Peter Kiewit Sons', Inc., for which, until
the spin-off of its construction operations in March 1998, Mr. Scott also
served as Chief Executive Officer. Certain of Mr. Scott's family members and
related family interests may hold equity interests in MidAmerican following the
merger.
Mr. Sokol has been MidAmerican's Chairman of the Board since 1994 and its Chief
Executive Officer since 1993.
THE SPECIAL MEETING
Date, Time, Place and Matters to be Considered (page 11)
The special meeting will be held at 9:00 a.m., Central time, on January 27,
2000, at . At the special meeting, you will be asked to consider and vote
upon the merger proposal.
Vote Required (page 11)
The merger proposal must be approved by the affirmative vote of the holders of
a majority of the outstanding shares of MidAmerican common stock. To the
knowledge of MidAmerican after reasonable inquiry, each of the directors and
executive officers of
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MidAmerican (including Messrs. Scott and Sokol), who collectively beneficially
own an aggregate of 5,235,791 shares of MidAmerican common stock, or 8.5% of
the shares outstanding as of November 1, 1999, have indicated their intention
to vote their shares in favor of the merger proposal.
Record Date for Voting (page 11)
The close of business on December 27, 1999 is the record date for determining
holders of shares of MidAmerican common stock entitled to vote at the special
meeting. Each share of common stock will be entitled to one vote. On the record
date, there were shares entitled to vote at the special meeting.
Revocation of Proxies (page 11-12)
You may revoke your proxy at any time before the special meeting by delivering
a written notice of revocation to our Corporate Secretary, by executing and
delivering a later-dated proxy or by attending the meeting and giving oral
notice of your intention to vote in person. Your attendance at the meeting will
not by itself constitute a revocation of your proxy.
Unless contrary instructions are indicated on your proxy, all of your shares
represented by valid proxies will be voted FOR the approval of the merger
proposal.
THE MERGER
What You will Receive in the Merger (pages 48-55)
You will receive $35.05 per share in cash in exchange for each share of
MidAmerican common stock that you own. The merger price represents a 29%
premium over the $27.25 per share closing price of MidAmerican common stock on
October 22, 1999, the last trading day before we announced the signing of the
merger agreement.
Background of the Merger; Reasons for the Merger (pages 13-25)
For a description of the events leading to the approval of the merger by the
Board, you should refer to "Special Factors -- Background of the Merger" and
"--Recommendations of the Special Committee and the Board of Directors; Reasons
for the Merger."
Purpose of the Merger; Certain Effects of the Merger (pages 20-21)
The principal purpose of the merger is to enable the members of the investor
group to own all of the equity interests in MidAmerican and to provide you with
the opportunity to receive a cash price for your shares at a premium over the
market prices at which the common stock traded before announcement of the
merger agreement.
The merger will terminate all common equity interests in MidAmerican held by
shareholders other than the members of the investor group, and the members of
the investor group will be the sole beneficiaries of any earnings and growth of
MidAmerican following the merger.
Upon completion of the merger, our common stock will be delisted from the stock
exchanges on which it currently trades and will no longer be publicly traded.
Recommendations of the Special Committee and the Board (page 21)
The Board, taking into account the recommendation of the special committee and
the opinions of Lehman Brothers and Warburg Dillon Read, has unanimously
determined (with three directors affiliated with the investor group recusing
themselves) that the merger is fair to you and in your and MidAmerican's best
interests and recommends that you vote FOR approval of the merger proposal.
Opinions of Lehman Brothers and Warburg Dillon Read (pages 25-35)
Lehman Brothers and Warburg Dillon Read each delivered an opinion to the
special committee and the Board to the effect that, as of the date of its
opinion, the price per share to be received by you in the merger was fair to
you from a financial point of view. We have attached copies of these opinions
as Appendix C and Appendix D to this proxy statement. The opinions of Lehman
Brothers and Warburg Dillon Read are addressed to the special committee and the
Board and do not constitute a recommendation as to how you should vote at the
special meeting.
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Interests in the Merger That Differ From Your Interests (pages 38-41)
In considering the Board's recommendation that you vote in favor of the merger
proposal, you should be aware that some of our directors and officers have
interests in the merger that are different from your interests as a
shareholder, including the following:
o Walter Scott, Jr., a director of MidAmerican, and David L. Sokol, the
Chairman and Chief Executive Officer of MidAmerican, are members of the
investor group and, in connection therewith, will contribute cash and/or
certain of their existing shares of MidAmerican common stock and options
to acquire MidAmerican common stock to Teton Acquisition immediately
prior to completion of the merger in exchange for equity interests in
Teton Acquisition. Those equity interests in Teton Acquisition will be
converted into equivalent equity interests in MidAmerican (valued at the
merger price) at the time of completion of the merger. The exchange of
MidAmerican common stock and options for equivalent equity interests in
Teton Acquisition, and the subsequent conversion of such interests for
equivalent equity interests in MidAmerican, is expected to be
accomplished on a tax-free basis. It is expected that Mr. Scott,
possibly together with certain of his family members and related family
interests, will own approximately 18% of the equity interests and 88.1%
of the voting interests in MidAmerican following the merger and that Mr.
Sokol will own approximately 0.4% of the equity interests and 2% of the
voting interests in MidAmerican following the merger.
o If invited by Mr. Sokol, prior to completion of the merger, up to three
other members of our management may become a part of the investor group
and, in connection therewith, may be given the opportunity to contribute
to Teton Acquisition all or a portion of their existing equity interests
in MidAmerican in exchange for equivalent equity interests in Teton
Acquisition. These equity interests in Teton Acquisition will be
converted into equivalent equity interests in MidAmerican (valued at the
merger price) at the time of completion of the merger. The maximum
amount that may be so exchanged by additional management participants,
if any, may not exceed $12.5 million in equity value. The potential
participation by additional management members, if any, would cause a
small downward adjustment to the ownership percentages of the other
members of the investor group (other than the percentage voting interest
of Berkshire Hathaway). No such offer has yet been made to any other
members of our management.
o Upon a change of control of MidAmerican (including completion of the
merger), all of Mr. Sokol's options to acquire 1,650,000 shares of
MidAmerican common stock will become immediately vested and exercisable.
In addition, under the terms of a proposed amended employment agreement
between us and Mr. Sokol that would take effect upon the completion of
the merger, assuming that Mr. Sokol contributes all of the MidAmerican
common stock and options that he owned on October 23, 1999 to Teton
Acquisition, Mr. Sokol would be entitled to receive additional options
to purchase 549,277 shares of MidAmerican common stock at a price of
$35.05 per share. Under the amended employment agreement, if the merger
is completed, the exercise term of Mr. Sokol's presently outstanding
options would also be extended to a term of eight years from the
completion of the merger. Furthermore, under Mr. Sokol's employment
agreement with us, if Mr. Sokol's employment were terminated by us
without cause, or by Mr. Sokol for good reason, Mr. Sokol would be
entitled to severance payments of approximately $8.6 million, whether or
not the merger is completed.
o It is anticipated that the additional management participants, if any, who
subsequently are invited to join the investor group would receive
additional options similar to those to be received by Mr. Sokol in
respect of a number of shares of MidAmerican common stock equal to 30% of
the total number of shares presently owned by them or subject to options
owned
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by them, but only if they contribute all of their MidAmerican common stock
and options to Teton Acquisition. In addition, such additional management
participants would have the term of their presently outstanding options
similarly extended to an eight year term, but only if they contribute at
least 65% of their existing holdings of MidAmerican common stock and
options to Teton Acquisition.
o Under the terms of various employment agreements with a number of our other
executive officers, if any executive officer's employment were
terminated by us without cause, or, following a change of control of
MidAmerican (including upon completion of the merger), by the executive
for good reason, the executive would be entitled to severance payments
in an amount equal to two years of compensation plus continued employee
benefits. In addition, some executives, including Mr. Sokol, would
receive additional participation and vesting credit under our
supplemental retirement plan. These severance payments, excluding the
severance payments to Mr. Sokol discussed above, would total
approximately $14.2 million if all of these executives were terminated.
Finally, some executives, including Mr. Sokol, would be compensated if
excise taxes were payable by such executives as a result of their
compensation arrangements.
o Mr. Scott is a director of both Berkshire Hathaway and MidAmerican. As a
result, he may owe duties to Berkshire Hathaway and its shareholders
that conflict with his duties to MidAmerican and its shareholders.
o Our directors and executive officers, excluding Messrs. Scott and Sokol,
hold a total of 117,450 shares of MidAmerican common stock and options
to purchase 1,945,844 shares of MidAmerican common stock. Upon
completion of the merger, these stock options will vest and become
immediately exercisable and will be converted into the right to receive
the difference between the $35.05 per share merger price and the
exercise price of each option.
o In the merger agreement, we are required to indemnify our directors and
officers, to keep in place the indemnification rights of our directors
and officers under our articles of incorporation and by-laws and to
maintain directors' and officers' liability insurance following the
merger.
The special committee and the Board were aware of these interests and
considered them in making their recommendations.
Merger Financing; Source of Funds (pages 42-44)
The maximum total amount of funds required to complete the merger, including
related costs and expenses, is expected to be approximately $2.41 billion. This
amount assumes that no shareholders perfect their dissenters' rights under Iowa
law, but excludes approximately $120 million of MidAmerican shares and options
(valued at the merger price) which are expected to be contributed to Teton
Acquisition by Mr. Scott and possibly his family members and related family
interests, and by Mr. Sokol. It also includes approximately $345 million that
we will be required to pay to holders of our convertible preferred securities
if they choose to convert all such securities into common stock at or before
the completion of the merger.
The members of the investor group have entered into subscription agreements
with Teton Acquisition to provide an aggregate of up to $2.35 billion in cash
and MidAmerican securities to Teton Acquisition in exchange for securities of
Teton Acquisition or a trust to be formed by Teton Acquisition, with the
proceeds of such contributions to be used for purposes of funding the merger.
This amount includes approximately $120 million of MidAmerican shares and
options (valued at the merger price) which are expected to be contributed to
Teton Acquisition by Mr. Scott and possibly his family members and related
family interests, and by Mr. Sokol. Upon completion of the merger, these
securities and all other Teton Acquisition securities will convert into
equivalent securities of MidAmerican.
The closing under each of the subscription agreements is conditioned on, among
other things, all conditions to the merger being
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<PAGE>
satisfied or waived, the simultaneous closings under the other subscription
agreements and the execution by Teton Acquisition and the members of the
investor group of a shareholders agreement containing put and call rights and
transfer restrictions.
The investor group expects to fund the balance of the merger consideration,
including any amounts payable to holders of our convertible preferred
securities who convert such securities into common stock before completion of
the merger and related costs and expenses from our available cash or by drawing
up to $180 million under our existing revolving credit agreement. However, if
and to the extent such funds are not available, Berkshire Hathaway has agreed
under its subscription agreement to lend Teton Acquisition up to $180 million
to provide the remaining funds required to complete the merger.
Conditions to the Merger (pages 52-53)
Each party's obligation to complete the merger is subject to a number of
conditions, including the following:
o approval by our shareholders of the merger proposal;
o the absence of any order or injunction prohibiting the merger;
o the receipt of all required approvals and final orders by governmental or
regulatory authorities; and
o the expiration or termination of the waiting period under the
Hart-Scott-Rodino Act.
Our obligation to complete the merger is subject to the following additional
conditions:
o the material accuracy of the representations and warranties of Teton
Formation and Teton Acquisition, and the performance in all material
respects of their obligations under the merger agreement; and
o our receipt of customary closing certificates and legal opinions.
The obligations of Teton Formation and Teton Acquisition to complete the merger
are subject to the following additional conditions:
o the material accuracy of our representations and warranties and the
performance in all material respects of our obligations under the merger
agreement;
o the absence of any circumstance that would have, or could reasonably be
expected to have, a material adverse effect on us or our ability to
complete the merger;
o the receipt of all material third party consents to the merger;
o the satisfactory resolution of certain insurance matters;
o the receipt by Teton Formation of customary closing certificates and legal
opinions;
o the receipt by the members of the investor group of evidence reasonably
satisfactory to them that neither they nor their affiliates will be
subject to regulation as a registered holding company under the 1935 Act
as a result of the merger;
o the cancellation of all outstanding stock options under our option plans
(which will be cashed out in the merger); and
o the holders of not more than 10% of our outstanding shares perfecting
dissenters' rights under Iowa law.
The obligations of Teton Formation and Teton Acquisition to complete the merger
are not subject to a financing condition.
Regulatory Filings and Approvals (pages 56-57)
We must make filings with and receive approvals of various federal, state and
foreign regulatory agencies before the merger can be completed. At the federal
level, these approvals include the approval of the Federal Energy Regulatory
Commission and the Nuclear Regulatory Commission and the expiration or
termination of the waiting period under the Hart-Scott-Rodino Act. At the state
level, the Iowa Utilities Board and Illinois Commerce Commission must permit
the merger to occur. The parties are also required to comply with notice
requirements in Nebraska and South Dakota. In addition, the merger is
conditioned on the members of the investor group receiving evidence reasonably
satisfactory to them that
7
<PAGE>
neither they nor their affiliates will be subject to regulation as a registered
holding company under the 1935 Act as a result of the merger.
Termination of the Merger Agreement (pages 53-54)
The parties to the merger agreement can mutually agree to terminate the merger
agreement at any time, whether before or after receiving shareholder approval,
without completing the merger. The merger agreement may also be terminated:
o by us or Teton Formation if the merger is not completed by April 30, 2000,
although this deadline will be automatically extended to July 31, 2000
if the completion of the merger is delayed only because the required
governmental approvals have not yet been received;
o by us or Teton Formation if our shareholders do not approve the merger
proposal;
o by us or Teton Formation if a law or court order permanently prohibits the
merger;
o by us prior to the shareholder vote if our Board concludes in good faith
that its fiduciary duties could reasonably require it to accept a third
party acquisition proposal, provided that:
-- the acquisition proposal is reasonably capable of being completed;
-- the third party has demonstrated that financing for the acquisition
proposal is reasonably likely to be obtained;
-- the Board concludes, after considering applicable law and consulting
with outside counsel, that a failure to do so could reasonably be
expected to constitute a breach of the Board's fiduciary duties
under applicable law;
-- we have complied with the no solicitation covenant and with our
obligations under the merger agreement to hold a shareholder
meeting, mail a proxy statement and recommend the merger;
-- the person making the acquisition proposal has agreed in writing to
pay the termination fee required by the merger agreement; and
-- we have negotiated with Teton Formation to make adjustments to the
terms and conditions of the merger as would enable us to proceed
with the merger;
o by Teton Formation if our Board withdraws or modifies, in a manner adverse
to Teton Formation, the Board's approval of the merger agreement, fails to
affirm its approval or recommendation of the merger or recommends an
alternative transaction;
o by us if Teton Formation or Teton Acquisition materially breaches its
representations, warranties or covenants under the merger agreement after
notice and an opportunity to cure the breach;
o by Teton Formation if we materially breach our representations, warranties
or covenants under the merger agreement after notice and an opportunity to
cure the breach; or
o by us if the subscription agreements are terminated without being replaced,
as provided in the merger agreement.
Termination Fees (pages 54-55)
We will be required to pay to Teton Formation a termination fee of $40 million,
plus $8 million as reimbursement of expenses, if:
o the merger agreement is terminated by Teton Formation because the Board
withdraws or modifies, in a manner adverse to Teton Formation, its
recommendation of the merger agreement, fails to reaffirm such
recommendation or recommends any alternative transaction;
o the merger agreement is terminated by us in connection with a third party
acquisition proposal after the Board has concluded in good faith that
its fiduciary duties under applicable law could reasonably require it to
accept the acquisition proposal; or
o the merger agreement is terminated under circumstances where:
8
<PAGE>
-- the termination is due to (1) our shareholders failing to approve the
merger proposal, (2) the merger failing to be completed by the
applicable termination date or (3) a material breach of our
representations, warranties or covenants;
-- at the time of termination, a third party had made an acquisition
proposal which has not been rejected and withdrawn; and
-- within 18 months of such termination, we enter into an agreement with
the third party to complete an alternative transaction.
Teton Formation has agreed to pay us a termination fee of $40 million, plus
additional damages (but only to the extent proven) up to $40 million, if we
terminate the merger agreement because Teton Formation and Teton Acquisition
have failed to deposit the merger consideration with the exchange agent at a
time when all conditions to Teton Formation's obligations under the merger
agreement have been satisfied or waived.
Dissenters' Rights (pages 45-47 and Appendix E)
You are entitled to exercise dissenters' rights in connection with the merger.
If you elect to exercise dissenters' rights, you must deliver to us, before the
shareholder vote to approve the merger proposal is taken, written notice of
your intent to demand payment of the "fair value" of your shares if the merger
is completed, and you must not vote to approve the merger proposal.
Federal Income Tax Consequences (pages 44-45)
You will be taxed on the cash you receive in the merger to the extent that the
cash exceeds your tax basis in your MidAmerican shares or, conversely, you will
recognize loss to the extent that your tax basis exceeds the cash you receive.
You should consult your tax advisor regarding the U.S. federal income tax
consequences of the merger, as well as any tax consequences under state, local
or foreign laws.
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SELECTED HISTORICAL FINANCIAL DATA OF MIDAMERICAN
The following selected historical financial data for each of the years
ended December 31, 1994 through 1998 have been derived from our audited
consolidated financial statements incorporated by reference into this proxy
statement. The selected historical financial data for each of the nine-month
periods ended September 30, 1998 and 1999 have been derived from our unaudited
consolidated financial statements incorporated by reference into this proxy
statement. This information is only a summary and you should read it together
with the historical financial statements and related notes contained in the
annual reports and other information that we have filed with the SEC and
incorporated by reference. See "Where You Can Find More Information."
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------------
1994 1995(2) 1996(3) 1997(4) 1998(5)
--------------- --------------- --------------- -------------- ---------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenue $ 154,562 $ 335,630 $ 518,934 $2,166,338 $ 2,555,206
Net income (loss) ........................ 36,827 63,415 92,461 (84,027) 127,003
Net income (loss) per share .............. $ 0.96 $ 1.32 $ 1.69 $ (1.25) $ 2.11
Basic common shares outstanding .......... 33,189 47,249 54,739 67,268 60,139
Net income (loss) per share-diluted....... $ 0.90 $ 1.22 $ 1.54 $ (1.22) $ 2.01
Diluted common shares outstanding......... 39,203 56,195 65,072 68,686 74,100
BALANCE SHEET DATA:
Total assets ............................. $ 1,131,145 $ 2,654,038 $ 5,630,156 $7,487,626 $ 9,103,524
Total liabilities ........................ 867,703 2,084,474 4,181,052 5,282,162 7,598,040
MidAmerican-obligated mandatorily
redeemable convertible preferred
securities of subsidiary trusts ......... -- -- 103,930 553,930 553,930
Preferred securities of subsidiaries ..... -- -- 136,065 56,181 66,033
Redeemable preferred stock ............... 63,600 -- -- -- --
OTHER DATA:
Ratio of earnings to fixed charges ....... 1.7x 1.5x 1.6x 1.4x 1.4x
Book value per share ..................... $ 5.65 $ 10.74 $ 13.88 $ 9.41 $ 13.88
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, (1)
--------------------------------
1998(5) 1999(6)
--------------- ----------------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C>
INCOME STATEMENT DATA:
Operating revenue $ 1,813,302 $ 2,864,047
Net income (loss) ........................ 107,384 110,492
Net income (loss) per share .............. $ 1.78 $ 1.84
Basic common shares outstanding .......... 60,330 59,945
Net income (loss) per share-diluted....... $ 1.67 $ 1.73
Diluted common shares outstanding......... 74,274 72,397
BALANCE SHEET DATA:
Total assets ............................. $ 9,096,619 $ 11,009,554
Total liabilities ........................ 7,597,106 9,311,453
MidAmerican-obligated mandatorily
redeemable convertible preferred
securities of subsidiary trusts ......... 553,930 450,000
Preferred securities of subsidiaries ..... 66,043 147,192
Redeemable preferred stock ............... -- --
OTHER DATA:
Ratio of earnings to fixed charges ....... 1.5x 1.5x
Book value per share ..................... $ 13.82 $ 15.59
</TABLE>
- ----------
(1) MidAmerican's results have historically been seasonal in nature;
therefore, operating results for interim periods are not indicative of
the results for the full fiscal year.
(2) Reflects the acquisition of Magma Power Company on February 24, 1995.
(3) Reflects the acquisition of the remaining 50% of its partners' interests
in four generating plants in Southern California on April 17, 1996, the
acquisition of Falcon Seaboard Resources, Inc. on August 7, 1996 and the
acquisition of majority ownership of Northern Electric plc by CE Electric
on December 24, 1996. In March 1997, the acquisition of Northern Electric
was completed.
(4) Reflects a 1997 non-recurring Indonesian asset impairment charge of $87
million or $1.29 per share.
(5) Reflects the acquisition of Kiewit Diversified Group on January 2, 1998.
(6) Reflects the acquisition of MidAmerican Energy Holdings Company by
CalEnergy Company, Inc. on March 12, 1999.
10
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INFORMATION CONCERNING THE SPECIAL MEETING
DATE, TIME AND PLACE OF THE SPECIAL MEETING
This proxy statement is furnished to you in connection with the
solicitation of proxies by the MidAmerican Board of Directors for the meeting
of shareholders to be held at 9:00 a.m., Central time, on January 27, 2000, at
, or any postponement or adjournment of the meeting.
This proxy statement, the Notice of Special Meeting and the accompanying form
of proxy card are first being mailed to shareholders on or about December ,
1999.
PURPOSE OF THE SPECIAL MEETING
At the special meeting, you will be asked:
-- to consider and vote upon a proposal to approve the merger agreement and
the merger of Teton Acquisition with and into MidAmerican. In the
merger, (a) each issued and outstanding share of MidAmerican common
stock (other than shares held by MidAmerican, Teton Formation, Teton
Acquisition and their respective subsidiaries and other than shares held
by shareholders who perfect dissenters' rights under Iowa law) will be
converted into the right to receive $35.05 per share in cash and (b) the
articles of incorporation of MidAmerican will be amended and restated to
be substantially in the form attached as Appendix B to this proxy
statement; and
-- to transact any other business that may properly come before the special
meeting or any adjournment or postponement of the meeting.
RECORD DATE; QUORUM; OUTSTANDING COMMON STOCK ENTITLED TO VOTE
All record holders of shares of MidAmerican common stock at the close of
business on December 27, 1999 are entitled to notice of, and to vote at, the
special meeting. The presence, in person or by proxy, of holders of a majority
of the outstanding shares of common stock is required to constitute a quorum
for the transaction of business. A list of record holders will be available for
examination at our principal executive offices from December , 1999 until the
special meeting. At the close of business on December 27, 1999, there were
shares of MidAmerican common stock outstanding.
VOTING RIGHTS
You are entitled to one vote for each share of common stock that you held
as of the close of business on the record date. The affirmative vote of the
holders of a majority of the outstanding shares of MidAmerican common stock is
required to approve the merger proposal. Under Iowa law, in determining whether
approval of the merger proposal has received the requisite number of
affirmative votes, abstentions and broker non-votes will have the same effect
as a vote against approval of the merger proposal. To the knowledge of
MidAmerican after reasonable inquiry, each of the directors and executive
officers of MidAmerican (including Messrs. Scott and Sokol), who collectively
beneficially own an aggregate of 5,235,791 shares of MidAmerican common stock,
or 8.5% of the shares outstanding as of November 1, 1999, have indicated their
intention to vote their shares in favor of the merger proposal.
VOTING AND REVOCATION OF PROXIES
A form of proxy card for your use at the special meeting accompanies this
proxy statement. All properly executed proxies that are received prior to or at
the special meeting and not revoked will be voted at the special meeting in the
manner specified. If you execute and return a proxy and do not specify
otherwise, the shares represented by your proxy will be voted "FOR" approval of
the merger proposal in accordance with the recommendation of the Board. In that
event, you will not have the right to dissent from the merger and seek an
appraisal of the fair value of your shares.
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<PAGE>
If you have given a proxy pursuant to this solicitation, you may
nonetheless revoke it by attending the special meeting and giving oral notice
of your intention to vote in person. In addition, you may revoke any proxy you
give at any time before the special meeting by delivering to our Secretary a
written statement revoking it or by delivering a duly executed proxy bearing a
later date. If you have executed and delivered a proxy to us, your attendance
at the special meeting will not in and of itself constitute a revocation of
your proxy. If you vote in favor of the merger proposal, you will not have the
right to dissent and seek appraisal of the fair value of your shares. If you do
not send in your proxy or do not instruct your broker to vote your shares or if
you abstain from voting, it will have the same effect as a vote against the
merger proposal.
SOLICITATION OF PROXIES
We will bear the cost of the solicitation of proxies. We will solicit
proxies initially by mail. Further solicitation may be made by our directors,
officers and employees personally, by telephone or otherwise, but they will not
be specifically compensated for these services. Upon request, we will reimburse
brokers, dealers, banks or similar entities acting as nominees for their
reasonable expenses incurred in forwarding copies of the proxy materials to the
beneficial owners of the shares of common stock they hold of record. We have
retained MacKenzie Partners to coordinate the solicitation of proxies for a fee
of $25,000, plus reasonable out-of-pocket expenses.
OTHER MATTERS
We do not know of any matters other than those described in this proxy
statement which may come before the special meeting. If any other matters are
properly presented to the special meeting for action, we intend that the persons
named in the enclosed form of proxy card will vote in accordance with their best
judgment. These matters may include an adjournment or postponement of the
special meeting from time to time if our Board so determines, except that
proxies that are voted against the merger proposal may not be voted by the
persons named in the enclosed form of proxy card for an adjournment or
postponement of the special meeting. If any adjournment or postponement is made,
we may solicit additional proxies during the adjournment period.
Your vote is important. Please return your marked proxy card promptly so
your shares can be represented, even if you plan to attend the meeting in
person.
You should not send any certificates representing common stock with your
proxy card. If we complete the merger, the procedure for the exchange of
certificates representing common stock will be as described on pages 47-48 of
this proxy statement.
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SPECIAL FACTORS
BACKGROUND OF THE MERGER
At a regularly scheduled meeting of the MidAmerican Board on August 19,
1999, the Board discussed the future direction of MidAmerican in light of the
failure of MidAmerican's common stock to respond favorably following the merger
in March 1999 pursuant to which MidAmerican's predecessor, CalEnergy Company,
Inc., and the former MidAmerican Energy Holdings Company were combined and the
subsequent stock price decline of approximately $4 per share which was
attributed by MidAmerican to the electric distribution price review announced
by the U.K. power regulator in August 1999 which resulted in a significant
lowering of permissible prices charged by MidAmerican's electric and gas
utility in the United Kingdom. At this meeting, the Board noted that
MidAmerican's stock price had not performed in a manner consistent with the
Board's expectation that, following the merger of MidAmerican and CalEnergy,
such price would exceed the performance of the Standard & Poor's Utility Index.
Instead, the MidAmerican common stock price underperformed the Index over the
time period from March 12, 1999 (when the merger of CalEnergy and MidAmerican
was consummated) through the date of the August 19, 1999 Board meeting and
declined significantly following the August 1999 announcement of the
distribution price review described above. The Board's expectation of a
potential improvement in MidAmerican's stock price was based, in part, on the
anticipation that, following the closing of that merger, MidAmerican's
price-to-earnings multiple would increase as a result of MidAmerican's announced
strategy and its prospects, including the Board's view as to the strength and
potential of MidAmerican's combined independent power production and utility
operations. The Board attributed the failure to achieve such a multiple to,
among other things, (1) the failure of the trading markets to fully understand
MidAmerican's strategy and properly value a combined independent power producer
and utility company with MidAmerican's growth prospects at a significantly
higher multiple than the average multiples applicable to traditional electric
utility company stocks and (2) the impact on MidAmerican of the adverse United
Kingdom regulatory developments described above, which the Board believed would
be long term.
At the conclusion of the Board's discussion at its August 19th meeting,
the Board authorized management to commission investment bankers to consider,
on a preliminary basis, the options available to MidAmerican to enhance
shareholder value. Following this meeting, management engaged Credit Suisse
First Boston Corporation ("CSFB") and Lehman Brothers to review and analyze
MidAmerican's strategic alternatives and, upon completion of such review and
analysis, to report their findings to the Board. In connection with their
review, CSFB and Lehman Brothers were provided complete access to the
historical and projected financial data of MidAmerican and to MidAmerican's
management team.
Following the August 19, 1999 meeting, David L. Sokol, Chairman and Chief
Executive Officer of MidAmerican, began to consider the possibility of
acquiring MidAmerican with one or more other investors and conceptually
discussed this possibility with Walter Scott, Jr., a director of MidAmerican.
At a social gathering on September 23, 1999, Mr. Scott asked Warren E. Buffett,
Chairman and Chief Executive Officer of Berkshire Hathaway, if he would be
interested in discussing a possible investment involving MidAmerican, and Mr.
Buffett indicated that he would. On September 29, 1999, at a meeting with Mr.
Scott and Mr. Buffett, Mr. Sokol introduced to Mr. Buffett the general topic of
possible participation in an acquisition group that would include Mr. Sokol. At
the conclusion of that meeting, Mr. Buffett indicated his preliminary interest
in continued discussions if the Board were to authorize Mr. Sokol to propose a
consensual transaction.
At a meeting of the Board on October 1, 1999, CSFB and Lehman Brothers
made presentations with respect to MidAmerican's strategic alternatives, which
included (1) maintaining the status quo by continuing to operate MidAmerican as
an independent public entity, (2) effecting a financial restructuring of
MidAmerican (including a possible repurchase of up to 25% of MidAmerican's
common stock or implementation of a dividend policy), (3) acquiring one or more
other companies in the power or gas industry, (4) selling selected assets of
MidAmerican, (5) spinning off MidAmerican's
13
<PAGE>
independent power production business and (6) selling MidAmerican to a
financial or strategic buyer (whether by negotiated purchase, auction or
otherwise). CSFB and Lehman Brothers also made presentations to the Board with
respect to their preliminary valuation analyses of MidAmerican and indicated
that MidAmerican's common stock was undervalued based on most of their
valuation measures and was more appropriately valued between $34-$38 per share.
During the Board's consideration of the alternatives presented by CSFB and
Lehman Brothers at the October 1, 1999 meeting, CSFB and Lehman Brothers noted
their view that:
o Maintaining the status quo would, in the near term, be unlikely to
result in any significant improvement in MidAmerican's stock price due,
in significant part, to the recent U.K. price review developments, the
perception that MidAmerican's near term earnings growth was predominantly
concentrated in its Philippines projects and the failure of investors to
understand and properly value MidAmerican's strategy and prospects.
Moreover, given MidAmerican's undervalued share price, pursuing
MidAmerican's growth strategy would likely be difficult in the
foreseeable near term due, in part, to MidAmerican's limited capacity to
incur additional debt and the fact that the use of MidAmerican's stock as
acquisition currency would, in most of the reviewed cases, be dilutive.
o A financial restructuring achieved through the repurchase of up to 25%
of MidAmerican's outstanding common shares could be accretive to
MidAmerican's earnings per share calculation and, like the alternative of
implementing a current regular dividend policy, would result in greater
immediate cash yields to shareholders than would the status quo
alternative or several of the other alternatives considered. However, the
long term benefits of any such financial restructuring would be dependent
predominantly upon the subsequent stock price performance of MidAmerican.
In that regard, such a financial restructuring would likely signal to the
stock market that MidAmerican's growth is declining or that it has
identified no more positive uses for its cash, resulting in negative
effects on MidAmerican's price to earnings multiple and stock price.
Furthermore, a significant stock repurchase would reduce the liquidity in
the stock and adversely affect its investment characteristics. Finally,
either such restructuring alternative, particularly a significant stock
repurchase (which would require MidAmerican to incur significant
additional borrowings or sell a substantial portion of its assets in order
to fund the repurchase) could lead to downward ratings pressure, with a
strong likelihood that MidAmerican's investment grade debt rating would be
reduced to non-investment grade. This would significantly increase
MidAmerican's cost of capital and limit its access to the capital markets.
o One or more acquisitions could be pursued with a view to potentially
transforming or otherwise benefitting MidAmerican. CSFB and Lehman
Brothers had identified various possibilities in the power and gas
sectors (in both the U.S. and internationally) which might positively
impact MidAmerican's shareholders in the long term through an increase or
improvement in the combined company's scale, market presence, market
access or asset base. CSFB and Lehman Brothers informed the Board,
however, that most of the possible acquisition targets identified by CSFB
and Lehman Brothers involved potentially significant regulatory issues or
were viewed as being unwilling to engage in an acceptably structured
consensual transaction with MidAmerican or were believed likely to be
dilutive to the earnings of MidAmerican if MidAmerican's stock were
issued as a substantial portion of the consideration. In this regard, it
was considered that MidAmerican was already highly leveraged and
therefore the incurrence of substantial additional debt in the context of
an acquisition would likely jeopardize MidAmerican's investment grade
rating. In addition, it was observed that many potential acquisitions in
the power sector are subject to complex regulatory approvals in the United
States, take significant time (possibly as much as 2 years) and, as a
general matter, involve substantial risks and uncertainties.
o A sale of specific assets of MidAmerican, which could include the sale
of Northern Electric and/or MidAmerican's Philippines business, could
raise cash for distribution to shareholders by way of a one-time stock
buyback or a one-time dividend or could permit the cash proceeds to
14
<PAGE>
be utilized by MidAmerican to acquire another business or businesses.
CSFB and Lehman noted, however, that, any such disposition was considered
to be difficult to achieve at acceptable values in the current market and
was likely to be dilutive to earnings. In addition, largely because of
the recently announced adverse U.K. distribution price review, a sale of
Northern Electric in the near term was viewed by CSFB and Lehman Brothers
as not presently being an attractive alternative for MidAmerican. A sale
of other parts, such as the Philippines projects and MidAmerican's U.S.
based independent power producing assets, also appeared to CSFB and
Lehman Brothers to be too small, in the case of the U.S. based power
assets, to achieve a meaningful improvement in shareholder value and, in
each case, to be dilutive to earnings. Finally, CSFB and Lehman Brothers
observed that the use of the proceeds from any such disposition to fund a
stock buyback or a one-time dividend would be likely to have the adverse
consequences described above and that the satisfactory replacement of the
earnings contributed by such disposed of assets through an acquisition or
other reinvestment in MidAmerican's business was unlikely to be achieved
on acceptable terms.
o A spin-off of MidAmerican's U.S. based independent power producing
assets would likely have only a minimal impact on shareholder value given
the small size of the business unit and would possibly not be feasible
under existing indebtedness restrictions.
o A sale of MidAmerican to a strategic or financial investor (potentially
including a leveraged buyout) could be the most immediate and effective
way to create enhanced shareholder value. The potential existed,
depending on the acquiror's regulatory and financial profile and the
transaction structure proposed by the acquiror, to choose to engage in a
sale transaction which would, relative to other potential sale
transactions, enable MidAmerican to increase certainty of closure,
minimize time delays related to required regulatory approvals, minimize
adverse credit rating impacts and minimize potential adverse impacts on
employees, rate payers and other concerned constituencies. Accordingly,
CSFB and Lehman Brothers viewed this alternative as being the most likely
of the range of alternatives considered to result in enhanced shareholder
value in the near term.
During the Board's review of strategic alternatives at its October 1st
meeting, David L. Sokol, MidAmerican's Chairman and Chief Executive Officer,
informed the Board that he had been considering the possibility of seeking to
formulate, with one or more other investors, a proposal to acquire MidAmerican.
Mr. Sokol described his reasons for desiring to make a proposal, including his
belief that the public trading markets undervalued MidAmerican's businesses and
that MidAmerican could experience greater long-term growth if it were no longer
a public company with institutional shareholders who, to various degrees, are
focused on maximizing their short-term returns at the expense of longer-term
investments by MidAmerican. Mr. Sokol then requested the Board's permission to
attempt to formulate such a proposal which, if deemed feasible, would be
presented to the Board for its consideration, and requested that Mr. Scott be
permitted to consider participating with him in making such a proposal. Mr.
Sokol also requested the Board's consent to use CSFB as his financial advisor
and Willkie Farr & Gallagher as his legal counsel, despite their previous
representation of MidAmerican.
During the Board's consideration of Mr. Sokol's request, Mr. Sokol and Mr.
Scott recused themselves from the meeting and agreed to recuse themselves from
all subsequent Board meetings at which their proposal would be discussed.
Representatives of Skadden, Arps, Slate, Meagher & Flom LLP were then invited
by the remaining members of the Board to advise the Board with respect to its
legal duties in considering Mr. Sokol's request. After an extensive discussion
of the Board's alternatives, the Board determined to permit Mr. Sokol and one
or more other investors, including Mr. Scott, to attempt to formulate a
proposal to acquire MidAmerican, which, if deemed feasible, would be presented
to the Board, and consented to his use of CSFB and Willkie Farr (and possibly
certain regulatory counsel, including LeBoeuf, Lamb, Greene & MacRae, L.L.P.)
as advisors. In light of the potential conflicts of interest presented by the
possibility of Messrs. Scott and Sokol making a proposal to acquire
MidAmerican, the Board appointed a special committee of independent directors,
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consisting of Edgar D. Aronson, Stanley J. Bright, Richard R. Jaros and Bernard
W. Reznicek, to evaluate any acquisition proposal that might be made by Mr.
Sokol or others and to negotiate the terms of such a proposal on behalf of
MidAmerican should any such proposal appear attractive.
Immediately following the October 1st Board meeting, the special committee
held its initial meeting and appointed Mr. Reznicek to serve as its Chairman.
The special committee determined to retain Lehman Brothers as its independent
financial advisor, to retain Lehman Brothers and Warburg Dillon Read to provide
fairness opinions and to retain Skadden Arps as its independent legal counsel.
At the meeting, the members of the special committee reviewed with
representatives of Skadden Arps their duties in connection with their
consideration of any acquisition proposal that might be made by Mr. Sokol or
any other party. The special committee also determined to instruct Lehman
Brothers to prepare revised valuation analyses of MidAmerican giving effect to
certain adjustments to its assumptions, including with respect to MidAmerican's
development portfolio, the effects of a pending distribution price review in
the United Kingdom and anticipated cost savings if MidAmerican were no longer
subject to public company reporting obligations, in order to assist the special
committee in evaluating any proposal that might be made by Mr. Sokol or others.
A draft confidentiality agreement relating to Mr. Sokol's use of
MidAmerican's confidential information in connection with his efforts to
formulate an acquisition proposal was delivered by Skadden Arps to Willkie Farr
in the evening of October 1, 1999. Drafts of similar agreements between
MidAmerican and CSFB and Willkie Farr were subsequently distributed. During
discussions of the terms of such agreements, MidAmerican agreed that Mr. Sokol
could use confidential information regarding MidAmerican and provide it on a
confidential basis to credit rating agencies in connection with their
preliminary review of a possible transaction.
At a meeting with Mr. Scott and Mr. Buffett on October 3, 1999, Mr. Sokol
summarized the study of strategic alternatives discussed at the Board meeting
on October 1, 1999 and presented his views as to potential acquisition
proposals, including an unleveraged transaction proposal in which Berkshire
Hathaway might consider participating. Mr. Buffett indicated his willingness to
consider a sizeable equity investment along the lines proposed by Mr. Sokol if
an acceptable structure and other terms could be developed. Mr. Sokol agreed to
attempt to promptly develop a definitive proposal which would include a
significant economic participation by Berkshire Hathaway, and Mr. Buffett
authorized discussions toward that goal with his attorneys, Munger, Tolles &
Olson LLP.
Promptly following the October 3rd meeting, Mr. Sokol instructed his
special regulatory counsel, LeBoeuf Lamb, to attempt to ascertain whether the
transaction structure proposed by Mr. Sokol would require any participant in
the investor group to register under the 1935 Act. On the same date, Mr. Sokol
instructed CSFB to prepare for meetings with the specified rating agencies
later that week.
On October 4, 1999, Mr. Sokol instructed Willkie Farr to commence drafting
term sheets and a proposed form of merger agreement for possible presentation
to Mr. Buffett and Mr. Scott in connection with the development and structuring
of a definitive proposal by Mr. Sokol. On the same date, Willkie Farr, Munger
Tolles and Mr. Scott's attorneys, Fraser Stryker, Meusey, Olson, Boyer & Bloch,
P.C., commenced preliminary discussions in that regard.
On October 4, 1999, senior management of MidAmerican (excluding Mr. Sokol)
met with Lehman Brothers, Warburg Dillon Read and Skadden Arps to discuss the
revised valuation analyses that were being prepared for the special committee
and potential contractual and other issues that could arise if Mr. Sokol were
to make a proposal to acquire MidAmerican.
On October 7, 1999, Mr. Sokol and CSFB held separate meetings with
Standard & Poors Corporation and Moody's Investor Services to present a
possible acquisition proposal primarily funded by significant equity and
equity-related investments by Berkshire Hathaway and Mr. Scott. At the
conclusion of these meetings, each agency indicated its preliminary view that
the proposed structure would permit the existing investment grade ratings on
MidAmerican's and its subsidiary utility's existing public debt to be
maintained or, in the case of MidAmerican, possibly increased within the
investment grade rating categories, subject to its review of a final proposal
if one were to be made.
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On October 9, 1999, in a meeting with Mr. Scott, Mr. Sokol presented his
recommendations as to a structure and a proposal which would include
participation by Mr. Sokol, Mr. Scott and Berkshire Hathaway. Mr. Scott
indicated that the proposal was acceptable conceptually, subject to agreement
on definitive terms and a viable structure.
On October 10, 1999, Mr. Sokol advised Mr. Buffett by telephone of the
outline of his current proposal and Mr. Buffett indicated that it provided a
basis upon which he would be prepared to attempt to negotiate an agreement,
subject to development of mutually agreeable definitive terms and a viable
structure.
At a meeting of the special committee on October 11, 1999, representatives
of Lehman Brothers reviewed MidAmerican's strategic alternatives that were
discussed at the October 1st Board meeting and discussed Lehman Brothers'
revised preliminary valuation analyses with the special committee.
Representatives of Skadden Arps and Lehman Brothers also reviewed with the
special committee certain contractual terms, regulatory approvals and financing
arrangements that were anticipated in connection with a proposal to acquire
MidAmerican.
On October 13, 1999, MidAmerican executed confidentiality agreements with
each of Mr. Sokol, CSFB and Willkie Farr.
From October 12, 1999 through October 14, 1999, following development of a
structure believed likely to satisfy regulatory requirements, the legal
representatives of Mr. Sokol, Berkshire Hathaway and Mr. Scott engaged in
extensive negotiations to attempt to reach agreement in respect of the
organization and funding of an acquisition vehicle and the making of a formal
acquisition proposal to the Board. The negotiations and various telephone calls
between the principals on October 13th and 14th resulted in a mutual agreement
on October 14th as to the definitive terms and conditions upon which the
acquisition vehicle would be formed and funded and an acquisition proposal
would be made to MidAmerican. Later on October 14th, Berkshire Hathaway, Mr.
Scott and Mr. Sokol executed subscription agreements relating to the funding of
the investor group's acquisition vehicle.
On October 14, 1999, Mr. Sokol delivered a letter to Mr. Bright, as Vice
Chairman of the Board, proposing an acquisition of all of the outstanding
common stock of MidAmerican by Berkshire Hathaway, Mr. Scott and Mr. Sokol for
$34.60 per share in cash in a one-step merger. The proposal indicated, among
other things, that it: (1) was fully financed through commitments from the
investor group; (2) had been structured so as to minimize the potential for any
regulatory risk, business disruption and employee uncertainty; (3) was capable
of being completed within 90 to 120 days, which would provide a premium to
MidAmerican's shareholders long before the 12 to 24 month period that other
bidders would require to close a transaction; and (4) was preliminarily viewed
by credit rating agencies as credit positive for MidAmerican and its operating
subsidiaries. The proposal also stated that it would be withdrawn if it were
not accepted by 11:59 p.m., Central time, on October 24, 1999. A draft merger
agreement setting forth the terms of the proposed merger was attached to Mr.
Sokol's letter.
Following receipt of the proposal, members of senior management of
MidAmerican (excluding Mr. Sokol) met with representatives of Lehman Brothers,
Warburg Dillon Read and Skadden Arps to discuss the terms of the proposal and
the principal issues raised by the draft merger agreement.
At a special committee meeting on October 15, 1999, after becoming aware
on October 14th of Berkshire Hathaway's participation in the investor group,
Mr. Reznicek offered his resignation as Chairman and as a member of the special
committee due to the fact that Mr. Reznicek is employed by a subsidiary of
Berkshire Hathaway. Mr. Reznicek then recused himself from the meeting, and the
special committee appointed Mr. Bright to serve as its Chairman. The special
committee then discussed the terms of the investor group's proposal with
representatives of Lehman Brothers, Warburg Dillon Read and Skadden Arps.
Representatives of Lehman Brothers and Warburg Dillon Read discussed the
proposal in light of their revised preliminary valuation analyses of
MidAmerican, and representatives of Skadden Arps reviewed the duties of the
members of the special committee in connection with their consideration of the
proposal.
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Immediately following the special committee's meeting, the Board (with
Messrs. Sokol, Scott and Reznicek recusing themselves from this and all
subsequent meetings) met to discuss the proposal received from Mr. Sokol. The
special committee reported to the Board on its activities since the Board's
previous meeting, including the resignation of Mr. Reznicek from the special
committee, after which the Board appointed Jack W. Eugster, an independent
director of MidAmerican, to serve on the special committee. The Board then
reviewed the terms of the investor group's proposal and received presentations
from Lehman Brothers and Warburg Dillon Read with respect to their preliminary
valuation analyses. The Board then engaged in a discussion of (1) the various
valuation analyses prepared by Lehman Brothers and Warburg Dillon Read; (2) the
historical trading prices for MidAmerican's common stock; (3) the premiums paid
in acquisitions in the power industry and recent developments in the industry
generally; (4) MidAmerican's potential strategic partners; and (5) the
anticipated regulatory approvals and timing associated with any acquisition of
MidAmerican by the investor group or by other potential acquirors.
Following the Board's discussion of the proposal, the Board authorized the
special committee to continue negotiations with the investor group to: (1) seek
to increase the price offered in connection with the proposal; (2) ensure that
after signing a definitive agreement, MidAmerican's Board would not be
precluded from considering, in accordance with its fiduciary duties,
acquisition proposals made by third parties to acquire MidAmerican; and (3)
seek to reduce the termination fees payable by MidAmerican if the agreement is
terminated to pursue an alternative transaction.
At a meeting of the special committee held in the morning of October 16,
1999, the special committee discussed possible strategies for responding to the
investor group's proposal. Following the special committee's meeting, Mr.
Bright called Mr. Sokol to inform him that the special committee and the Board
were seeking a higher price than the proposed $34.60 per share offered by the
investor group and a lower termination fee if the agreement were terminated.
Mr. Bright also informed Mr. Sokol of the special committee's request for
greater flexibility than that provided in the draft merger agreement to provide
information to, and engage in negotiations with, third parties making competing
acquisition proposals following the execution, if applicable, of a definitive
merger agreement.
Later that evening, Skadden Arps delivered a letter to Willkie Farr
requesting additional information regarding the investor group's proposed
acquisition structure. The letter also requested copies of any agreements among
the members of the investor group and any documents provided to third parties
or prepared by the investor group relating to their evaluation of an
acquisition of MidAmerican.
At a meeting of the special committee on October 17, 1999, the special
committee discussed Mr. Bright's conversation with Mr. Sokol. Mr. Bright
informed the special committee, among other things, that a meeting of the
investor group's and the special committee's advisors had been scheduled for
October 18th to discuss certain aspects of the investor group's proposal,
including the investor group's proposed acquisition structure and the principal
contractual issues raised by the draft merger agreement.
On October 18, 1999, Mr. Sokol, together with representatives of CSFB and
Willkie Farr, met with senior management of MidAmerican and representatives of
Lehman Brothers, Warburg Dillon Read and Skadden Arps to discuss the proposed
ownership structure of the acquisition vehicle that would be used to acquire
MidAmerican under the investor group's proposal and related regulatory issues
and the investor group's response to the information request delivered by
Skadden Arps on October 16th. The parties also discussed the principal
contractual issues raised by the draft merger agreement delivered by the
investor group, including the scope of the representations and warranties and
covenants, the conditions to closing, the circumstances giving rise to
termination fees and the ability of the Board to provide information to and
engage in negotiations with third parties making competing acquisition
proposals following the execution of a definitive merger agreement.
In the afternoon of October 18, 1999, the special committee met with
senior management (other than Mr. Sokol) and representatives of Lehman
Brothers, Warburg Dillon Read and Skadden Arps to receive an update on the
discussions with the investor group and to further discuss the principal issues
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raised by the investor group's proposal. Later that afternoon, Skadden Arps
sent to Willkie Farr the special committee's comments on the no solicitation
covenant and termination fee provisions of the merger agreement. On the morning
of October 19, 1999, comments on the remainder of the draft merger agreement
were delivered to Willkie Farr, along with draft confidentiality agreements for
Berkshire Hathaway, LeBoeuf Lamb and Munger Tolles.
In the evening of October 19, 1999, Mr. Sokol delivered a letter to Mr.
Bright outlining the terms of a revised proposal by the investor group. The
letter, among other things, increased the price offered by the investor group
to $35.00 per share and indicated that such price represented the investor
group's "last and final" proposal to acquire MidAmerican. The letter also noted
that significant changes had been made to the terms of the merger agreement in
response to the comments received from the special committee, including a
reduction in the termination fee from $90 million (including expenses) to $48
million (including expenses) and increased flexibility of the Board to consider
competing acquisition proposals after the execution of a definitive merger
agreement. A revised draft of the merger agreement incorporating the terms of
the revised proposal was delivered by Willkie Farr to Skadden Arps on the
morning of October 20, 1999.
Upon receiving the investor group's revised proposal and draft merger
agreement and despite its being characterized as "last and final," Mr. Bright
delivered a letter to Mr. Sokol requesting that the investor group increase its
offer price and consider improving other terms, such as, for example, by
including Berkshire Hathaway Inc. common stock as part of the offer
consideration and/or by adding a daily "ticking fee" component to the price,
under which the per share price would be increased by an interest rate
component if the closing were not to occur by a predetermined date. Mr. Bright
called Mr. Sokol shortly after delivering the letter to discuss the investor
group's valuation of MidAmerican and to reiterate the special committee's
request that the investor group increase the offer price.
In the afternoon of October 20, 1999, the special committee met to discuss
the investor group's revised proposal and Mr. Bright's conversation with Mr.
Sokol. Representatives of Lehman Brothers and Warburg Dillon Read reviewed
their valuation analyses of MidAmerican and discussed the $35.00 per share
offer with the special committee. In connection with their analysis, the
representatives of Lehman Brothers compared the discounted present value of the
investor group's offer with the discounted present values of other hypothetical
acquisition prices assuming a longer time to close than the investor group's
proposal, in light of the view of the special committee, based in part on the
investor group's assurances, that completing the investor group's proposal
would be expected to require only 90-120 days as compared to the 12-24 months
it was anticipated any other bidder would require to complete an acquisition of
MidAmerican. Representatives of Lehman Brothers also reviewed MidAmerican's
other alternatives, including continuing to operate MidAmerican as an
independent public entity, selling MidAmerican to another financial or
strategic buyer (whether by negotiated purchase, auction or otherwise),
acquiring one or more other companies in the power industry, recapitalizing
MidAmerican and paying a cash dividend on its common stock.
Following the special committee's meeting, a meeting of the Board was held
at which the special committee reported to the Board on the terms of the
investor group's revised proposal. Representatives of Lehman Brothers and
Warburg Dillon Read then presented to the Board their respective valuation
analyses of MidAmerican and reviewed with the Board the other strategic
alternatives available to MidAmerican. Representatives of Skadden Arps reviewed
the changes made to the draft merger agreement and reviewed the directors'
duties in connection with their evaluation of the revised proposal. At the
conclusion of the meeting, the Board requested that the special committee
continue negotiations with the investor group in order to seek to increase the
price offered in connection with the proposal and to continue to negotiate the
no solicitation covenant and other material provisions of the merger agreement.
On October 21, 1999, Skadden Arps delivered to the investor group
additional comments on the revised draft merger agreement and met with Willkie
Farr to discuss the remaining outstanding issues raised by the draft merger
agreement. Following these discussions, the special committee met to discuss
the status of the negotiations with the investor group and to discuss the
presentation that would be made to the Board by the investor group later in the
day.
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Following the special committee meeting on October 21, 1999, a meeting of
the Board was held to receive a report of the special committee and to provide
Messrs. Sokol and Scott and their advisors an opportunity to discuss the
investor group's proposal. Following the investor group's presentation, Messrs.
Sokol and Scott responded to questions from directors and then recused
themselves from the meeting. After they left the meeting, the Board engaged in
an extensive discussion of the investor group's proposal and instructed the
special committee to continue to negotiate with the investor group to seek to
increase the price offered and obtain additional flexibility for the Board to
consider alternative acquisition proposals following the signing of a
definitive agreement.
Mr. Bright met with Mr. Sokol following the special committee meeting to
discuss the special committee's request. At the conclusion of such discussions,
Mr. Sokol indicated that the investor group would be willing to increase the
price offered to $35.05 per share and would agree to additional changes to the
no solicitation covenant to permit the Board additional flexibility to consider
alternative acquisition proposals following the signing of a definitive
agreement, as well as certain other requested changes to the merger agreement.
The special committee met on October 24, 1999 to consider the investor
group's revised offer. At this meeting, representatives of Lehman Brothers and
Warburg Dillon Read indicated that they were each prepared to issue an opinion
to the special committee and the Board to the effect that the $35.05 per share
to be received in the proposed merger by MidAmerican's public shareholders was
fair to such shareholders from a financial point of view. Following a
discussion, the special committee unanimously determined that the terms of the
proposed merger agreement and the merger were fair to and in the best interests
of MidAmerican and its unaffiliated shareholders and recommended to the Board
that it approve the proposed merger agreement and merger.
At a meeting of the Board following the special committee meeting, Mr.
Bright informed the Board of the investor group's revised offer and the special
committee's recommendation of the merger agreement and the merger.
Representatives of Skadden Arps reviewed the directors' fiduciary duties in
connection with their consideration of the proposed transaction and summarized
the terms of the draft merger agreement which had previously been distributed
to the directors. Representatives of Lehman Brothers and Warburg Dillon Read
then delivered to the Board their oral opinions, later confirmed in writing, to
the effect that the $35.05 per share to be received in the proposed merger by
MidAmerican's public shareholders was fair to such shareholders from a
financial point of view. After further review and full discussion, the Board
(with Messrs. Sokol, Scott and Reznicek recusing themselves) determined that
the merger agreement and the merger are fair to and in the best interests of
MidAmerican and its unaffiliated shareholders and unanimously adopted
resolutions approving the merger agreement and the merger and determined to
recommend to MidAmerican shareholders that they vote to approve the merger
agreement and the merger.
Following the Board meeting, the parties finalized and executed the merger
agreement. Prior to the opening of trading on October 25, 1999, MidAmerican
issued a press release announcing that the merger agreement had been executed.
PURPOSE OF THE MERGER; CERTAIN EFFECTS OF THE MERGER
The principal purpose of the merger is to enable the members of the
investor group to own all of our outstanding common stock and afford our public
shareholders the opportunity to receive a cash price for their shares that
represents a premium over the market price at which the shares traded prior to
the announcement of the merger. This will be accomplished by a merger of Teton
Acquisition, a corporation formed by the investor group to effect the merger,
with and into MidAmerican, with MidAmerican as the surviving company. In the
merger, all of the shares of MidAmerican common stock held by our shareholders
(other than MidAmerican, Teton Formation, Teton Acquisition and their
subsidiaries and other than dissenting shareholders who perfect dissenters'
rights) will be converted into the right to receive the merger consideration of
$35.05 per share. The members of the investor group proposed the transaction
based on their belief that our stock price did not reflect the underlying value
of our businesses.
The merger will terminate all common equity interests in MidAmerican held
by shareholders other than the members of the investor group, and the members
of the investor group will be the sole beneficiaries of any earnings and growth
of MidAmerican following the merger. Accordingly,
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MidAmerican shareholders whose shares will be converted into cash in the merger
will no longer benefit from any increase in the value of MidAmerican, nor will
they bear the risk of any decrease in the value of MidAmerican following the
merger.
Our common stock is currently registered under the Securities Exchange Act
of 1934 and is listed for trading on the New York Stock Exchange, Pacific
Exchange and London Stock Exchange under the symbol "MEC." Upon the completion
of the merger, our common stock will be delisted from these exchanges and
registration of our common stock under the Exchange Act will be terminated.
Because our common stock will be privately held, we will enjoy certain
efficiencies, such as the elimination of the time devoted by management and
certain other employees to comply with the reporting obligations of the
Exchange Act with respect to the common stock, and the directors, officers and
beneficial owners of more than 10% of the common stock will be relieved of
their reporting requirements and restrictions under Section 16 of the Exchange
Act. In addition, we will be relieved of certain listing and reporting
requirements under the rules of the stock exchanges on which our common stock
is listed. We will be able to reduce certain costs, which we expect will result
in combined savings of approximately $1 million per year, including the costs
of preparing, printing and mailing annual reports and proxy statements, the
expenses of a transfer agent and registrar, the costs associated with the
number of members of our Board and the costs of certain investor relations
activities.
The merger is structured as a one-step transaction. If the merger proposal
is approved by shareholders and all other conditions to the merger are
satisfied, Teton Acquisition will merge with and into MidAmerican. It is
anticipated that Teton Formation will liquidate upon the completion of the
merger and that all of our common stock will be owned by the members of the
investor group.
Approval of the merger proposal requires the affirmative vote of the
holders of a majority of the outstanding shares of MidAmerican common stock but
does not require a separate approval of the holders of a majority of the common
stock held by shareholders other than the members of the investor group. The
transaction was not structured to require the approval of a majority of the
common stock held by shareholders other than the members of the investor group
because such approval is not required under Iowa law. Moreover, as described
elsewhere in this proxy statement, the special committee, the Board and the
members of the investor group believe that the fairness of the transaction was
established by other factors, including the arm's-length bargaining between the
investor group and the special committee as to the terms of the transaction,
the opinions of Lehman Brothers and Warburg Dillon Read and the other factors
taken into account by the special committee and the Board and described under
"--Recommendations of the Special Committee and the Board of Directors; Reasons
for the Merger."
RECOMMENDATIONS OF THE SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS; REASONS
FOR THE MERGER
RECOMMENDATIONS OF THE SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS
On October 24, 1999, the special committee unanimously determined that the
merger agreement and the merger are fair to and in the best interests of
MidAmerican and its unaffiliated shareholders and unanimously voted to
recommend that the Board approve the merger agreement and the merger and
recommend to MidAmerican shareholders that they vote to approve the merger
proposal.
Following the special committee meeting on October 24, 1999, the Board
unanimously determined (with Messrs. Sokol, Scott and Reznicek recusing
themselves) that the terms of the merger are fair to and in the best interests
of MidAmerican and its unaffiliated shareholders and approved the merger
agreement and the merger. Accordingly, the Board unanimously recommends that
MidAmerican shareholders vote "FOR" the approval of the merger proposal.
REASONS FOR THE MERGER
The Special Committee. In reaching its determination that the merger
agreement and the merger are fair to, and in the best interests of, MidAmerican
and its unaffiliated shareholders, and in
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recommending that the Board approve the merger and recommend to shareholders
that they vote to approve the merger proposal, the special committee consulted
with MidAmerican's executive officers (other than Mr. Sokol) and its financial
and legal advisors and considered the following factors:
o The special committee's review of possible alternatives to the merger,
including continuing to operate MidAmerican as an independent public
entity, restructuring MidAmerican through a stock repurchase or
implementation of a dividend policy acquiring one or more other companies
in the power industry, selling specific assets of MidAmerican, spinning
off certain assets and selling MidAmerican to a financial or strategic
buyer. Based on a variety of factors, including presentations by Lehman
Brothers as to MidAmerican's alternatives and presentations by Lehman
Brothers and Warburg Dillon Read as to various valuation matters and the
factors relating to MidAmerican's alternatives which are described under
"--Background of the Merger" above, the special committee concluded that
none of the alternatives considered was reasonably likely to provide
greater value to MidAmerican's shareholders than the merger;
o The fact that the $35.05 per share to be paid in the merger represents
an approximately 29% premium over the closing price per share of common
stock on October 22, 1999, the last trading day before announcement of
the signing of the merger agreement;
o The financial presentations made by each of Lehman Brothers and Warburg
Dillon Read, including their respective opinions, dated October 24, 1999,
that as of such date the consideration to be received by MidAmerican's
public shareholders in the merger was fair from a financial point of view
to such shareholders;
o The special committee's belief that the $35.05 per share to be received
in the merger was fair relative to its own assessment of MidAmerican's
current and expected future financial condition, earnings, business
opportunities, strategies and competitive position and the nature of the
regulatory environment in which MidAmerican operates. In this regard, the
special committee believed that, based on the analyses presented by its
financial advisors, the present value of the merger consideration (with
an assumed regulatory approval time frame of six months) was more
attractive on a risk-adjusted basis than both the present value of
MidAmerican's reasonably achievable possible future stock price based on
the future projected earnings growth of MidAmerican described under
"Certain Projections Provided to Financial Advisors and the Investor
Group--October 21 Projections" and the present value on a risk-adjusted
basis of reasonably feasible alternative acquisition transactions (with
an assumed 12-24 month regulatory approval time frame because of their
relatively greater regulatory complexity for those acquisition
alternatives). Further, the special committee believed that the
attainment of MidAmerican's projected future earnings would be considered
to be subject to a variety of risks based on the uncertainties associated
with (1) MidAmerican's future performance in deregulating United States
energy markets; (2) MidAmerican's ability to implement sophisticated
information technology systems and processes to meet customer needs; (3)
the possibility of adverse regulatory action in the United States and
United Kingdom relating to MidAmerican's regulated utility businesses; (4)
environmental compliance and the possible costs associated therewith; (5)
the increasingly competitive nature of the energy markets in which
MidAmerican operates; and (6) the anticipation that further consolidation
in these energy markets would result in larger and financially stronger
competitors.
o The arm's-length negotiations between the special committee and the
investor group with respect to the consideration to be paid in the merger
to MidAmerican shareholders and the other material terms of the merger
agreement. As a result of its negotiations, the special committee
believed that the investor group would not be willing to pay more than
$35.05 per share;
o The fact that the per share price to be received in the merger is
payable in cash, thereby eliminating any uncertainties in valuing the
consideration to be received by MidAmerican shareholders;
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o The terms and conditions of the merger agreement, including provisions
which are designed to ensure that the Board could fulfill its fiduciary
duties if presented with an acquisition proposal that is more favorable
to MidAmerican's shareholders than the merger. In particular, the special
committee considered that the merger agreement:
(1) permits the Board, in certain circumstances, to provide information
to and engage in negotiations with third parties who have made a
proposal to acquire MidAmerican, to modify or withdraw its
recommendation of the merger and to terminate the merger agreement
in order to pursue a more favorable transaction;
(2) contains termination fee and expense reimbursement obligations of
MidAmerican that the special committee does not believe would
discourage competing third party offers to acquire MidAmerican; and
(3) does not contain a financing condition to the investor group's
obligation to complete the merger;
o The investor group's financial ability to complete the merger, including
the fact that all of the funds necessary to complete the merger have been
committed pursuant to subscription agreements with limited closing
conditions. In this regard, the special committee considered that the
investor group's financing arrangements would not require any borrowing
by MidAmerican or its subsidiaries (other than a maximum of $180 million
which could be required under certain circumstances and would either be
borrowed under MidAmerican's existing revolving credit facility or loaned
to MidAmerican by Berkshire Hathaway) and that MidAmerican's credit
rating was expected to be maintained and could be enhanced as a result of
the merger. The special committee also recognized that Berkshire
Hathaway, a highly credit-worthy company with no previous affiliation
with MidAmerican, was providing a substantial majority of the funds
required by the investor group;
o The relatively higher likelihood and greater speed of obtaining all
necessary regulatory approvals in connection with the merger as compared
to a sale of MidAmerican to other third parties, in light of the proposed
ownership structure and financing arrangements of the proposed merger and
the fact that the investor group is not subject to traditional utility
regulation. In view of the increased likelihood and speed of closing, the
special committee considered that the discounted present value of the
merger consideration compared favorably to the discounted present value
of merger consideration that might have been offered by other third party
acquirors;
o The investor group's stated intention to preserve MidAmerican's
management team, maintain MidAmerican's headquarters in Des Moines, Iowa
and not lay off employees following the merger;
o The extensive experience and substantial success of the members of the
investor group in structuring and completing transactions similar to the
merger. Specifically, the special committee considered the reputation of
Berkshire Hathaway and Mr. Scott as long-term investors not interested in
maximizing short-term gain at the expense of employees of a company or
the communities in which it operates;
o The investor group's support of management's strategy of continuing to
deliver the highest quality service to its customers while increasing
operating efficiencies to lower costs to the consumer; and
o To a lesser extent, the views expressed by Mr. Sokol, the Chairman and
Chief Executive Officer of MidAmerican, that the investor group's
proposal, in contrast to other strategic alternatives, was the most
effective means of maximizing shareholder value. In this regard, the
special committee considered the possibility that, if the Board were to
reject the investor group's proposal, such rejection could be perceived
by Mr. Sokol as evidence of a significant philosophical difference
between him and the Board. The Board accordingly recognized that
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one possible outcome of its rejection of the investor group's proposal
could be his unwillingness to continue to serve as chief executive
officer of MidAmerican. The special committee also considered that the
potential negative impact of such a loss would be mitigated in
substantial part by the continued service of other experienced members of
senior management who were expected to remain with MidAmerican if the
merger were not approved.
The special committee believed that each of the above factors generally
supported its determination and recommendation, other than the last factor,
which the Board viewed as part of the general mix of information available
without being clearly favorable or unfavorable to its determination. The
special committee did, however, consider the following potentially negative
factors in its deliberations concerning the merger:
o The fact that MidAmerican common stock has, on 19 trading days in 1999,
closed at a trading price above $35.05 per share, including a high
closing price of $36.00 per share on January 5, 1999;
o The fact that, following the proposed merger, MidAmerican shareholders,
other than the members of the investor group, will no longer participate
in the future earnings or growth of MidAmerican or benefit from any
increases in the value of MidAmerican's stock or assets;
o The actual or potential conflicts of interest which certain officers and
directors of MidAmerican have in connection with the merger, including
the fact that Mr. Scott, a director of MidAmerican and Berkshire
Hathaway, would own approximately 18% of the equity interests and 88.1%
of the voting interests of MidAmerican following the merger and that Mr.
Sokol, the Chairman and Chief Executive Officer of MidAmerican, would own
approximately 0.4% of the outstanding equity interests and 2% of the
voting interests of MidAmerican following the merger. The special
committee believed, however, that these conflicts of interests were
mitigated in substantial part by the establishment of the special
committee to negotiate the terms of the merger agreement and to evaluate
the fairness of the merger; and
o The fact that MidAmerican shareholders may, depending on their tax basis
in their MidAmerican stock, recognize a taxable gain upon the completion
of the merger.
The above discussion concerning the information and factors considered by
the special committee is not intended to be exhaustive, but includes all of the
material factors considered by the special committee in making its
determination. In view of the variety of factors considered in connection with
its evaluation of the merger agreement and the proposed merger, the special
committee did not quantify or otherwise attempt to assign relative weights to
the specific factors it considered. In addition, individual members of the
special committee may have given different weight to different factors and
therefore may have viewed certain factors more positively or negatively than
others.
The Board of Directors. In determining to approve the merger and recommend
the merger proposal, and in reaching its determination that the merger
agreement and the merger are fair to, and in the best interests of, MidAmerican
and its shareholders, the Board consulted with MidAmerican's executive officers
(other than Mr. Sokol) and its financial and legal advisors, and considered the
following factors:
o The determination and recommendation of the special committee;
o Each of the factors referred to above under "--The Special Committee"
which were taken into account by the special committee in its
deliberations;
o The nature of the arm's-length negotiations between the special
committee and its advisors, on the one hand, and the investor group and
its advisors, on the other hand. In considering the arm's-length nature
of the negotiations and the procedural fairness of the merger, the Board
noted that:
-- The special committee, which consisted solely of independent
directors of the Board, represented the interests of MidAmerican and
its shareholders;
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-- The members of the special committee were experienced and
sophisticated in business and financial matters and were well
informed about the business and operations of MidAmerican;
-- The special committee retained and was advised by independent legal
counsel experienced in advising on transactions similar to the
merger;
-- The special committee retained and was advised by Lehman Brothers and
Warburg Dillon Read to assist the special committee in its evaluation
of the proposed merger; and
-- The special committee had met on a number of occasions and engaged in
extensive deliberations to evaluate the merger and potential
alternatives to the merger.
In connection with its consideration of the determination by the special
committee, and as part of its determination with respect to the fairness of the
consideration to be received by the shareholders in the merger, the Board
adopted the conclusion and underlying analysis of the special committee, based
upon the view of the Board as to the reasonableness of such analysis.
In considering the fairness of the merger, the special committee and the
Board did not consider MidAmerican's net book value or liquidation value
because they believed those values were not material indicators of
MidAmerican's value as a going concern. MidAmerican's book value per
outstanding share as of September 30, 1999 was $15.59 per share, substantially
below the $35.05 per share consideration to be paid in the merger.
Except as noted above, all of the factors described above which were
considered by the special committee and the Board supported their conclusions
that the merger is fair to and in the best interests of MidAmerican's
unaffiliated shareholders.
The special committee and the Board also considered the fact that although
the merger is conditioned upon the approval of the affirmative vote of a
majority of the shares of MidAmerican common stock, it was not structured to
require the approval of a majority of the votes entitled to be cast by
shareholders unaffiliated with the investor group. The special committee and
the Board did not structure the transaction to require the approval of a
majority of the common stock held by shareholders unaffiliated with the
investor group because such approval is not required under Iowa law and because
the special committee and the Board believed that the substantive and
procedural fairness of the transactions was established by the factors set
forth above.
The above discussion concerning the information and factors considered by
the Board is not intended to be exhaustive, but includes all of the material
factors considered by the Board in making its determination. In view of the
variety of factors considered in connection with its evaluation of the merger
agreement and the proposed merger, the Board did not quantify or otherwise
attempt to assign relative weights to the specific factors it considered in
reaching its determination. In addition, individual members of the Board may
have given different weight to different factors and therefore may have viewed
certain factors more positively or negatively than others.
FAIRNESS OPINIONS OF LEHMAN BROTHERS AND WARBURG DILLON READ
OPINION OF LEHMAN BROTHERS
The special committee engaged Lehman Brothers to act as its financial
advisor in connection with MidAmerican's evaluation of strategic alternatives.
At the meetings of the special committee and the Board on October 24, 1999,
Lehman Brothers delivered its oral opinion, which was subsequently followed by
a written opinion as of the same date, to the special committee and the Board
that as of such date and based upon and subject to certain matters stated in
the opinion, from a financial point of view, the consideration to be paid to
the public shareholders of MidAmerican in the merger was fair to such
shareholders.
THE FULL TEXT OF LEHMAN BROTHERS' WRITTEN OPINION DATED OCTOBER 24, 1999
IS ATTACHED AS APPENDIX C TO THIS PROXY STATEMENT AND IS INCORPORATED IN THIS
PROXY STATEMENT BY REFERENCE. SHAREHOLDERS SHOULD READ THE OPINION FOR A
DISCUSSION OF ASSUMPTIONS MADE, MATTERS CONSIDERED AND
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LIMITATIONS ON THE REVIEW UNDERTAKEN BY LEHMAN BROTHERS IN RENDERING ITS
OPINION. THE SUMMARY OF THE OPINION CONTAINED IN THIS PROXY STATEMENT IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF LEHMAN BROTHERS'
OPINION.
No limitations were imposed by MidAmerican on the scope of Lehman
Brothers' investigation or the procedures to be followed by Lehman Brothers in
rendering its opinion, except that MidAmerican did not authorize Lehman
Brothers to solicit, and Lehman Brothers did not solicit, any indications of
interest from any third party with respect to the purchase of all or a part of
MidAmerican's business. The form and amount of the consideration to be paid to
MidAmerican's shareholders in the merger was determined through arm's-length
negotiations between the parties. In arriving at its opinion, Lehman Brothers
did not ascribe a specific range of value to MidAmerican, but rather made its
determination as to the fairness, from a financial point of view, of the
consideration to be paid to MidAmerican's unaffiliated shareholders in the
merger on the basis of the financial and comparative analyses described below.
Lehman Brothers' opinion is for the use and benefit of the special committee
and the Board and was rendered to the special committee and the Board in
connection with its consideration of the merger. Lehman Brothers' opinion is
not intended to be and does not constitute a recommendation to any shareholder
as to how such shareholder should vote with respect to the merger proposal.
Lehman Brothers was not requested to opine as to, and its opinion does not
address, MidAmerican's underlying business decision to proceed with or effect
the merger.
In arriving at its opinion, Lehman Brothers reviewed and analyzed:
(1) the merger agreement and the specific terms of the merger;
(2) historical and projected financial and operating information with
respect to the business, operations and prospects of MidAmerican and
its operating business units furnished by MidAmerican (which projected
financial information is summarized in this proxy statement under
"Special Factors--Certain Projections Provided to Financial Advisors
and the Investor Group--October 21 Projections");
(3) publicly available information concerning MidAmerican that Lehman
Brothers believes to be relevant to its analysis, including
MidAmerican's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998 and Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1999 and June 30, 1999;
(4) a trading history of MidAmerican's common stock from October 27, 1997
to October 18, 1999 and a comparison of that trading history with
those of other companies that Lehman Brothers deemed relevant;
(5) a comparison of the historical financial results and present
financial condition of MidAmerican with those of other companies that
Lehman Brothers deemed relevant;
(6) a comparison of the financial terms of the merger with the financial
terms of certain other transactions that Lehman Brothers deemed
relevant;
(7) after consultation with MidAmerican's regulatory counsel, the
estimated time required to complete the merger; and
(8) alternative transactions that possibly could be entered into by
MidAmerican, including the time required to complete these
transactions.
In addition, Lehman Brothers has had discussions with the management of
MidAmerican concerning its business, operations, assets, financial condition
and prospects and has undertaken such other studies, analyses and
investigations as Lehman Brothers deemed appropriate.
In arriving at its opinion, Lehman Brothers has assumed and relied upon
the accuracy and completeness of the financial and other information used by it
without assuming any responsibility for independent verification of such
information and further relied upon the assurances of MidAmerican management
that they are not aware of any facts or circumstances that would make such
information inaccurate or misleading. With respect to the financial projections
of MidAmerican, upon advice from
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MidAmerican, Lehman Brothers assumed that the projections have been reasonably
prepared on a basis reflecting the best currently available estimates and
judgments of MidAmerican management as to the future financial performance of
MidAmerican and that MidAmerican will perform substantially in accordance with
the projections. In arriving at its opinion, Lehman Brothers has not conducted
a physical inspection of the properties and facilities of MidAmerican and has
not made or obtained any evaluations or appraisals of the assets or liabilities
of MidAmerican. Lehman Brothers' opinion necessarily is based upon market,
economic and other conditions as they existed on, and can be evaluated as of,
the date of its opinion.
In connection with the preparation and delivery of its opinion to the
special committee and the Board, Lehman Brothers performed a variety of
financial and comparative analyses, as described below. The preparation of a
fairness opinion involves various determinations as to the most appropriate and
relevant methods of financial and comparative analysis and the application of
those methods to the particular circumstances and, therefore, such an opinion
is not readily susceptible to summary description. Furthermore, in arriving at
its opinion, Lehman Brothers did not attribute any particular weight to any
analysis or factor considered by it, but rather made qualitative judgments as
to the significance and relevance of each analysis and factor. Accordingly,
Lehman Brothers believes that its analyses must be considered as a whole and
that considering any portion of such analyses and factors, without considering
all analyses and factors, could create a misleading or incomplete view of the
process underlying its opinion. In its analyses, Lehman Brothers made numerous
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond the control of
MidAmerican. Any estimates contained in these analyses are not necessarily
indicative of actual values or predictive of future results or values, which
may be significantly more or less favorable than as set forth in these
analyses. In addition, analyses relating to the value of businesses do not
purport to be appraisals or to reflect the prices at which businesses actually
may be sold.
Lehman Brothers performed a series of analyses utilizing the following
methodologies: discounted cash flow analysis, leveraged buyout valuation
analysis, comparable transaction analysis and comparable company trading
analysis. In applying the discounted cash flow analysis, Lehman Brothers used
both a sum of the parts approach and a whole company approach. The sum of the
parts approach involved analyzing MidAmerican's business units separately by
applying appropriate discount rates and, in selected cases, terminal value
multiples to the appropriate business unit. The business units separately
analyzed included: (1) MidAmerican's U.S. utility, MidAmerican Energy Company,
(2) MidAmerican's United Kingdom utility, Northern Electric plc, (3) CE
Generation, LLC, (4) Casecnan and the Philippines, (5) power generation and
mineral extraction projects in advanced stages of development and (6)
MidAmerican's other projects in earlier stages of development. The whole
company approach involved analyzing MidAmerican by applying to consolidated
financial data a range of discount rates and terminal value multiples based on
the composition of all of MidAmerican's businesses.
Certain of the analyses presented below include information presented in
tabular format. In order to fully understand the financial analyses used by
Lehman Brothers, the tables must be read together with the text of each
summary. The tables alone do not constitute a complete description of the
financial analyses.
Discounted Cash Flow Analysis
In the whole company analysis, Lehman Brothers performed a discounted cash
flow analysis using unleveraged after-tax cash flows for the period from
January 1, 2000 through December 31, 2004 and a terminal value as of December
31, 2004 based on financial forecasts provided by MidAmerican. Unleveraged
after-tax cash flows are defined for this purpose as after-tax earnings before
interest, plus depreciation and amortization, less capital expenditures, and
plus or minus changes in deferred taxes and changes in working capital. In the
whole company analysis, the terminal value excluded the value associated with
Casecnan and the Philippines which was calculated separately using discounted
cash flows over the term of key contracts. Except in the case of Casecnan and
the Philippines, terminal values reflect ranges of multiples of earnings before
interest, taxes, depreciation and amortization ("EBITDA") in the year 2004.
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<PAGE>
In the case of the sum of the parts analysis, MidAmerican Energy Company
and Northern Electric cash flows were discounted over the same five-year time
period as described for the whole company analysis above, and the terminal
value was calculated as of December 31, 2004. For the other assets, cash flows
over a time period were selected ranging from ten years to the contract term
plus a terminal value based upon a multiple of EBITDA. For projects in earlier
stages of development, after consulting with MidAmerican about the status of
each project, Lehman Brothers weighed the probability of completing such
projects. A summary of the assumptions is provided below.
<TABLE>
<CAPTION>
TERMINAL VALUE EBITDA
DISCOUNT RATE RANGE MULTIPLE RANGE
---------------------------- ------------------------------
<S> <C> <C> <C> <C>
Whole Company Analysis .............................. 8.5% -- 9.5% 6.5 x -- 7.75x
Sum of the Parts Analysis
MidAmerican Energy Company ......................... 7.5% -- 8.0% 7.00x -- 7.50x
Northern Electric .................................. 7.5% -- 8.5% 6.25x -- 6.75x
Philippines and Casecnan ........................... 10.5% -- 14.0% N/A
Projects in advanced stages of development ......... 6.5% -- 8.0% 7.50x -- 8.50x
Projects in earlier stages of development .......... 8.5% -- 11.0% 7.50x -- 8.50x
</TABLE>
Based on the above discount rates and terminal value multiples, Lehman
Brothers calculated enterprise value ranges. Where appropriate, Lehman Brothers
adjusted these enterprise value ranges for appropriate on- and off-balance
sheet items, such as debt, cash (including option proceeds) and indicative
values for other operations (such as CE Generation and various non-core
assets), in order to arrive at an equity value range in dollars per common
share.
The discounted cash flow analysis based on the whole company approach
implied a valuation range of $30.02-$40.50 per share of MidAmerican common
stock. The discounted cash flow analysis based on the sum of the parts approach
implied a valuation range of $30.08-$38.97 per share of MidAmerican common
stock, excluding projects in early stages of development. Including the
projects in early stages of development with each project probability adjusted,
the discounted cash flow analysis implied a valuation range of $32.40-$42.08
per share of MidAmerican common stock. In the case of the sum of the parts
analysis, cost savings related to a going private transaction as estimated by
management were included.
Leveraged Buyout Valuation Analysis
Lehman Brothers performed a leveraged buyout analysis based on financial
forecasts provided by MidAmerican. This analysis was prepared from the
consolidated company perspective and reflects an EBITDA terminal value multiple
range of 6.75x to 7.75x in the year 2004.
In determining a purchase price, Lehman Brothers applied additional
leverage to MidAmerican pro forma for a leveraged acquisition of MidAmerican.
Lehman Brothers determined a year five exit equity value by subtracting from
the exit enterprise value appropriate on- and off- balance sheet items such as
debt (including existing debt and incremental transaction-related borrowings)
and other items. In this analysis, the calculated terminal value is synonymous
with the exit enterprise value. The price per common share for MidAmerican was
calculated using this equity exit value and an estimate of internal rates of
return required by financial sponsors on the amount of equity (net of debt)
financing required, which estimate was based, in part, upon other leveraged
transaction acquisitions deemed relevant by Lehman Brothers. Based upon such
estimates of market rates of return for a financial sponsor on the equity
deemed necessary to complete the transaction within target credit limitations,
Lehman Brothers calculated that a leveraged buyout of MidAmerican could range
in value between $32.00-$37.00 per common equity share.
Because the market conditions, rationale and circumstances surrounding
each of the transactions analyzed were specific to each transaction and because
of the inherent differences between the businesses, operations and prospects of
MidAmerican and the acquired businesses analyzed, Lehman Brothers believed that
it was inappropriate to, and therefore did not, rely solely on the quantitative
results of its analysis of market rates of return and, accordingly, also made
qualitative judgments concerning differences between the characteristics of the
proposed merger and other transactions.
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Comparable Transactions Analysis
Lehman Brothers applied multiples derived from all proposed or completed
integrated, domestic electric utility transactions from January 1, 1997 through
September 1, 1999 to certain operating statistics of MidAmerican. The
transactions reviewed included the following:
o Carolina Power & Light Company and Florida Progress Corporation
o Energy East Corporation and CMP Group, Inc.
o Dynegy Inc. and Illinova Corporation
o Laurel Hill Partners and TNP Enterprises, Inc.
o Utilicorp United Inc. and Empire District Electric Company
o Northern States Power Co. and New Century Energies Inc.
o National Grid Group Plc and New England Electric System
o ScottishPower PLC and PacifiCorp
o Boston Edison Company and Commonwealth Energy Corp.
o AES Corporation and CILCORP, Inc.
o CalEnergy Company, Inc. and MidAmerican
o Consolidated Edison, Inc. and Orange and Rockland Utilities Inc.
o Sierra Pacific Resources and Nevada Power Co.
o American Electric Power Company, Inc. and Central and South West
Corporation
o LG&E Energy Corporation and KU Energy Corporation
o Allegheny Power System and DQE, Inc.
Multiples used to determine enterprise values were applied to
MidAmerican's latest twelve months EBITDA and earnings before interest and
taxes ("EBIT"). Multiples used to determine equity values were applied to pro
forma net income for the latest twelve months giving effect to the merger
between CalEnergy Company, Inc. and MidAmerican and MidAmerican's estimates of
pro forma net income for 1999 and December 31, 1999 book value (as adjusted for
conversion of certain convertible securities). The range of multiples used are
summarized in the table below.
<TABLE>
<S> <C> <C>
Enterprise Value/EBITDA (LTM) ................. 7.50x -- 8.00x
Enterprise Value/EBIT (LTM) ................... 12.50x -- 13.50x
Equity Value/Net Income (LTM - 1999E) ......... 17.00x -- 20.00x
Equity Value/Book Value (1999E) ............... 1.75x -- 2.25x
</TABLE>
Where appropriate, Lehman Brothers adjusted the enterprise value ranges
for appropriate on- and off-balance sheet items, such as debt and cash,
including option proceeds, in order to arrive at an equity value range in
dollars per common share.
The comparable transactions analysis implied a valuation range of
$34.17-$42.06 per share of MidAmerican common stock. This valuation range was
not adjusted for time value of money (see sensitivity analysis below).
Because the market conditions, rationale and circumstances surrounding
each of the transactions analyzed were specific to each transaction and because
of the inherent differences between the businesses, operations and prospects of
MidAmerican and the acquired businesses analyzed, Lehman Brothers believed that
it was inappropriate to, and therefore did not, rely solely on the quantitative
results of the analysis and, accordingly, also made qualitative judgments
concerning differences between the characteristics of the proposed merger and
other transactions.
Comparable Transaction Sensitivity Analysis for Time Value of Money. Based
upon consultation with MidAmerican's regulatory counsel, the proposed merger
has been assumed to be able to close more rapidly than alternative
transactions. After consultation with MidAmerican's regulatory counsel, Lehman
Brothers assumed for purposes of this analysis that alternative transactions
would require an incremental 12-18 months to close. Discount rates of 10-12%
were selected to reflect the equity-related present value cost (assuming
monthly compounding of interest) of a delay relative to a $35.05 price per
common share.
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<TABLE>
<CAPTION>
Present Value Cost of a Delay from Anticipated 10% 11% 12%
Closing of Proposed Merger ---------- ---------- ----------
<S> <C> <C> <C>
12 month delay ................................. $ 3.51 $ 3.86 $ 4.21
15 month delay ................................. $ 4.43 $ 4.88 $ 5.33
18 month delay ................................. $ 5.39 $ 5.94 $ 6.49
</TABLE>
As shown above, under certain assumptions the relative present value cost
of a delay ranges from $3.51 to $6.49 per share. To equate the proposed merger
to alternative transactions involving an all cash proposal or a fixed value
proposal, the $35.05 price per common share would be increased by these amounts
to arrive at a range of adjusted values per common share of $38.56 to $41.54.
Comparable Company Trading Analysis
Lehman Brothers applied multiples derived from selected publicly traded,
integrated electric utility companies to projected financial data of
MidAmerican. Lehman Brothers included large capitalization integrated electric
utility companies with significant non-regulated operations (like MidAmerican)
including Alliant Energy Corporation, CMS Energy Corporation, Duke Energy,
Edison International, El Paso Energy and Reliant Energy, Inc. Lehman Brothers
calculated and analyzed enterprise and common equity market values multiples
based upon projected management financial data. These statistics are summarized
below.
<TABLE>
<S> <C> <C>
Enterprise Value/EBITDA (1999E) ................. 6.75x -- 7.75x
Enterprise Value/EBIT (1999E) ................... 11.00x -- 12.00x
Equity Value/Net Income (1999E - 2000E) ......... 12.00x -- 14.00x
Equity Value/Book Value (1999E) ................. 1.50x -- 2.00x
</TABLE>
The comparable company trading analysis yielded implied valuations for
MidAmerican in the range of $26.29 to $34.17 per share of MidAmerican common
stock.
Because of the inherent differences between the businesses, operations and
prospects of MidAmerican and the businesses, operations and prospects of the
companies included in the comparable company group, Lehman Brothers believed
that it was inappropriate to, and therefore did not, rely solely on the
quantitative results of the analysis and, accordingly, also made qualitative
judgments concerning differences between the financial and operating
characteristics of MidAmerican and companies in the comparable company groups
that would affect the public trading values of MidAmerican and such comparable
companies.
Premium Paid Analysis
Lehman Brothers conducted an analysis of premiums paid in all integrated
electric utility transactions between January 1, 1997 and September 1, 1999. In
addition, Lehman Brothers separately analyzed premiums paid based upon the
implied price on the date of the announced transaction relative to the target
company's closing stock price one trading day prior to the transaction
announcement in the CalEnergy/MidAmerican and Laurel Hill Partners/TNP
Enterprises transactions. The average premiums for all such integrated electric
utilities is 25%; the premium for the CalEnergy/MidAmerican transaction is 33%;
and the premium for Laurel Hill Partners/TNP Enterprises transaction is 26%.
Based on the closing price of $27.25 on October 22, 1999, the last trading
day before announcement of the merger, and the merger price of $35.05 per
share, the premium to be paid in the merger for MidAmerican's common stock is
29%.
Lehman Brothers is an internationally recognized investment banking firm
and, as part of its investment banking activities, is regularly engaged in the
evaluation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. The special committee selected
Lehman Brothers because of its expertise, reputation and familiarity with
MidAmerican in particular and the power industry in general and because its
investment banking professionals have substantial experience in transactions
similar to the merger.
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As compensation for its services in connection with the merger,
MidAmerican has agreed to pay Lehman Brothers a fee of $7,500,000, of which (1)
$500,000 became payable upon the execution of the merger agreement, (2)
$3,000,000 will become payable upon receipt of all required shareholder
approvals to effect a sale of MidAmerican and (3) the balance will be payable
upon the closing of a sale of MidAmerican. In addition, MidAmerican has agreed
to reimburse Lehman Brothers for reasonable out-of-pocket expenses incurred in
connection with the merger and to indemnify Lehman Brothers for certain
liabilities, including liabilities under the federal securities laws, that may
arise out of its engagement by MidAmerican and the rendering of its opinion. It
is the opinion of the SEC that indemnification for liabilities arising under
the federal securities laws is against public policy and may therefore be
unenforceable.
Lehman Brothers is acting as financial advisor to MidAmerican in
connection with the merger. Lehman Brothers has also performed various
investment banking services for MidAmerican in the past and has received
customary fees for such services. In the ordinary course of its business,
Lehman Brothers actively trades in the common stock of MidAmerican for its own
account and for the accounts of its customers and, accordingly, may at any time
hold a long or short position in such securities.
OPINION OF WARBURG DILLON READ
On October 24, 1999, Warburg Dillon Read delivered to the special
committee and the Board its oral opinion, which was subsequently followed by a
written opinion as of the same date, that, as of that date and subject to the
various considerations, assumptions, limitations and qualifications described
in the opinion, the purchase price of $35.05 per share of MidAmerican common
stock was fair, from a financial point of view, to MidAmerican's public
shareholders.
WE URGE YOU TO READ THE ACTUAL WARBURG DILLON READ OPINION, WHICH HAS BEEN
CONFIRMED AS OF THE DATE OF THIS PROXY STATEMENT. THE FULL TEXT OF THE WARBURG
DILLON READ OPINION IS ATTACHED AS APPENDIX D TO THIS PROXY STATEMENT AND IS
INCORPORATED HEREIN BY REFERENCE. THE WARBURG DILLON READ OPINION DOES NOT
CONSTITUTE A RECOMMENDATION AS TO HOW ANY MIDAMERICAN SHAREHOLDER SHOULD VOTE
AT THE SPECIAL MEETING.
In arriving at its opinion, Warburg Dillon Read, among other things:
(1) reviewed certain publicly available business and historical financial
information relating to MidAmerican;
(2) reviewed certain internal financial information and other data
relating to the business and financial prospects of MidAmerican,
including estimates and financial forecasts prepared by management of
MidAmerican, that were provided to it by MidAmerican and were not
publicly available (which estimates and financial forecasts are
summarized in this proxy statement under "Special Factors--Certain
Projections Provided to Financial Advisors and the Investor
Group--October 21 Projections");
(3) reviewed the historical market prices and trading volumes of
MidAmerican common stock;
(4) conducted discussions with members of the senior management of
MidAmerican;
(5) reviewed publicly available financial and stock market data with
respect to certain other companies in lines of business Warburg Dillon
Read believed to be generally comparable to those of MidAmerican;
(6) compared the financial terms of the merger with the publicly
available financial terms of certain other transactions which Warburg
Dillon Read considered relevant;
(7) reviewed the October 21, 1999 draft of the merger agreement; and
(8) conducted such other financial studies, analyses and investigations,
and considered such other information as Warburg Dillon Read deemed
necessary or appropriate.
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Warburg Dillon Read did not independently verify any of the above
information and relied, with MidAmerican's consent, on the information being
materially complete and accurate. Warburg Dillon Read has not made any
independent evaluation or appraisal of any of the assets or liabilities of
MidAmerican or any of its subsidiaries, and no one has furnished Warburg Dillon
Read with any such evaluation or appraisal. Warburg Dillon Read assumed that
the financial forecasts referred to above were reasonably prepared on bases
reflecting the best currently available estimates and judgments of
MidAmerican's management as to the future financial performance of MidAmerican.
Warburg Dillon Read's opinion does not address MidAmerican's underlying
business decision to effect the merger or constitute a recommendation to any
shareholder of MidAmerican as to how such shareholder should vote with respect
to the merger. Warburg Dillon Read was not asked to, nor did it, offer any
opinion as to the material terms of the merger agreement or the form of the
merger. In rendering its opinion, Warburg Dillon Read assumed that the parties
will comply with all the material terms of the merger agreement. Warburg Dillon
Read did not negotiate the terms of the merger and was not authorized to and
did not solicit indications of interest in a business combination with
MidAmerican from any party. Except as discussed above, MidAmerican did not
limit Warburg Dillon Read regarding the procedures to be followed or factors to
be considered in rendering its opinion.
Warburg Dillon Read's opinion is based on economic, monetary and market
conditions existing on the date thereof.
No company, transaction or business used in the analysis described below
under "Comparable Company Trading Analysis" and "Comparable Company Acquisition
Analysis" is identical to MidAmerican or the proposed merger. Accordingly, the
analysis of the results necessarily involves complex considerations and
judgments concerning differences in financial and operating characteristics and
other factors.
In connection with rendering its opinion, Warburg Dillon Read considered a
variety of valuation methods. Warburg Dillon Read considered the valuation of
MidAmerican both as a consolidated entity and as the sum of distinct segments.
The following discussion summarizes the material valuation methods considered
by Warburg Dillon Read.
The consolidated entity valuation consists of a discounted cash flow
analysis, comparable company trading analysis and comparable company
acquisition analysis for MidAmerican.
Discounted Cash Flow Analysis. Warburg Dillon Read performed a discounted
cash flow analysis valuation of MidAmerican based upon projections furnished by
MidAmerican. Warburg Dillon Read divided the valuation of the consolidated
entity into two segments. Utilizing the projections furnished by MidAmerican,
Warburg Dillon Read valued MidAmerican's projects in the Philippines apart from
the rest of MidAmerican. The projects in the Philippines have finite lives and
consist of power generation projects that will generate cash flows for
MidAmerican through the year 2007 and a hydroelectric plant near the Casecnan
river which will generate cash flows for MidAmerican through the year 2020. Due
to the finite nature and the risk profile of these projects, Warburg Dillon
Read valued these projects separately from the rest of MidAmerican's
businesses. Warburg Dillon Read discounted to present value the free unlevered
cash flows through the year 2007 for the power generation projects at a
discount rate of 11% and discounted to present value the free unlevered cash
flows through the year 2020 for the hydroelectric plant near the Casecnan river
at a discount rate of 14%. Warburg Dillon Read valued the rest of MidAmerican
by discounting to present value, under assumed discount rates ranging from 8%
to 9%, the free unlevered cash flows through the year 2004 for MidAmerican,
excluding the free unlevered cash flows contributed by the projects in the
Philippines. Terminal values for the rest of MidAmerican were determined by
applying multiples of EBITDA of 6.5x to 7.5x, based on the EBITDA multiples of
public companies deemed comparable to MidAmerican, to the projected 2004 EBITDA
figure for MidAmerican, excluding the contribution to 2004 projected EBITDA by
the projects in the Philippines. The terminal value was then discounted to
present value, under assumed discount rates ranging from 8% to 9%.
The sum of the present values of the projects in the Philippines and the
rest of MidAmerican resulted in per share values for MidAmerican of $29.38 to
$44.11.
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<PAGE>
Comparable Company Trading Analysis. Using publicly available information,
Warburg Dillon Read compared multiples of certain financial criteria for
MidAmerican to multiples based upon market trading values at the time for a set
of companies which, in Warburg Dillon Read's judgment, were generally
comparable to MidAmerican. The factors Warburg Dillon Read considered in
selecting companies for comparison included size, geographic location,
financial condition and scope of business operations. The companies used in the
comparison to MidAmerican were PP&L Resources Inc., CMS Energy Corporation,
Northern States Power Company, Reliant Energy Inc. and Utilicorp United Inc.
In evaluating the current market value of MidAmerican common stock,
Warburg Dillon Read determined ranges of multiples for selected measures of
financial performance for the comparable companies, including the market value
of outstanding common stock as a multiple of:
o net income per share of common stock for the latest 12-month period; and
o estimated net income per share of common stock for the current and the
following fiscal years as projected by Institutional Brokers Estimate
System.
In addition, Warburg Dillon Read determined ranges of multiples for
selected measures of financial performance for the comparable companies,
including the adjusted market value of such companies (defined as the market
value of outstanding common stock plus total debt, preferred and minority
interests, less cash and equivalents) as a multiple of:
o operating income, or EBIT, for the latest 12-month period; and
o operating cash flow, or EBITDA, for the latest 12-month period.
Warburg Dillon Read then applied such multiples to the corresponding data
for MidAmerican. This analysis produced a range of values per share for
MidAmerican. The results are summarized in the following table, which shows the
range of valuations produced for each of the measures of MidAmerican's
financial performance:
<TABLE>
<CAPTION>
COMPARABLE LOW END HIGH END
MEASURE OF FINANCIAL PERFORMANCE COMPANY MULTIPLES OF RANGE OF RANGE
- ------------------------------------------------- ------------------------------ ---------- -----------
<S> <C> <C> <C> <C>
Latest Twelve Months Earnings Per Share ......... 11.5x -- 13.5x $ 23.89 $ 28.04
1999 Estimated Earnings Per Share ............... 11.5x -- 12.5x $ 23.49 $ 25.54
2000 Estimated Earnings Per Share ............... 10.5x -- 11.5x $ 24.74 $ 27.10
Latest Twelve Months EBIT ....................... 13.0x -- 14.0x $ 24.87 $ 33.31
Latest Twelve Months EBITDA ..................... 8.0x -- 8.5x $ 33.24 $ 40.62
Mean of Above ................................... $ 26.05 $ 30.92
Median of Above ................................. $ 24.74 $ 28.04
</TABLE>
As shown above, this analysis produced a range of mean and median values
of $24.74 to $30.92 per share of MidAmerican common stock.
Comparable Company Acquisition Analysis. Warburg Dillon Read reviewed
comparable transactions involving acquisitions of electric utility companies or
holding companies for electric utility companies. The set of 16 comparable
transactions was selected based on size and excluded transactions involving a
merger of equals.
The set of comparable transactions included the following proposed or
completed transactions:
o Consolidated Edison, Inc. and Northeast Utilities
o Carolina Power & Light Company and Florida Progress Corporation
o Energy East Corporation and CMP Group, Inc.
o Laurel Hill Partners and TNP Enterprises, Inc.
o Utilicorp United Inc. and Empire District Electric Company
o Utilicorp United Inc. and St. Joseph Light & Power Company
o New England Electric System and Eastern Utilities Associates
o National Grid Group Plc and New England Electric System
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<PAGE>
o ScottishPower PLC and PacifiCorp
o BEC Energy and Commonwealth Energy System
o AES Corporation and CILCORP, Inc.
o CalEnergy Company, Inc. and MidAmerican
o Consolidated Edison, Inc. and Orange & Rockland Utilities, Inc.
o American Electric Power Company, Inc. and Central and South West
Corporation
o LG&E Energy Corporation and KU Energy Corporation
o Allegheny Power System and DQE, Inc.
Warburg Dillon Read calculated the equity consideration to be received by
the second company's shareholders for each of the comparable transactions as a
multiple of various measures of financial performance for that company
including:
o net income per share of common stock for the latest 12-month period as
of the date of each respective transaction announcement; and
o projected net income per share of common stock for the then current and
the following fiscal years as projected by Institutional Brokers Estimate
System.
In addition, Warburg Dillon Read calculated the adjusted market value for
each of the comparable transactions as a multiple of each acquired company's:
o operating income, or EBIT, for the latest 12-month period as of the date
of each respective transaction announcement; and
o operating cash flow, or EBITDA, for the latest 12-month period as of the
date of each respective transaction announcement.
In addition, Warburg Dillon Read calculated the equity consideration to be
received as a premium to the unaffected market price (defined as the market
price one month prior to announcement of a transaction) for each of the
comparable transactions.
Warburg Dillon Read then applied such multiples to the corresponding data
for MidAmerican. This analysis produced a range of values per share for
MidAmerican. The results are summarized in the following table, which shows the
range of valuations produced for each of the measures of MidAmerican financial
performance:
<TABLE>
<CAPTION>
COMPARABLE LOW END HIGH END
MEASURE OF FINANCIAL PERFORMANCE TRANSACTION MULTIPLES OF RANGE OF RANGE
- ------------------------------------------------- ------------------------------ ---------- -----------
<S> <C> <C> <C> <C>
Latest Twelve Months Earnings Per Share ......... 17.5x -- 19.0x $ 36.35 $ 39.47
1999 Estimated Earnings Per Share ............... 16.5x -- 18.5x $ 33.71 $ 37.79
2000 Estimated Earnings Per Share ............... 15.5x -- 18.0x $ 36.52 $ 42.41
Latest Twelve Months EBIT ....................... 12.5x -- 14.0x $ 20.64 $ 33.31
Latest Twelve Months EBITDA ..................... 7.5x -- 8.5x $ 25.86 $ 40.62
Market Premium .................................. 25.0% -- 40.0% $ 34.06 $ 38.15
Mean of Above ................................... $ 31.19 $ 38.63
Median of Above ................................. $ 33.89 $ 38.81
</TABLE>
As shown above, this analysis produced a range of mean and median values
of $31.19 to $38.81 per share of MidAmerican common stock.
Sum of the Parts Analysis. Warburg Dillon Read performed valuation
analysis of MidAmerican based on a sum of the parts analysis. Warburg Dillon
Read analyzed the business segments of MidAmerican and applied valuation
techniques, including discounted cash flow analysis in several instances, to
these business segments based upon projections furnished by MidAmerican.
Utilizing these projections, Warburg Dillon Read discounted to present value,
under assumed discount rates ranging from 7.5% to 15.0%, the projected cash
flows for each of the relevant business segments. Where necessary, terminal
values were determined utilizing multiples of EBITDA ranging from 7.0x to 9.0x.
In certain segments where public market valuations were available, the public
market valuation was used for that business segment.
34
<PAGE>
The sum of the parts analysis of MidAmerican produced a valuation range
from $28.23 to $39.53 per share of MidAmerican common stock.
The valuation analysis of MidAmerican can be summarized as shown in the
following table:
<TABLE>
<CAPTION>
LOW END HIGH END
VALUATION METHODOLOGY OF RANGE OF RANGE
- ---------------------------------------------------- ---------- -----------
<S> <C> <C>
Discounted Cash Flow Analysis ............... $ 29.38 $ 44.11
Comparable Company Trading Analysis ......... $ 24.74 $ 30.92
Comparable Acquisition Analysis ............. $ 31.19 $ 38.81
Sum-of-the-Parts Analysis ................... $ 28.23 $ 39.53
</TABLE>
As shown above, the valuation analysis produced a range of values for
MidAmerican of $24.74 to $44.11 per share of MidAmerican common stock.
The preparation of a fairness opinion involves various determinations as
to the most appropriate and relevant methods of financial analysis and the
application of these methods to particular circumstances. Therefore, the
opinion and analysis are not readily susceptible to summary description.
Accordingly, notwithstanding the separate factors and analyses summarized
above, Warburg Dillon Read believes that its analysis must be considered as a
whole and that selecting only portions of its analysis and the factors it
considered, without considering all factors and analyses, could create a
misleading view of the evaluation process underlying the opinion. Warburg
Dillon Read did not assign any particular weight to any analyses or factors it
considered. Rather, Warburg Dillon Read made qualitative judgments based on its
experience in rendering the opinion and on economic, monetary and market
conditions then present as to the significance and relevance of each analysis
and factor. In its analyses, Warburg Dillon Read assumed relatively stable
industry performance, regulatory environments and general business and economic
conditions, all of which are beyond MidAmerican's control. Any estimates
contained in Warburg Dillon Read's analyses do not necessarily indicate actual
value, which may be significantly more or less favorable than those suggested
by such estimates. Estimates of the financial value of companies do not purport
to be appraisals or to reflect necessarily the prices at which companies
actually may be sold. In rendering its opinion, Warburg Dillon Read makes no
recommendations as to how any MidAmerican shareholder should vote on the merger
proposal.
Warburg Dillon Read is an internationally recognized investment banking
firm. As part of its investment banking business, Warburg Dillon Read is
regularly engaged in evaluating businesses and their securities in connection
with mergers and acquisitions, negotiated underwritings, competitive bids,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. The special committee
selected Warburg Dillon Read on the basis of the firm's expertise and
reputation. Warburg Dillon Read attended meetings of the special committee and
the Board and assisted the special committee and the Board in connection with
their review and evaluation of the merger.
Pursuant to the engagement letter between MidAmerican and Warburg Dillon
Read, MidAmerican has agreed to pay Warburg Dillon Read $3.5 million for
rendering a fairness opinion. MidAmerican has agreed to indemnify Warburg
Dillon Read against certain liabilities, including under federal securities
laws, relating to or arising out of its engagement. It is the opinion of the
SEC that indemnification for liabilities arising under the federal securities
laws is against public policy and may therefore be unenforceable.
Whether or not the merger is completed, MidAmerican will reimburse Warburg
Dillon Read for the expenses reasonably incurred by it in entering into and
performing services pursuant to the engagement letter, including the fees and
disbursements of Warburg Dillon Read's counsel.
Warburg Dillon Read has also performed various investment banking services
for MidAmerican in the past and has received customary fees for such services.
In the ordinary course of business, Warburg Dillon Read may trade the debt
and equity securities of MidAmerican for its own account and the accounts of
its customers and, accordingly, may at any time hold a long or short position
in such securities.
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<PAGE>
POSITION OF THE INVESTOR GROUP AS TO THE FAIRNESS OF THE MERGER
The investor group has concluded that the merger and the terms of the
merger agreement, including the merger consideration of $35.05 per share, are
fair to MidAmerican and its unaffiliated shareholders based on the following
factors:
o the appointment of the special committee, which consisted solely of
independent members of the Board;
o the unanimous approval and recommendation of the merger and the merger
agreement by the special committee and the Board (other than Messrs.
Scott, Sokol and Reznicek who recused themselves), which is independent
of the investor group;
o the independent factors referred to above as having been taken into
account by the special committee and the Board;
o the fact that the price per share to be paid in the merger represents a
29% premium to the closing price of MidAmerican common stock on the
trading day prior to the announcement of the merger; and
o the fact that the price and the terms and conditions of the merger
agreement were the result of arm's-length negotiations between the
special committee and the investor group.
In connection with its consideration of the fairness of the consideration
to be received by the unaffiliated shareholders of MidAmerican under the merger
agreement, the investor group has adopted the conclusions as to fairness set
forth under "--Recommendations of the Special Committee and the Board of
Directors; Reasons for the Merger," and the analyses underlying such
conclusions, of the special committee and the Board, based upon the views of
the members of the investor group as to the reasonableness of such analyses.
The investor group has not assigned any relative or specific weights to the
foregoing factors. However, the investor group believes that each of the
factors is material to its determination that the transaction is fair, and has
characterized as positive each of the factors characterized as positive by the
special committee. Individual members of the investor group may have given
differing weights to different factors and may have viewed certain factors more
positively or negatively than others.
The investor group also has considered the fact that although the merger
is conditioned upon the approval of the affirmative vote of a majority of the
shares of MidAmerican common stock, it is not structured to require the
approval of a majority of the votes entitled to be cast by shareholders
unaffiliated with the investor group. The investor group did not structure the
transaction to require the approval of a majority of the common stock held by
shareholders unaffiliated with the investor group because such approval is not
required under Iowa law and because the investor group believes that the
substantive and procedural fairness of the transaction was established by the
factors set forth above.
36
<PAGE>
CERTAIN PROJECTIONS PROVIDED TO FINANCIAL ADVISORS AND THE INVESTOR GROUP
In the normal course of business, MidAmerican's management prepares
internal budgets, plans, estimates, forecasts or projections as to future
revenues, earnings or other financial information in order to be able to
anticipate the financial performance of MidAmerican. It does not, as a matter
of course, publicly disclose these internal documents.
MidAmerican provided financial projections to CSFB and Lehman Brothers in
connection with their review of strategic alternatives for the Board's October
1, 1999 meeting and subsequently provided the financial projections to Warburg
Dillon Read. These projections reflected management's best estimates and good
faith judgments as to the future performance of MidAmerican and reflected a
number of assumptions, including the following material assumptions:
o MidAmerican Energy Company would be subject to regulatory rate treatment
materially consistent with the existing regulation in Iowa and Illinois.
o Costs and future profits associated with projected unregulated retail
expansion by MidAmerican Energy Company into Illinois were included.
o Realty acquisitions by MidAmerican's realty subsidiary, Home
Services.com, in an amount aggregating $50 million per year were assumed.
o MidAmerican's Salton Sea V and Turbo power projects and its Zinc plant
were assumed to be operational by mid-year 2000.
o The Casecnan project in the Philippines commences operation in October
2000.
o The pending distribution price review by the U.K. power regulator would
result in a price cut of 8% of costs mitigation net for MidAmerican's U.K.
utility, Northern Electric.
o There would be no negative impact from the supply review by the U.K.
regulator.
o Tax expense optimization is implemented by MidAmerican.
o All excess cash is invested at 5%.
The financial projections were subject to and prepared on the basis of
estimates, limitations, qualifications and assumptions, and involved judgments
with respect to, among other things, future economic, competitive, regulatory
and financial and market conditions and future business decisions which may not
be realized and are inherently subject to significant business, economic,
competitive uncertainties, all of which are difficult to predict and many of
which are beyond MidAmerican's control. These uncertainties are described under
"Cautionary Statement Regarding Forward-Looking Statements."
While MidAmerican believes these estimates and assumptions to have been
reasonable, there can be no assurance that the projections will be accurate,
and actual results may vary materially from those shown. In light of the
uncertainties inherent in forward-looking information of any kind, the
inclusion of these projections should not be regarded as a representation by
MidAmerican, the investor group or any other entity or person that the
anticipated results will be achieved and investors are cautioned not to place
undue reliance on such information.
October 1 Projections. The projections included the following items which
may be material:
<TABLE>
<CAPTION>
PROJECTED
2000 2001 2002 2003 2004
----------- ----------- ---------- ----------- -----------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues ........................... $ 4,841 $ 5,337 $ 5,461 $ 5,717 $ 5,951
EBITDA ............................. 1,207 1,372 1,437 1,500 1,544
EBIT ............................... 710 837 895 956 994
Diluted Earnings per Share ......... 2.85 3.39 3.90 4.44 4.73
</TABLE>
37
<PAGE>
October 15 Projections. Preliminary revised projections were prepared by
management of MidAmerican and were provided to Lehman Brothers and Warburg
Dillon Read on October 15, 1999. The projections of October 1, 1999 were
updated on October 15, 1999 to reflect certain revised assumptions, including,
with respect to construction and development projects, primarily the delay of
the commercial operation date of the Casecnan project from August 2000 to March
2001, the latest estimates of the pending distribution and supply reviews in
the United Kingdom, and adjustments reflecting current cash on hand and common
shares outstanding. These projections included the following items which may be
material:
<TABLE>
<CAPTION>
PROJECTED
2000 2001 2002 2003 2004
----------- ----------- ---------- ----------- -----------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues ........................... $ 4,801 $ 5,298 $ 5,426 $ 5,683 $ 5,917
EBITDA ............................. 1,148 1,321 1,418 1,481 1,525
EBIT ............................... 672 811 899 961 999
Diluted Earnings per Share ......... 2.50 3.40 4.06 4.69 5.00
</TABLE>
With our permission, the October 15, 1999 projections were also received
by CSFB in connection with its role as financial advisor to Mr. Sokol.
October 21 Projections. The projections of October 15, 1999 were further
revised on October 21, 1999 and were provided to Lehman Brothers and Warburg
Dillon Read. The projections reflected revised assumptions with respect to the
tender for, and subsequent retirement of, approximately $121 million of 9 1/2%
Senior Notes, further refinement of the impact associated with construction and
development projects, primarily relating to the delay in the commercial
operation date of the Casecnan project and an adjustment to the income tax
provision primarily reflecting the above changes.
<TABLE>
<CAPTION>
PROJECTED
2000 2001 2002 2003 2004
----------- ----------- ---------- ----------- -----------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues ........................... $ 4,801 $ 5,292 $ 5,426 $ 5,683 $ 5,917
EBITDA ............................. 1,167 1,335 1,436 1,500 1,544
EBIT ............................... 675 805 899 961 999
Diluted Earnings per Share ......... 2.55 3.13 3.80 4.40 4.77
</TABLE>
MidAmerican does not intend to update or otherwise revise the financial
projections to reflect circumstances existing after the date the projections
were prepared or to reflect the occurrence of unanticipated events. The
financial projections should be read together with the summaries of the
opinions of Lehman Brothers and Warburg Dillon Read and their respective
opinions attached to this proxy statement as Appendix C and Appendix D,
respectively.
INTERESTS IN THE MERGER THAT DIFFER FROM YOUR INTERESTS
In considering the recommendations of the special committee and the Board
with respect to the merger, MidAmerican shareholders should be aware that some
of our directors and officers have interests in the merger that are different
from your interests as a shareholder. The special committee and the Board were
aware of these actual and potential conflicts of interest.
Walter Scott, Jr., a director of MidAmerican, and David L. Sokol, the
Chairman and Chief Executive Officer of MidAmerican, are members of the
investor group and, in connection therewith, will contribute cash or certain of
their existing shares of MidAmerican common stock and options to acquire
MidAmerican common stock to Teton Acquisition immediately prior to completion
of the merger in exchange for equity interests in Teton Acquisition. These
equity interests in Teton Acquisition will be converted into equivalent equity
interests in MidAmerican (valued at the merger
38
<PAGE>
price) at the time of completion of the merger. The exchange of MidAmerican
common stock and options for equivalent equity interests in Teton Acquisition,
and the subsequent conversion of such interests for equivalent equity interests
in MidAmerican is expected to be accomplished on a tax-free basis. It is
expected that Mr. Scott, possibly together with (1) a charitable foundation or
a trust controlled by him, (2) his children or trusts for their benefit or (3)
a corporation controlled by the Scott family (collectively, the "Scott Family
Interests"), will own approximately 18% of the equity interests and 88.1% of
the voting interests in MidAmerican following the merger and that Mr. Sokol
will own approximately 0.4% of the equity interests and 2% of the voting
interests in MidAmerican following the merger. In addition, upon the completion
of the merger, Mr. Scott, by virtue of his voting power in MidAmerican, will
have the ability to designate five MidAmerican directors (including himself)
and Mr. Sokol will have the contractual right to serve as a member of the Board
and designate two additional MidAmerican directors for so long as he is
employed by MidAmerican. As a result of their participation in the investor
group, Messrs. Scott and Sokol will continue to have the opportunity to
participate in any future earnings growth of MidAmerican following the merger
and to benefit from any increase in the value of MidAmerican.
If invited by Mr. Sokol, prior to completion of the merger, up to three
other members of our management may become a part of the investor group and, in
connection therewith, may be given the opportunity to contribute to Teton
Acquisition all or a portion of their existing equity interests in MidAmerican
in exchange for equivalent equity interests in Teton Acquisition. Such equity
interests in Teton Acquisition will be converted into equivalent equity
interests in MidAmerican (valued at the merger price) at the time of completion
of the merger. The maximum amount that may be so exchanged by additional
management participants, if any, may not exceed $12.5 million in equity value
(calculated at the merger price). The potential participation by additional
management members, if any, would cause a small downward adjustment to the
ownership percentages of the other members of the investor group (other than
the percentage voting interest of Berkshire Hathaway). No such offer has yet
been made to any other members of MidAmerican management.
Mr. Scott beneficially owns 3,010,000 shares of MidAmerican common stock
(including 2,000,000 shares owned by a trust of which Mr. Scott is the sole
trustee) and options to purchase an additional 3,489 shares of MidAmerican
common stock. Mr. Sokol owns 180,924 shares of MidAmerican common stock and
options to purchase an additional 1,650,000 shares of MidAmerican common stock,
of which options to acquire 666,696 shares will become exercisable within 60
days after November 1, 1999. Together, Messrs. Sokol and Scott beneficially own
approximately 6.4% of the outstanding MidAmerican common stock. Berkshire
Hathaway currently does not own any shares of MidAmerican common stock but may
purchase shares in the open market and otherwise, to the extent permitted under
the terms of a confidentiality agreement entered into between Berkshire
Hathaway and MidAmerican and in accordance with the relevant provisions of the
Exchange Act, depending on price, market conditions and other factors.
Similarly, Mr. Scott and certain of the Scott Family Interests may purchase
additional shares of MidAmerican common stock in the open market and otherwise,
to the extent permitted under the terms of a confidentiality agreement entered
into between Mr. Sokol (on behalf of the investor group) and MidAmerican and in
accordance with the relevant provisions of the Exchange Act, depending on
price, market conditions and other factors.
Mr. Scott is a director of both Berkshire Hathaway and MidAmerican. As a
result, he may owe duties to Berkshire Hathaway and its shareholders that
conflict with his duties to MidAmerican and its shareholders.
Under their subscription agreements with Teton Acquisition, the members of
the investor group have each agreed to enter into a shareholders agreement as a
condition to the completion of the transactions contemplated by the
subscription agreements.
It is contemplated that the shareholders agreement will provide that,
after the third anniversary of the completion of the merger, Mr. Sokol and each
other member of management who is invited to become a part of the investor
group may require MidAmerican to purchase, for an agreed value or appraised
value, his shares of MidAmerican common stock and options to purchase shares of
39
<PAGE>
MidAmerican common stock once per year in increments of not less than 25% of
his total equity. After the third anniversary of the completion of the merger,
MidAmerican may require each such management investor to sell to MidAmerican,
for an agreed value or an appraised value, his shares of MidAmerican common
stock and options to purchase shares of MidAmerican common stock once per year
in increments of not less than 25% of the total equity held by such management
investor.
It is also contemplated that, under the shareholders agreement, after the
earlier of Mr. Scott's death or the third anniversary of completion of the
merger, Mr. Scott or his estate or personal trusts may require Berkshire
Hathaway to purchase, for an agreed value or an appraised value, up to
5,000,000 of Mr. Scott's shares of MidAmerican common stock in certain limited
circumstances and that the sale of such shares would otherwise be restricted.
Finally, if Berkshire Hathaway transfers, other than to its subsidiaries, more
than 50% of the common stock of MidAmerican (assuming the conversion of
MidAmerican's convertible preferred stock), then Mr. Scott, the Scott Family
Interests, Mr. Sokol and any other members of management who are invited to
become a part of the investor group will have the right to participate in such
sale on a proportional basis.
Upon a change of control of MidAmerican (including completion of the
merger), all of Mr. Sokol's options will become immediately vested and
exercisable. Under the terms of a proposed amended employment agreement between
Mr. Sokol and MidAmerican, assuming that Mr. Sokol contributes to Teton
Acquisition (as required under his subscription agreement with Teton
Acquisition) all of the MidAmerican common stock and options that he owned on
October 23, 1999, Mr. Sokol would be entitled to receive additional options
(the "Additional Options") to purchase 549,277 shares of MidAmerican common
stock following the merger. The Additional Options represent 30% of the number
of shares of MidAmerican common stock owned or subject to options held by Mr.
Sokol on October 23, 1999. All of the Additional Options would be exercisable
at an exercise price equal to the merger price and would have a ten-year term.
The Additional Options would vest in equal one-third amounts on each of the
first, second and third anniversaries of the date of closing of the merger. If
the merger is completed, the exercise term of all of Mr. Sokol's presently
outstanding options which have a remaining term of less than eight years would
also be extended to a term of eight years from the completion of the merger.
Furthermore, if Mr. Sokol's employment were terminated by us without cause or
by him for good reason, Mr. Sokol will be entitled to severance payments of
approximately $8.6 million, whether or not the merger is completed.
As noted above, if invited by Mr. Sokol, up to three additional members of
MidAmerican's present senior management may be offered the opportunity to
contribute up to 100%, but not less than 65%, of each such person's current
equity in MidAmerican to Teton Acquisition in exchange for equivalent equity
securities of Teton Acquisition. These Teton Acquisition securities will be
converted into equivalent equity securities of MidAmerican at the time of the
merger. If any such member of management contributes to Teton Acquisition 100%
of such person's presently owned MidAmerican common stock and options, then
such person will be entitled to receive additional options in respect of a
number of shares of MidAmerican common stock which equals 30% of the number of
shares of MidAmerican common stock presently owned or subject to options held
by such person. Such additional options would have terms identical to those
contained in the Additional Options to be granted to Mr. Sokol at the closing
of the merger. Similarly, upon completion of the merger and assuming that such
management investor exchanges at least 65% of his MidAmerican shares and
options for equivalent shares and options of Teton Acquisition, the exercise
term of all of the outstanding MidAmerican options presently owned by such
management investor which have a term of less than eight years would be
extended to a term of eight years from the completion of the merger.
MidAmerican's directors and executive officers (other than Messrs. Scott
and Sokol) owned, as of November 1, 1999, an aggregate of 117,450 shares of
MidAmerican common stock and options to purchase 1,945,844 shares of
MidAmerican common stock, including 720,942 unvested options which will become
fully exercisable and vested as a result of the merger. In accordance with the
terms of the merger agreement, at the effective time of the merger, except for
those members of senior
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management discussed above who may participate with the investor group, such
shares will be converted into the right to receive the $35.05 per share merger
consideration and such options will be converted into the right to receive the
difference between the $35.05 per share merger consideration and the exercise
price per share of such options.
MidAmerican is a party to employment agreements with certain of its
executive officers, in addition to the employment agreement with Mr. Sokol
described above. Under these agreements, if any such executive officer's
employment were terminated by MidAmerican without cause or, following a change
of control of MidAmerican (including upon completion of the merger), by the
executive for good reason, such executive would be entitled to a severance
payment in an amount equal to two years of compensation plus continuation of
employee benefits. In addition, certain executives of MidAmerican following the
merger (including Mr. Sokol) would receive additional participation and vesting
credit under MidAmerican's supplemental retirement plan. These severance
payments (excluding severance payments payable to Mr. Sokol, as described
above) would total approximately $14.2 million if all such executives were
terminated. Finally, some executives, including Mr. Sokol, would be compensated
if excise taxes were payable by them as a result of such compensation
arrangements.
MidAmerican has agreed in the merger agreement to indemnify and hold
harmless, to the fullest extent not prohibited by applicable law, each of the
present and former directors and officers of the parties to the merger
agreement, including MidAmerican's directors and officers, against any losses
or expenses, claims, damages or amounts paid in settlement (if the settlement
is consented to by MidAmerican) arising out of actions or omissions occurring
at or prior to the effective time that (1) are wholly or partly based on the
fact that the person is or was a director or officer of any of the parties to
the merger agreement or (2) arise out of or pertain to the transactions
contemplated by the merger agreement. In addition, for a period of at least six
years following the effective time, MidAmerican will maintain in effect the
indemnification provisions contained in MidAmerican's existing articles of
incorporation and by-laws.
For a period of six years after the effective time, MidAmerican will keep
its existing directors' and officers' liability insurance or, at its option,
will provide substitute policies with coverage in amount and scope at least as
favorable as its existing policies. However, MidAmerican will not be required
to pay annual premiums for the directors' and officers' insurance in excess of
200% of the annual premiums paid as of the date of the merger agreement, but in
that case will purchase as much coverage as possible for that amount.
PLANS FOR MIDAMERICAN FOLLOWING THE MERGER
It is expected that, following the completion of the merger, the
operations and business of MidAmerican will be conducted substantially as they
are currently conducted. Neither MidAmerican nor any member of the investor
group has any present plans or proposals that relate to or would result in an
extraordinary corporate transaction involving MidAmerican's corporate
structure, business or management, such as a merger, reorganization,
liquidation, relocation of any operations or sale or transfer of a material
amount of assets. However, MidAmerican and the investor group will continue to
evaluate MidAmerican's business and operations after the merger from time to
time, and may propose or develop new plans and proposals which either considers
to be in the best interests of MidAmerican and its shareholders.
It is expected that the Amended and Restated Articles of Incorporation of
MidAmerican which will become effective at the time the merger is completed
will be substantially amended and restated immediately following the effective
time of the merger so as to reflect provisions consistent with the conversion
of MidAmerican from a publicly-held company to a privately-owned company and
certain other agreements of the investor group (such amendments are referred to
in this proxy statement as the "Post-Closing Amendments"). Pursuant to the
Post-Closing Amendments, the MidAmerican Board is expected to be comprised of
10 persons, rather than 14 persons, the current size of the Board. It is
further expected that the staggered Board provisions contained in MidAmerican's
existing articles of incorporation will be eliminated, with the result that all
directors will serve for one-year
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terms which are scheduled to expire on the same date. The terms of the
convertible preferred stock of Teton Acquisition (which will become the
convertible preferred stock of MidAmerican at the effective time of the merger)
to be purchased by Berkshire Hathaway (as described below) will entitle the
holder to designate two members of the Board. Similarly, Mr. Sokol's proposed
amended employment agreement with MidAmerican will give him the right during
the term of his employment to serve as a member of the Board and to designate
two additional directors. Mr. Scott, as the holder of a majority of
MidAmerican's voting securities following the merger, will have the right to
designate the remaining five members of the Board (including himself).
Pursuant to the Post-Closing Amendments, it is further expected that (1)
the provisions contained in Articles VB and VC of MidAmerican's existing
articles of incorporation will be substantially amended so as to generally
provide for removal or replacement of directors by the investor group in a
manner consistent with the foregoing designation procedures, (2) Article VI
will be amended to permit special meetings to be called by the holders of less
than 50% of the voting power of MidAmerican, (3) Article XI will be amended to
permit action to be taken by shareholders by written consent and (4) any other
changes deemed necessary or desirable by the investor group in view of
applicable regulatory laws or to reflect the closely held nature of MidAmerican
following the completion of the merger will be made.
The convertible preferred stock of Teton Acquisition to be purchased by
Berkshire Hathaway is generally non-voting except that, in addition to the
right to designate two directors as described above, the holders are entitled
to certain veto rights. The consent of the holders of a majority of the
outstanding convertible preferred stock will be required for, among other
things:
o any amendment of the articles of incorporation which would change the
powers, preferences or special rights of the convertible preferred stock
or that would otherwise adversely affect the rights of the holders of the
convertible preferred stock;
o the sale or other disposition of 25% or more of the business or assets
of MidAmerican, or the merger or consolidation of MidAmerican with any
other person;
o the acquisition of any business or assets or the making of capital
expenditures outside the annual budget approved by the Board, in each
case for a consideration or involving expenditures in excess of $50
million per transaction;
o the issuance, grant or sale, or the repurchase, of any equity securities
or any equity-linked securities of MidAmerican;
o transactions with officers, directors, shareholders and affiliates of
MidAmerican except (1) to the extent executed on terms no less favorable
than those obtainable in an arm's-length transaction with an unaffiliated
person or (2) in the case of cash compensation arrangements, which are
approved by the entire Board of MidAmerican;
o the removal of the person acting as chief executive officer of
MidAmerican (expected to be Mr. Sokol) on the closing date of the merger;
and
o the appointment or removal of any person as chief executive officer of
MidAmerican after such initial chief executive officer of MidAmerican.
MERGER FINANCING; SOURCE OF FUNDS
The maximum total amount of funds required to complete the merger,
including related costs and expenses, is expected to be approximately $2.41
billion. This amount assumes that no shareholders perfect their dissenters'
rights under Iowa law, but excludes approximately $120 million of MidAmerican
shares and options (valued at the merger price) which are expected to be
contributed to Teton Acquisition by Mr. Scott and possibly the Scott Family
Interests, and by Mr. Sokol. It also includes approximately $345 million that
MidAmerican may be required to pay to the holders of its 6 1/2% Convertible
Trust Preferred Securities and 6 1/4% Convertible Trust Preferred Securities if
all such securities are converted into MidAmerican common stock at or prior to
completion of the
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merger. Following completion of the merger, any MidAmerican Convertible Trust
Preferred Securities which remain outstanding will be convertible by the holder
only into an amount of cash equal to the merger price multiplied by the number
of shares of MidAmerican common stock into which such MidAmerican Convertible
Trust Preferred Securities were convertible immediately prior to the merger. We
and the investor group expect to incur approximately $25 million in costs and
expenses in connection with the merger and the related transactions, as set
forth in the table below. Upon completion of the merger, we will assume these
costs and expenses.
<TABLE>
<CAPTION>
EXPENSE ESTIMATED AMOUNT
- -------------------------------------- -----------------
(IN THOUSANDS)
<S> <C>
Financial advisory fees ........... $ 18,000
Legal fees ........................ 4,000
Accounting fees ................... 100
Printing and mailing fees ......... 200
Solicitation expenses ............. 300
SEC filing fees ................... 500
Miscellaneous ..................... 1,900
--------
Total ............................. $ 25,000
</TABLE>
The members of the investor group have entered into subscription
agreements with Teton Acquisition to provide an aggregate of up to $2.35
billion in cash and MidAmerican securities to Teton Acquisition in exchange for
securities of Teton Acquisition or a trust to be formed by Teton Acquisition,
with the proceeds of such contributions to be used for purposes of funding the
merger. This amount includes approximately $120 million of MidAmerican shares
and options (valued at the merger price) which are expected to be contributed
to Teton Acquisition by Mr. Scott and possibly the Scott Family Interests, and
by Mr. Sokol. Upon completion of the merger, these securities and all other
securities of Teton Acquisition will convert into equivalent securities of
MidAmerican.
The closing under each of the subscription agreements is conditioned on,
among other things, all conditions to the merger being satisfied or waived, the
simultaneous closings under the other subscription agreements and the execution
by Teton Acquisition and the members of the investor group of a shareholders
agreement containing put and call rights and transfer restrictions.
Under its subscription agreement with Teton Acquisition, Berkshire
Hathaway has agreed to purchase up to $2.05 billion of securities of Teton
Acquisition, including $800 million of preferred securities to be issued by a
trust to be formed by Teton Acquisition. The balance of Berkshire Hathaway's
subscription is for shares representing 9.9% of the common stock of Teton
Acquisition and for shares of convertible preferred stock of Teton Acquisition,
each at a purchase price per share equal to the $35.05 per share merger price.
The purchase price is payable in cash or shares of MidAmerican common stock
(valued at the merger price), at Berkshire Hathaway's option. The amount of
Berkshire Hathaway's investment is subject to adjustment based on the amount of
presently outstanding MidAmerican Convertible Trust Preferred Securities that
are converted in response to the merger, whether and to what extent other
members of MidAmerican management participate in the transaction through the
exchange of their existing equity interests in MidAmerican (in an aggregate
amount of up to approximately $12.5 million of MidAmerican common stock and
options, valued at the merger price) and the amount of cash available to
MidAmerican at the closing of the merger. Securities to be purchased by
Berkshire Hathaway under its subscription agreement may instead be purchased by
consolidated subsidiaries of Berkshire Hathaway, with Berkshire Hathaway
nevertheless responsible for satisfying its obligations under its subscription
agreement.
Under his subscription agreement with Teton Acquisition, Mr. Scott has
agreed to purchase 8,000,000 shares of Teton Acquisition common stock at a
purchase price per share equal to the merger price, or an aggregate purchase
price of $280.4 million. Such purchase price is payable in cash or
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shares of MidAmerican common stock (valued at the merger price), at the option
of Mr. Scott. Mr. Scott's obligation under the subscription agreement may be
reduced by the number of shares of Teton Acquisition common stock (up to
3,000,000 shares), if any, purchased by the Scott Family Interests.
Under his subscription agreement with Teton Acquisition, Mr. Sokol has
agreed to exchange his 180,924 shares of MidAmerican common stock and his
options to purchase 1,650,000 shares of MidAmerican common stock for equivalent
shares and options of Teton Acquisition. Separately, under the terms of his
proposed employment agreement with MidAmerican, as described above under
"--Interests in the Merger That Differ from Your Interests," assuming Mr. Sokol
exchanges all of his MidAmerican shares and options for shares of Teton
Acquisition, (1) Mr. Sokol would be granted additional options in respect of
549,277 shares of MidAmerican common stock upon completion of the merger and
(2) the exercise term of Mr. Sokol's presently outstanding MidAmerican options
(which will become options to acquire MidAmerican common stock after the
merger) with terms of less than eight years will be extended to a term of eight
years from the date of completion of the merger.
Under the merger agreement, each of Teton Formation and Teton Acquisition
have agreed that, without our prior consent, they will not enter into any
amendment to, or modification of or waiver of, any of the subscription
agreements if such amendment, modification or waiver would (1) reduce the
aggregate amount of funds committed under such subscription agreements, (2) add
additional conditions to the completion of the transactions contemplated by the
subscription agreements or (3) have a material adverse effect on or delay the
receipt of approvals or the completion of the merger.
The investor group may use up to a maximum of approximately $180 million
of cash available at MidAmerican or draw up to $180 million under MidAmerican's
existing revolving credit facility to fund the merger consideration, including
any amounts payable to holders of MidAmerican Convertible Trust Preferred
Securities who convert into MidAmerican common stock before completion of the
merger and related costs and expenses, if more than $165 million in value of
the presently outstanding MidAmerican Convertible Trust Preferred Securities
are converted into shares of MidAmerican common stock at or before the
completion of the merger. MidAmerican's existing revolving credit facility
(which is with Credit Suisse First Boston, Lehman Commercial Paper Inc. and
certain other financial institutions) provides for unsecured loans of up to
$400 million, bearing interest payable at rates based either on the federal
funds rate or the Eurodollar rate. The facility terminates in November 2000.
However, if and to the extent such funds are not available at MidAmerican or
under its credit facility, Berkshire Hathaway has agreed under its subscription
agreement to lend Teton Acquisition up to $180 million to provide the remaining
funds required to complete the merger. Such loan is available only if and to
the extent that our existing revolving credit agreement does not permit
borrowing to fund the merger consideration and related expenses in an amount of
up to $180 million. The loan would be drawable only on the date of completion
of the merger, would rank pari passu with our other public debt, would become
due 180 days after completion of the merger, must be repaid to the extent cash
is available for such repayment and would bear interest at a rate comparable to
that available to us under the Eurodollar rate option contained in our existing
revolving credit agreement. MidAmerican expects to repay any indebtedness
incurred in connection with the merger (whether under MidAmerican's credit
facility or to Berkshire Hathaway) from its operating cash flows.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain U.S. federal income tax consequences
of the merger to you and other MidAmerican shareholders receiving cash merger
consideration.
The receipt of cash in exchange for MidAmerican common stock in the merger
will be a taxable transaction for federal income tax purposes and may also be a
taxable transaction under applicable state, local and foreign tax laws. You and
the other MidAmerican shareholders receiving cash merger consideration will
generally recognize gain or loss for federal income tax purposes in an amount
equal to the difference between the adjusted tax basis in your MidAmerican
common stock and the amount of the cash received in exchange for your
MidAmerican common stock. Your gain or loss will
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generally be a capital gain or loss if you hold MidAmerican common stock as a
capital asset, and will be a long-term capital gain or loss if, at the
effective time of the merger, you have held your MidAmerican common stock for
more than one year.
This discussion may not apply to the following MidAmerican shareholders:
(1) those who acquired their MidAmerican common stock by exercising
employee stock options or through other compensation arrangements with
us;
(2) those who are not citizens or residents of the United States; and
(3) those who dissent and receive the appraised fair value of their
shares or who are otherwise subject to special tax treatment.
You may be subject to "backup withholding" at a rate of 31% on payments
received in connection with the merger unless you (1) provide a correct
taxpayer identification number ("TIN") (which, if you are an individual, is
your social security number) and any other required information to the paying
agent, or (2) are a corporation or come within certain exempt categories and,
when required, demonstrate this fact, and otherwise comply with applicable
requirements of the backup withholding rules. If you do not provide a correct
TIN, you may be subject to penalties imposed by the IRS. Any amount paid as
backup withholding does not constitute an additional tax and will be creditable
against your federal income tax liability. You should consult with your own tax
advisor as to your qualification for exemption from backup withholding and the
procedure for obtaining such exemption. You may prevent backup withholding by
completing a Substitute Form W-9 and submitting it to the paying agent for the
merger when you submit your stock certificate(s) following the effective time
of the merger.
You are urged to consult your tax advisor with respect to the tax
consequences of the merger, including the effects of applicable state, local,
foreign or other tax laws.
ACCOUNTING TREATMENT
The merger will be accounted for using the purchase method of accounting.
Under this method of accounting, the purchase price will be allocated to the
fair value of the net assets acquired. The excess purchase price over the fair
value of the assets acquired will be allocated to goodwill.
DISSENTERS' RIGHTS OF SHAREHOLDERS
Under the Iowa Business Corporation Act, if you hold your shares of
MidAmerican common stock continually through the closing of the merger and
follow the procedures set forth in the Iowa Act, you will be entitled to have
the "fair value" of your shares appraised by the Iowa District Court for Polk
County and receive payment in cash in an amount equal to the fair value. For
this purpose, fair value means the value of the shares immediately before the
completion of the merger, excluding any appreciation or depreciation in
anticipation of the merger unless such exclusion would be inequitable, as
determined by the court.
The following summary is not a complete statement of the provisions of the
Iowa Act relating to the rights of dissenting shareholders, and is qualified in
its entirety by reference to the copy of the provisions of Division XIII of the
Iowa Act attached as Appendix E to this proxy statement.
Under the Iowa Act, if you wish to exercise your dissenters' rights, you
must deliver to us before the vote is taken at the special meeting a written
notice indicating your intent to demand payment for your shares if the merger
is completed. Because a proxy which does not contain voting instructions will,
unless revoked, be voted for approval of the merger agreement, if you desire to
assert your dissenters' rights under Iowa law, you must either withhold your
proxy or cast a vote against approval of the merger agreement. If you fail to
deliver the notice or if you vote in favor of approving the merger proposal,
you will not be entitled to payment for your shares under the Iowa Act. A vote
against approval of the merger proposal, in person or by proxy, will not in and
of itself constitute a written demand for appraisal satisfying the requirements
of Iowa law.
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Following the special meeting and if the merger is approved, we are
required to deliver a written dissenters' notice to all shareholders who
notified us that they intend to demand payment for their shares and who did not
vote in favor of the merger proposal. This dissenters' notice must be sent no
later than 10 days after shareholder approval of the merger agreement at the
meeting is received and must: (1) state where the payment demand must be sent
and where and when certificates for shares must be deposited; (2) supply a form
for demanding payment for the shares that includes the date of the first
announcement to the news media or to shareholders of the terms of the proposed
merger (October 25, 1999) and that requires that the person asserting
dissenters' rights certify whether or not the person acquired beneficial
ownership of the shares of common stock before that date; (3) set a date by
which we must receive the payment demand, which must not be fewer than 30 nor
more than 60 days after the dissenters' notice is delivered; and (4) be
accompanied by a copy of the Iowa dissenters' rights statute.
If you desire to exercise dissenters' rights, you must demand payment
before the deadline set forth in the dissenters' notice, certify whether the
beneficial ownership of your shares was acquired before October 25, 1999 and
deposit your common stock certificates in accordance with the notice. If you
demand payment and deposit stock certificates in accordance with the terms of
the dissenters' notice, you will retain all other rights as a shareholder until
the rights are canceled or modified by the completion of the merger. If you
fail to demand payment or deposit stock certificates as required by the
dissenters' notice by the dates set forth in such notice, you will not be
entitled to payment for your shares under the Iowa dissenters' rights statute.
In order to exercise dissenters' rights, you must mail or deliver your
written notice that you intend to demand payment for your shares to:
MidAmerican Energy Holdings Company, 666 Grand Avenue, P.O. Box 657, Des
Moines, Iowa 50303-0657, Attention: Assistant Corporate Secretary. The notice
should specify that you are thereby demanding appraisal of your shares. We will
not file any demand on behalf of any shareholder. Accordingly, you will need to
initiate all necessary action to perfect your dissenters' rights within the
time periods prescribed under Iowa law.
If a dissenting shareholder was the beneficial owner of his or her shares
of common stock on or prior to October 25, 1999 (a "Pre-Announcement
Shareholder"), the Iowa Act requires us to pay such shareholder the amount that
we estimate to be the fair value of the shareholder's shares and accrued
interest from the later of (1) the date of our receipt of such shareholder's
notification of his exercise of dissenter's rights and (2) the effective time
of the merger, until the date of payment. Payment is to be made as soon as the
merger is completed and must be accompanied by our year-end and interim
financial statements, a statement of our estimate of the fair value of the
shares, an explanation of how the interest was calculated, a statement of the
dissenting shareholder's right to demand payment under the Iowa Act and a copy
of the relevant provisions of the Iowa Act governing dissenters' rights. If a
dissenting shareholder was not the beneficial owner of his shares prior to
October 25, 1999 (a "Post-Announcement Shareholder"), we may elect to withhold
payment of the fair value of the dissenting shareholder's shares. If we elect
to withhold such payment, we are required to estimate the fair value of the
dissenting shareholder's shares, plus accrued interest, and offer to pay this
amount to each Post-Announcement Shareholder, subject to the condition that the
Post-Announcement Shareholder accept the amount offered in full satisfaction of
his demand. If the offer is not accepted, the Post-Announcement Shareholder
will continue to have the dissenters' rights under the Iowa Act summarized
below. The offer must be accompanied by a statement of our estimate of value,
an explanation of how the interest was calculated and a statement of the
dissenting shareholder's right to demand payment under the Iowa Act.
Section 490.1328 of the Iowa Act provides that a dissenting shareholder
may notify us in writing of his estimate of the fair value of his shares and
amount of interest due and demand payment of the amount of such estimate (less
any payment already made by us), or reject our offer (if a Post-Announcement
Shareholder) and demand payment of the fair value of his shares and interest
due if (1) the dissenter believes the amount paid or offered is less than the
fair value of his shares or that the interest was incorrectly calculated; (2)
we fail to pay Pre-Announcement Shareholders within 60 days after the date set
for demanding payment; or (3) if the merger is not completed, we fail to
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return the deposited stock certificates within 60 days after the date set for
demanding payment. In order to exercise the rights granted by the Iowa Act, a
dissenter must notify us in writing within 30 days after we make or offer to
make payment for the dissenter's shares.
If a demand for payment by a dissenting shareholder under the Iowa Act
remains unsettled within 60 days after our receipt of the payment demand, we
must commence a proceeding in the Iowa District Court for Polk County and
petition the court to determine the fair value of the shares of common stock.
If such a proceeding is not commenced within the 60-day period, we must pay
each dissenting shareholder whose demand remains unsettled the amount demanded.
All dissenting shareholders whose demands remain unsettled must be made parties
to the proceeding and must be served with a copy of the petition. The court may
appoint one or more persons as appraisers to receive evidence and recommend a
decision on the question of fair value. In any such proceeding, each dissenting
shareholder made a party is entitled to a judgment in the amount of the
difference, if any, between the fair value found by the court and the amount
paid by us, plus interest on any such difference, in the case of a
Pre-Announcement Shareholder or a Post-Announcement Shareholder for whom we did
not elect to withhold payment, or the fair value, plus accrued interest, of the
dissenting shareholder's shares for which we elected to withhold payment, in
the case of a Post-Announcement Shareholder. The court in an appraisal
proceeding has the authority to determine and assess the costs of the
proceeding, including the compensation and expenses of court-appointed
appraisers, in such amounts and against such parties as it deems equitable. The
court may also assess fees and expenses of counsel and experts for the parties
against us if the court finds that we did not substantially comply with the
requirements of the Iowa Act, or against any party if the court finds that the
party acted arbitrarily, vexatiously, or not in good faith. The Iowa Act also
makes provision for compensation of counsel for any dissenting shareholder
whose services benefited other dissenting shareholders similarly situated, to
be paid out of the amounts awarded the dissenting shareholders who were
benefited, if not assessed against us.
Failure to follow the steps required by the Iowa Act for perfecting
dissenters' rights may result in the loss of such rights.
Any cash received from the exercise of dissenters' rights may be subject
to federal or state income tax. See "Special Factors--Certain Federal Income
Tax Consequences."
If the holders of more than 10% of the shares of common stock should
exercise their dissenters' rights, Teton Formation and Teton Acquisition will
not be required to complete the merger. See "The Merger Agreement--Conditions."
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THE MERGER AGREEMENT
The following is a brief summary of the material provisions of the merger
agreement. The following summary is qualified in its entirety by reference to
the merger agreement, which we have attached as Appendix A to this proxy
statement and which we incorporate by reference into this document. We
encourage you to read the merger agreement in its entirety.
THE MERGER
The merger agreement provides that, following the approval of the merger
agreement by shareholders and the satisfaction or waiver of the other
conditions to the merger, including obtaining the requisite regulatory
approvals, Teton Acquisition will be merged with and into us, and we will be
the surviving company. The merger will become effective upon the filing of
articles of merger with the Secretary of State of the State of Iowa or at such
later time agreed to by the parties and specified in the articles of merger.
When the merger becomes effective, the articles of incorporation of
MidAmerican will be amended and restated substantially in the form attached as
Appendix B to this proxy statement (the "Amended Articles"). However, it is
presently expected that, immediately following the effective time of the
merger, the Amended Articles will be substantially amended and restated so as
to reflect provisions consistent with the conversion of MidAmerican from a
publicly-held company to a privately-owned company and to reflect certain other
agreements of the investor group. For a brief description of these additional
proposed changes, see "Special Factors--Plans for MidAmerican Following the
Merger."
Conversion of Capital Stock. At the effective time of the merger, pursuant
to the merger agreement and the Iowa Act, each issued and outstanding share of
MidAmerican common stock, other than any shares (1) owned by us, Teton
Acquisition, Teton Formation or any of our or their respective subsidiaries,
all of which will be canceled without consideration, or (2) held by a
dissenting shareholder exercising and perfecting dissenters' rights, will be
converted into the right to receive $35.05 in cash, without interest.
Exchange of Common Stock Certificates. At the effective time, each
certificate representing shares of MidAmerican common stock then outstanding,
other than any shares owned by us, Teton Acquisition, Teton Formation or any of
our or their respective subsidiaries or held by a dissenting shareholder
perfecting dissenters' rights, will represent the right to receive the cash
into which such issued and outstanding shares may be converted. At the
effective time, all such shares of MidAmerican common stock will be canceled
and cease to exist, and each holder of a certificate representing any such
shares will cease to have any voting or other rights with respect to such
shares, except the right to receive upon the surrender of such certificate the
cash consideration payable under the merger agreement, without interest.
We will designate a bank or trust company to act as exchange agent and, as
soon as possible after the effective time of the merger, mail a letter of
transmittal to you. The letter of transmittal will tell you how to surrender
your MidAmerican common stock certificates in exchange for the $35.05 per share
merger consideration. You should not send in your MidAmerican common stock
certificates until you receive a transmittal form. You should send them only
pursuant to instructions set forth in the letter of transmittal. In all cases,
the merger consideration will be provided only in accordance with the
procedures set forth in the merger agreement and such letters of transmittal.
MidAmerican strongly recommends that certificates for common stock and
letters of transmittal be transmitted only by registered United States mail,
return receipt requested, appropriately insured. Holders of common stock whose
certificates are lost will be required to make an affidavit identifying such
certificate or certificates as lost, stolen or destroyed and, if required by
MidAmerican, to post a bond in such amount as MidAmerican may reasonably
require to indemnify against any claim that may be made against it with respect
to such certificate.
Any merger consideration not validly claimed by MidAmerican shareholders
for one year after the effective time and any interest and other income
received by the exchange agent will be delivered to MidAmerican upon demand and
any holders of shares of common stock who have not complied
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with the terms and conditions for the exchange of certificates set forth in the
merger agreement will thereafter look only to MidAmerican, and only as general
creditors, for the payment of their claim to the merger consideration.
Stock Options. We have agreed to take all actions necessary so that,
immediately prior to the completion of the merger, all options to acquire
shares of MidAmerican common stock granted under any of our option plans become
fully vested and exercisable. At the effective time, outstanding options
generally will be canceled and will be converted into the right to receive a
cash payment from us equal to $35.05 minus the exercise price of the option,
multiplied by the number of shares subject to the option (less any applicable
income or employment tax withholding). Stock options held by some members of
our management will remain exercisable after the effective time according to
the terms agreed to in writing by Teton Formation and such holders.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains customary representations and warranties by
us relating to, among other things:
o our and our subsidiaries' organization, qualification, capital structure
and similar corporate matters;
o our authorization, execution and delivery of the merger agreement and
its binding effect on us;
o the absence of violation of organizational documents, law or contracts;
o the required regulatory and statutory filings and approvals;
o our compliance with applicable laws, permits and agreements;
o the accuracy of the information contained in the reports and financial
statements that we file with the SEC and other governmental authorities;
o the absence of material adverse changes, undisclosed liabilities and
litigation;
o the accuracy of information supplied by us for use in this proxy
statement;
o certain tax, employee benefits, environmental, utility regulatory and
insurance matters;
o the shareholder vote required to approve the merger proposal;
o the receipt by us of fairness opinions from Lehman Brothers and Warburg
Dillon Read;
o the absence of undisclosed broker's fees;
o the non-applicability of the business combination provisions of the Iowa
Act and our shareholder rights agreement to the merger;
o our year 2000 compliance;
o the Board's approval of the merger agreement and its recommendation to
shareholders to approve the merger proposal; and
o the lack of any requirement for us or our subsidiaries to register as an
investment company under the Investment Company Act of 1940, as amended,
or as an investment advisor under the Investment Advisors Act of 1940, as
amended.
The merger agreement contains customary representations and warranties by
Teton Formation and Teton Acquisition relating to, among other things:
o their organization and similar corporate matters;
o the absence of violation of organizational documents, law or contracts;
o their authorization, execution and delivery of the merger agreement and
its binding effect on them;
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o the required regulatory and statutory filings and approvals;
o the accuracy of information provided by them for inclusion in this proxy
statement;
o the absence of undisclosed broker's fees;
o their financing arrangements for the merger;
o the absence of any intention by them to effect a sale or other
extraordinary transaction involving us;
o the number of MidAmerican shares held by them;
o their regulatory status under the 1935 Act (without giving effect to the
merger); and
o the governance, voting and other agreements among the members of the
investor group.
The foregoing representations and warranties are subject, in some cases,
to specified exceptions and qualifications. The representations and warranties
of each of the parties will expire upon completion of the merger.
CERTAIN COVENANTS
We have agreed under the merger agreement that, from the date of the
merger agreement until the effective time of the merger or its earlier
termination, we will conduct our business only in the ordinary course
consistent with past practice, use all reasonable efforts to preserve our
business organization, goodwill and third party relationships and generally
maintain the services of our officers and employees. In addition, we have
agreed that we will not take any of the following actions without Teton
Formation's prior written consent, subject to certain exceptions:
o enter into a new line of business or make investments or acquisitions in
amounts exceeding $100 million in the aggregate or invest in or acquire
any equity securities of any U.S. gas or electric utility company;
o declare or pay dividends or make distributions in respect of our capital
stock, other than intercompany dividends and distributions or as required
by our outstanding preferred stock;
o split, combine, reclassify, redeem or repurchase our capital stock, or
issue, propose to issue, or authorize the issuance of any securities in
respect of our capital stock;
o authorize, issue, sell or encumber any shares of our capital stock or
convertible securities, other than intercompany issuances and issuances
pursuant to outstanding stock options;
o incur or guarantee indebtedness or enter into "keep well" agreements,
other than in the ordinary course of business consistent with past
practice, pursuant to intercompany arrangements, in connection with
refinancing existing indebtedness or as may be necessary in connection
with permitted acquisitions or investments;
o enter into or amend employment agreements and employee benefit plans or
increase the amounts payable to our directors and executive officers,
other than pursuant to binding agreements existing on September 30, 1999
and other than normal increases in the ordinary course of business
consistent with past practice that, in the aggregate, do not result in a
material increase in benefits or compensation expense;
o enter into or amend the severance arrangements of any of our directors
or officers, or other employees other than in the ordinary course of
business consistent with past practice, or deposit amounts in respect of
any employee benefit obligations or obligations to directors into any
trust, other than in accordance with past practice or pursuant to binding
agreements existing on September 30, 1999;
o engage in activities which would cause a change of status or impair any
party's ability to claim an exemption under the 1935 Act or which would
subject Teton Formation, any affiliate or any member of the investor
group to regulation as a registered holding company under the 1935 Act;
and
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o take any action that would likely jeopardize the qualification of any
outstanding revenue bonds which qualify as "exempt facility bonds" or
tax-exempt industrial development bonds under applicable tax law.
Teton Formation and Teton Acquisition have agreed that until the effective
time of the merger or earlier termination of the merger agreement, they will
not take any of the following actions without our prior written consent:
o engage in any business activities, other than as contemplated by the
merger agreement; and
o change their status or impair their ability to claim an exemption under
the 1935 Act; provided that they will not be required to restructure
their capital structure or amend their shareholder arrangements.
In addition, we and Teton Formation have agreed, as to ourselves and our
respective subsidiaries, that, from the date of the merger agreement until the
effective time or earlier termination of the merger agreement, unless consented
to in writing by the other parties to the merger agreement, we will (1) confer
on a regular basis to discuss operational matters with respect to us, (2)
advise the other party of a materially adverse change or event, (3) provide the
other party copies of all filings made with any regulatory authority or court
and (4) not take any action that would, or is reasonably likely to, result in a
material breach of any provision of the merger agreement.
OTHER AGREEMENTS
In addition to our agreements regarding the conduct of our business, we
have also agreed to take several other actions:
o We have agreed to furnish any information concerning us and our
subsidiaries in connection with any filings or approvals contemplated by
the merger agreement to Teton Formation or Teton Acquisition as they may
reasonably request;
o We have agreed, along with Teton Formation and Teton Acquisition to
cooperate, and use reasonable efforts to obtain the permits, consents and
approvals of all regulatory authorities and other persons necessary or
advisable to complete the merger; provided that we have the primary
responsibility for the preparation and filing of any applications with
state public utility commissions. See "Regulatory Matters;"
o Teton Formation and Teton Acquisition have agreed not to amend or waive
any of the subscription agreements providing for the financing of the
merger, if the amendment or waiver would (1) reduce the amount of
aggregate funds committed; (2) add conditions to the transactions
contemplated by the subscription agreements; or (3) have a material
adverse effect on or delay the receipt of any regulatory approval or the
completion of the merger. Teton Formation and Teton Acquisition have also
agreed (1) to enforce the provisions of the subscription agreements; (2)
to use reasonable efforts to fulfill their obligations under the
subscription agreements and to satisfy the conditions to funding under
the subscription agreements as soon as reasonably practicable; and (3) to
give us prompt notice of any material breach, termination or threatened
termination, or exercise or threatened exercise of any condition, under
the subscription agreements. See "Special Factors--Merger Financing;
Source of Funds;" and
o We have agreed to enforce and not terminate, amend or waive any material
provision of any standstill agreement to which we or any of our
subsidiaries are parties.
NO SOLICITATION OF TRANSACTIONS
In the merger agreement, we have agreed not to directly or indirectly
initiate, solicit or encourage any inquiries, proposals or offers for a tender
or exchange offer, merger or other business combination involving us or any of
our material subsidiaries, or any proposal to acquire a substantial equity
interest in us or a substantial portion of our assets or any of our material
subsidiaries, any such
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proposal being referred to in this proxy statement as an "acquisition
proposal." We have also agreed that we will not have any discussions, provide
any non-public information or engage in negotiations relating to an acquisition
proposal involving us or our subsidiaries. We may, however, make disclosures
that are required under applicable laws. We may also, at any time prior to the
shareholder vote to approve the merger proposal, furnish information to and
engage in discussions or negotiations with any party who seeks, without any
solicitation or encouragement on our part, to engage in such discussions or
negotiations, if:
o the third party has made an acquisition proposal that is reasonably
expected to be more favorable to you than the merger, after taking into
account all legal, regulatory and financial factors including the
certainty of financing;
o the acquisition proposal is reasonably capable of being completed, as
determined by the Board in good faith after consulting its financial and
legal advisors;
o the third party has demonstrated that financing for the acquisition
proposal is reasonably likely to be obtained, as determined by the Board
in good faith after consulting its financial advisors; and
o the Board concludes in good faith, after considering applicable law and
consulting its legal advisors, that a failure to do so could reasonably
be expected to constitute a breach of the Board's fiduciary duties to you
under applicable law.
Prior to engaging in negotiations or furnishing information under the
preceding paragraph, we must promptly notify Teton Formation that we are doing
so and must receive from the party making the acquisition proposal (1) an
executed confidentiality agreement substantially similar to the confidentiality
agreement we entered into with Mr. Sokol and (2) a written acknowledgment and
agreement to pay the fees described under "--Termination Fees." We have also
agreed to notify Teton Formation of any acquisition proposal within 24 hours of
receiving it, to keep Teton Formation informed of the status and details of any
such acquisition proposal and to give Teton Formation three business days'
advance notice of any agreement to be entered into with, or any information to
be supplied to, the third party making the acquisition proposal.
EMPLOYEE BENEFIT PLANS
The merger agreement provides that, following the effective time of the
merger, we will comply with the terms of all of our existing employee benefit
plans. In addition, our employees will be credited for service accrued with us
under such plans prior to the effective time. We will also provide our
employees with credit for any co-payments and deductibles paid prior to the
effective time in satisfying any applicable deductible or out-of-pocket
requirements under any welfare plans.
CONDITIONS TO THE MERGER
The parties' respective obligations to complete the merger are each
subject to the following conditions:
o our shareholder approval of the merger proposal;
o the absence of any order, injunction or law that prevents the completion
of the merger;
o the receipt of all material governmental consents, orders or approvals
in the form of final orders which do not impose terms or conditions that,
in the aggregate, would have, or could reasonably be expected to have, a
material adverse effect on us or on any party's ability to complete the
merger or which would be materially inconsistent with the agreements the
parties made in the merger agreement; and
o the expiration or termination of the applicable waiting periods under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
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Additionally, our obligation to complete the merger is subject to the
following conditions:
o the accuracy of Teton Formation's and Teton Acquisition's
representations and warranties as of the effective time of the merger,
other than such inaccuracies which have not had, and would not reasonably
be expected to have, a material adverse effect on Teton Formation's or
Teton Acquisition's completion of the merger;
o the performance by Teton Formation and Teton Acquisition of their
obligations under the merger agreement in all material respects; and
o our receipt of customary officers' certificates and legal opinions.
Additionally, the obligations of Teton Formation and Teton Acquisition to
complete the merger are subject to the following conditions:
o the accuracy of our representations and warranties as of the effective
time of the merger, other than such inaccuracies which have not had, and
would not reasonably be expected to have, a material adverse effect on us
or on the ability to complete the merger;
o the performance by us of our obligations under the merger agreement in
all material respects;
o the absence of any circumstance that would have, or could reasonably be
expected to have, a material adverse effect on us or on the completion of
the merger;
o the receipt of all material third party consents to the merger;
o the satisfactory resolution of certain insurance matters;
o Teton Formation's receipt of customary officers' certificates and legal
opinions;
o the receipt by the members of the investor group of evidence reasonably
satisfactory to them that neither they nor any of their affiliates will
be subject to regulation as a registered holding company under the 1935
Act following the merger, provided that the investor group has used all
commercially reasonable efforts to obtain the evidence, subject to
certain limitations;
o the cancellation of all outstanding MidAmerican stock options, subject
to the terms of the merger agreement; and
o the holders of not more than 10% of our outstanding shares perfecting
dissenters' rights in connection with the merger.
TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be terminated at any time before the effective
time of the merger under the following circumstances:
o Written Mutual Consent--by mutual agreement of Teton Formation and the
MidAmerican Board;
o Delay--by any party to the merger agreement if the effective time has
not occurred on or before April 30, 2000, except that
-- if all conditions to the merger other than the receipt of the required
regulatory approvals (including those relating to the investor group)
are capable of being satisfied and the required regulatory approvals
are being diligently pursued, this date will be extended to July 31,
2000; and
-- the reason for the delay must not have been the failure of the
terminating party to take any of the actions it was required to take
under the merger agreement;
o Failure to Obtain Shareholder Approval--our shareholders do not approve
the merger proposal;
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o Legal Impediments--by any party to the merger agreement if any law or
order is adopted which has the effect of prohibiting us from completing
the merger, or any final order is issued by any court or state which
permanently restrains or otherwise prohibits us from completing the
merger;
o Fiduciary Termination--by us if, prior to the shareholder vote, as a
result of an acquisition proposal that meets the requirements described
under "--No Solicitation of Transactions," including that the acquisition
proposal is reasonably expected to be more favorable to you than the
merger, the MidAmerican Board, after considering applicable law and
consulting outside legal counsel, concludes that its fiduciary duties
could reasonably require that such acquisition proposal be accepted. We
may terminate on this ground, however, only if:
-- we have complied with our obligations to hold the special meeting,
mail this proxy statement, recommend approval of the merger and not
solicit other acquisition proposals;
-- the person making the acquisition proposal agrees in writing to pay or
cause to be paid the termination fee described under "--Termination
Fees" if the acquisition proposal is completed; and
-- we and our advisors seek to negotiate in good faith with Teton
Formation during the three business days before terminating the merger
agreement with a view toward enabling us to proceed with the merger;
o Recommendation--by Teton Formation, if the MidAmerican Board:
-- withdraws or modifies its recommendation of the merger proposal in a
manner adverse to Teton Formation;
-- fails to affirm its recommendation of the merger proposal within five
business days after a written request by Teton Formation to do so; or
-- recommends or approves an acquisition proposal;
o Breach
-- by Teton Formation if we have materially breached any of our
representations, warranties or covenants and have failed to cure such
breach within 20 days of notice; or
-- by us if Teton Formation or Teton Acquisition has materially breached
any of its representations, warranties or covenants and has failed to
cure such breach within 20 days of notice; or
o Termination of Subscription Agreements--by us if any of the subscription
agreements described under "Special Factors--Merger Financing; Source of
Funds" are terminated at a time when Teton Formation would not be
entitled to terminate the merger agreement as described above, and the
terminated subscription agreement is not replaced within 10 business days
with a new agreement at least as favorable to Teton Acquisition as the
terminated agreements, provided that Berkshire Hathaway shall in any
event own at least 70% of the total equity in MidAmerican after
completion of the merger under any replacement subscription agreement.
If the merger agreement is terminated under any of the circumstances
described above, none of us, Teton Formation or any of our or their officers,
members or directors will have any liability other than for expenses we or they
incur or as described under "--Termination Fees," if applicable.
TERMINATION FEES
We have agreed to pay Teton Formation a termination fee of $40 million,
plus $8 million as reimbursement of expenses (without Teton Formation having to
account for actual expenses), if the merger agreement is terminated:
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o by Teton Formation because the MidAmerican Board (1) withdraws or
modifies in a manner adverse to Teton Formation its recommendation of the
merger, (2) fails to reaffirm its recommendation within the time
limitations established in the merger agreement or (3) approves or
recommends an acquisition proposal; or
o by us to accept an acquisition proposal after the Board has concluded in
good faith that its fiduciary duties under applicable law could
reasonably require it to accept the acquisition proposal;
o by us or Teton Formation because:
-- our shareholders fail to approve the merger proposal;
-- the merger is not completed by the applicable termination date; or
-- we have materially breached our representations, warranties or
covenants,
and, at the time of termination, there was an acquisition proposal
pending which had not been rejected and withdrawn and, within 18 months
after the termination, we are either acquired by the third party making
the acquisition proposal or we enter into a definitive agreement to
complete an acquisition proposal with the third party or an affiliate of
the third party.
We have further agreed to pay Teton Formation $8 million as reimbursement
of its expenses (without Teton Formation having to account for actual expenses)
if the merger agreement is terminated under any of the following circumstances:
o the merger is not completed by the applicable termination date due to
the failure of:
-- one or more of the conditions to the obligations of Teton Formation
and Teton Acquisition (other than the condition that the members of
the investor group receive evidence reasonably satisfactory to them
that neither they nor any of their affiliates will be subject to
regulation as a registered holding company under the 1935 Act
following the merger);
-- the condition relating to the absence of an injunction or legal
restraint; or
-- the condition related to the receipt of the required regulatory
approvals.
o a law or order is adopted which prohibits us from completing the merger;
or
o we have materially breached our representations, warranties or covenants
in a manner that gives rise to Teton Formation's ability to terminate the
merger agreement.
Teton Formation has agreed to pay us a termination fee of $40 million,
plus additional damages (but only to the extent proven) up to $40 million, if
we terminate the merger agreement because Teton Formation and Teton Acquisition
fail to deposit the merger consideration with the exchange agent at a time when
all conditions to Teton Formation's obligations under the merger agreement have
been satisfied or waived.
EXPENSES
Except as described above, all fees and expenses in connection with the
merger will be paid by the party incurring such expense.
AMENDMENT; WAIVER
The merger agreement may be amended by mutual agreement of the parties.
However, after shareholder approval of the merger agreement, the parties may
not change the amount of consideration that shareholders are to receive or
alter the terms or conditions of the merger agreement if the changes would
materially adversely affect the rights of shareholders. Any party may extend
the time for the other party to perform its obligations, waive any inaccuracy
in the other party's representations and warranties or waive the other party's
obligation to comply with any agreement or condition.
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REGULATORY MATTERS
Set forth below is a summary of the regulatory requirements affecting
completion of the merger.
ANTITRUST CONSIDERATIONS
The Hart-Scott-Rodino Act provides that transactions such as the merger
may not be completed until certain information has been submitted to the
Antitrust Division of the Department of Justice and the Federal Trade
Commission and specified waiting period requirements have been satisfied. We
and the investor group made our respective pre-merger notification filings
pursuant to the Hart-Scott-Rodino Act on November 12, 1999 and received notice
of early termination of the waiting period on November 29, 1999.
Early termination of the Hart-Scott-Rodino Act waiting period does not
preclude the Antitrust Division or the FTC from challenging the merger on
antitrust grounds. We and the investor group believe that the merger will not
violate federal antitrust laws. If we do not complete the merger within 12
months after early termination of the Hart-Scott-Rodino Act waiting period, we
and the investor group would be required to submit new information to the
Antitrust Division and the FTC, and a new waiting period would have to expire
or be terminated before we could complete the merger.
FEDERAL POWER ACT
Section 203 of the Federal Power Act provides that no public utility shall
sell or otherwise dispose of its jurisdictional facilities or directly or
indirectly merge or consolidate such facilities with those of any other person
or acquire any security of any other public utility without first obtaining
authorization from the FERC. Because the merger may be deemed to involve an
indirect change of control over jurisdictional assets, FERC approval is
required in order to complete the merger. Under Section 203, the FERC will
approve a merger if it finds the merger to be "consistent with the public
interest." Under FERC's Merger Policy Statement, the inquiry will focus on the
effect of the merger on competition, FERC-jurisdictional rates and regulation.
On November 8, 1999, our subsidiary, MidAmerican Energy Company, filed an
application with the FERC requesting that it approve the merger under Section
203 of the Federal Power Act.
IOWA PUBLIC UTILITY REGULATION
Iowa law provides that a merger or consolidation of the whole or any
substantial part of a public utility's assets shall not take place if the Iowa
Utilities Board (the "IUB") disapproves. On November 12, 1999, we, our
subsidiary, MidAmerican Energy Company, Teton Formation and Teton Acquisition
filed an application with the IUB for its order permitting the merger to occur.
Iowa law provides that the application will be deemed approved unless the IUB
disapproves the merger within 90 days after the filing of the application,
unless such time period is extended by the IUB, for good cause shown, for an
additional period not to exceed 90 days, and that the IUB cannot disapprove the
merger without providing for a notice and opportunity for hearing.
ILLINOIS PUBLIC UTILITY REGULATION
Under Illinois law, MidAmerican Energy Company will seek (subject to
certain reservations of rights) the approval of the Illinois Commerce
Commission ("ICC") for the gas utility portion of the merger and file certain
information regarding the electric utility portion of the merger with the ICC.
We believe that the merger qualifies for expedited treatment under the ICC
approval and hearing process which, under statute, could otherwise take 11
months. In two recent merger proceedings, including the merger of CalEnergy
with MidAmerican, expedited treatment was granted and approval was obtained
within three months. On November 15, 1999, we and MidAmerican Energy Company
filed an application with the ICC.
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PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
The transaction is not subject to approval by the SEC under the Public
Utility Holding Company Act of 1935. Following the effective time of the
merger, we will continue to claim an exemption from registration under Section
(3)(a)(1) of the 1935 Act pursuant to Rule 2 because after the merger both
MidAmerican and MidAmerican Energy Company will be organized in, and conduct
our utility operations substantially in, the State of Iowa and will be
predominantly intrastate in character in the same manner as we are today. The
completion of the merger is conditioned on the receipt by the members of the
investor group of evidence reasonably satisfactory to them that neither they
nor any of their affiliates will be subject to regulation as a registered
public utility holding company under the 1935 Act. Although no assurances can
be given, the members of the investor group believe that they will obtain such
satisfactory evidence.
NUCLEAR REGULATORY COMMISSION REGULATION
MidAmerican Energy Company is a non-operating 25% owner of Quad Cities
Nuclear Generating Station Units 1 and 2, which are referred to collectively as
"Quad Cities". The remaining interests in the two units are owned and operated
by Commonwealth Edison Company. On November 16, 1999, MidAmerican Energy Company
(through Commonwealth Edison) submitted an application to the NRC pursuant to 10
C.F.R. 50.80 for formal NRC consent, of the indirect transfer of control.
EUROPEAN/U.K. COMPETITION FILINGS
Under Regulation (EEC) No. 4064/89 of the Council of the European Union,
as amended (the "EC Merger Regulation") a concentration (as defined in the EC
Merger Regulation) which has a Community dimension may not be completed until
the European Commission has granted its approval or such approval has been
deemed to have been granted. On November 9, 1999, the Merger Task Force of the
European Commission expressed its view that the merger is not subject to the
prior approval requirements of the EC Merger Regulation.
The merger may be subject to review under the U.K. merger control rules
pursuant to the Fair Trading Act of 1973. Based on advice of our U.K. counsel,
we believe that a referral to the U.K. Competition Commission for detailed
review would be unlikely.
OTHER REGULATORY MATTERS
We and our subsidiaries have obtained from various regulatory authorities
franchises, permits and licenses which may need to be renewed, replaced or
transferred as a result of the merger. Approvals, consents or notifications may
be required in connection with such renewals, replacements or transfers.
Regulatory commissions of states where we operate may intervene in the
federal regulatory proceedings. In addition, these regulatory commissions
regulate the rates charged to utility customers within their jurisdictions. In
approving rates, each state may take into account savings, if any, resulting
from, and other effects of, the merger.
MidAmerican is not aware of any material governmental or regulatory
approvals or actions that may be required for completion of the merger other
than as described above. If any other governmental or regulatory approval or
action is or becomes required, MidAmerican currently contemplates that it would
seek that additional approval or action.
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PARTIES TO THE MERGER
MidAmerican. MidAmerican is headquartered in Des Moines, Iowa and has
approximately 9,800 employees. Through its retail utility subsidiaries,
MidAmerican provides electric service to 2.2 million customers and natural gas
service to 1.2 million customers worldwide. MidAmerican also manages and owns
interests in approximately 8,300 megawatts of diversified power generation
facilities in operation, construction and development. MidAmerican's common
stock is traded on the New York Stock Exchange, the Pacific Exchange and the
London Stock Exchange under the symbol "MEC." Information about MidAmerican and
its three principal subsidiary companies is available on the Internet at
http://www.midamerican.com. MidAmerican's principal address is 666 Grand
Avenue, Des Moines Iowa 50309, and its telephone number is (515) 242-4300.
Teton Formation. Teton Formation was formed as an Iowa limited liability
company on October 14, 1999 by the investor group for the purpose of entering
into the merger agreement. Teton Formation has not engaged in any business
activity other than in connection with the merger and the related transactions.
Teton Formation's principal address is c/o MidAmerican Energy Holdings Company,
666 Grand Avenue, Des Moines, Iowa 50309, Attn: David L. Sokol, and its
telephone number is (515) 242-4300.
Teton Acquisition. Teton Acquisition was formed as an Iowa corporation on
October 13, 1999 for the purpose of entering into the merger agreement. Teton
Acquisition is a wholly owned subsidiary of Teton Formation and has not engaged
in any business activity other than in connection with the merger and related
transactions. Substantially all of the assets of Teton Acquisition consist of
subscription agreements with the members of the investor group, under which
such members have agreed to provide the financing required to complete the
merger. See "Special Factors--Merger Financing; Source of Funds." Teton
Acquisition's principal address is c/o MidAmerican Energy Holdings Company, 666
Grand Avenue, Des Moines, Iowa 50309, Attn: David L. Sokol, and its telephone
number is (515) 242-4300.
The Investor Group. Berkshire Hathaway is a holding company owning
subsidiaries engaged in a number of diverse business activities, the most
important of which is the property and casualty insurance and reinsurance
business. Other business activities conducted by Berkshire Hathaway's
subsidiaries include publication of a daily and Sunday newspaper in Buffalo,
New York; providing training services to operators of aircraft and ships;
providing fractional ownership programs for general aviation aircraft;
manufacturing and marketing of home cleaning systems and related accessories;
manufacture and sale of boxed chocolates and other confectionery products;
licensing and servicing of approximately 5,800 Dairy Queen stores, which
feature hamburgers, hot dogs, various dairy desserts and beverages; retailing
of home furnishings; retailing of fine jewelry; and manufacture, import and
distribution of footwear. Warren E. Buffett is Chairman of the Board and Chief
Executive Officer of Berkshire Hathaway. Berkshire Hathaway is traded on the
New York Stock Exchange under the symbols "BRKA" for its Class A Common Stock
and "BRKB" for its Class B Common Stock. Berkshire Hathaway's principal address
is 1440 Kiewit Plaza, Omaha, Nebraska 68131, and its telephone number is (402)
346-1400. See Appendix G to this proxy statement for additional information
relating to the executive officers and directors of Berkshire Hathaway.
Mr. Scott is the Chairman of the Board of Level 3 Communications, Inc., a
communications and information services company that is building the first
international network optimized for Internet protocol technology, a position he
has held since September 1979. Level 3 Communications was formerly known as
Peter Kiewit Sons', Inc., for which, until the spin-off of its construction
operations in March 1998, Mr. Scott also served as Chief Executive Officer. Mr.
Scott has been a MidAmerican director since June 1991 and served as
MidAmerican's Chairman and Chief Executive Officer from January 8, 1992 until
April 19, 1993. Mr. Scott is also a director of Berkshire Hathaway, Burlington
Resources, Inc., ConAgra, Inc., Valmont Industries, Inc., Commonwealth
Telephone Enterprises, Inc. and RCN Corporation, a publicly traded company in
which Level 3 Communications holds a majority ownership interest. Mr. Scott's
principal address is 1000 Kiewit Plaza, Omaha, Nebraska 68131, and his
telephone number is (402) 341-2052.
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Mr. Sokol is MidAmerican's Chairman of the Board and Chief Executive
Officer. He has been Chief Executive Officer since April 19, 1993 and served as
President of MidAmerican from April 19, 1993 until January 21, 1995. He has
been Chairman of the Board since May 1994 and has been a MidAmerican director
since March 1991. Formerly, among other positions held in the independent power
industry, Mr. Sokol served as the President and Chief Executive Officer of
Kiewit Energy, a wholly owned subsidiary of Peter Kiewit Sons', Inc., and Ogden
Projects, Inc. Mr. Sokol's principal address is c/o MidAmerican Energy Holdings
Company, 302 South 36th Street, Suite 400, Omaha, Nebraska 68131, and his
telephone number is (402) 341-4500.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the MidAmerican common stock as of November 1, 1999, by
(1) each person known by MidAmerican to own beneficially more than 5% of the
outstanding common stock, (2) each of MidAmerican's directors and executive
officers, (3) each of MidAmerican's "named executive officers" (as defined in
Item 402(a)(3) of Regulation S-K) for MidAmerican's last full fiscal year and
(4) all directors and executive officers of MidAmerican as a group (22
persons). Except as set forth in the table, the business address of each person
is c/o MidAmerican Energy Holdings Company, 666 Grand Avenue, Des Moines, Iowa
50309.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK PERCENTAGE
BENEFICIAL OWNER BENEFICIALLY OWNED(1) OF CLASS(1)
- -------------------------------------------------------------- ----------------------- ------------
<S> <C> <C>
Sound Shore Management, Inc. (2) ............................. 4,960,200 8.3
Bankers Trust Corporation (3) ................................ 4,194,650 7.0
Wanger Asset Management, L.P. (4) ............................ 3,191,500 5.3
Massachusetts Financial Services Co. (5) ..................... 4,519,067 7.6
Berkshire Hathaway Inc. (6) .................................. 3,861,109 6.4
Walter Scott, Jr. (6)(7) ..................................... 3,861,109 6.4
David L. Sokol (6) ........................................... 3,861,109 6.4
Edgar D. Aronson ............................................. 43,683 *
Judith E. Ayres .............................................. 47,500 *
Terry E. Branstad ............................................ 10,000 *
Stanley J. Bright ............................................ 78,493 *
Jack W. Eugster .............................................. 11,000 *
Richard R. Jaros ............................................. 315,422 *
David Morris ................................................. 21,127 *
Robert L. Peterson ........................................... 11,000 *
Bernard W. Reznicek .......................................... 27,441 *
John R. Shiner ............................................... 19,200 *
Neville Trotter .............................................. 21,239 *
David E. Wit ................................................. 24,167 *
Gregory E. Abel .............................................. 325,515 *
Eric Conner .................................................. 13,901 *
Patrick J. Goodman ........................................... 46,428 *
Keith D. Hartje .............................................. 7,712 *
Steven A. McArthur ........................................... 226,206 *
John A. Rasmussen, Jr. ....................................... 22,212 *
Robert S. Silberman .......................................... 86,592 *
Ronald W. Stepien ............................................ 15,844 *
Donald M. O'Shei, Jr. (8) .................................... 135,632 *
Craig M. Hammett (8) ......................................... 38,496 *
Thomas R. Mason (8) .......................................... 218,141 *
--------- ---
All directors and executive officers of MidAmerican as a group
(22 persons) ................................................ 5,235,791 8.5
========= ===
</TABLE>
- ----------
* Less than 1%.
(1) Percentages are calculated pursuant to Rule 13d-3 under the Exchange Act.
Percentage calculations assume, for each person and group, that all
shares which may be acquired by such person or group pursuant to options
currently exercisable, or which become exercisable within 60 days
following November 1, 1999, are outstanding for the purpose of computing
the percentage of common stock owned by such person or group. However,
the unissued shares of common stock described above are not deemed to be
outstanding for calculating the percentage of common stock owned by any
other person. Except as otherwise indicated, the persons in this table
have sole voting and investment power with respect to all shares of
common stock shown as beneficially owned by them, subject to community
property laws where applicable and subject to the information contained
in the footnotes to this table. As of November 1, 1999, there were
59,877,313 shares of common stock outstanding.
60
<PAGE>
(2) Based on information contained in the Schedule 13G filed by Sound Shore
Management, Inc. on January 26, 1999. The mailing address for Sound Shore
Management, Inc. is 8 Sound Shore Drive, Greenwich, CT 06836.
(3) Based on information contained in the Schedule 13G filed by BankersTrust
Company on February 16, 1999. The mailing address for Bankers Trust
Company is 130 Liberty Street, New York, New York 10006. The mailing
address for its subsidiary BT Australia Limited is Level 15, The Chifley
Tower, 2 Chifley Square, Sydney, NSW 2000 Australia. The mailing address
for its indirect 50 percent-owned affiliate Alex. Brown Investment
Management is One South Street, Baltimore, Maryland 21202.
(4) Based on information contained in the Schedule 13G filed by Wanger Asset
Management, L.P. on February 8, 1999. The mailing address for Wanger
Asset Management, L.P. is 227 West Monroe Street, Suite 3000, Chicago,
Illinois 60606.
(5) These 4,519,067 shares of common stock include 4,037,004 shares of common
stock owned by Massachusetts Financial Services Co. and certain other
non-reporting entities and 499,263 shares of common stock which may be
acquired through the conversion of convertible preferred stock.
(6) Berkshire Hathaway and Messrs. Scott and Sokol entered into an agreement
on October 14, 1999 to propose to acquire MidAmerican. By virtue of such
agreement, Berkshire Hathaway and Messrs. Scott and Sokol acquired
beneficial ownership of (but did not acquire an economic interest in) the
shares of common stock beneficially owned by each other and each of the
other members of the investor group. These 3,861,109 shares of common
stock include 847,620 shares beneficially owned by Mr. Sokol (666,696 of
which are options to purchase shares of common stock currently
exercisable or exercisable within 60 days following November 1, 1999) and
3,013,489 shares beneficially owned by Mr. Scott (2,000,000 of which are
owned by the WS Charitable Remainder Unitrust II, as to which Mr. Scott
is the sole trustee, and 3,489 of which are options to purchase shares of
common stock currently exercisable or exercisable within 60 days
following November 1, 1999). The mailing address for Berkshire Hathaway
is 1440 Kiewit Plaza, Omaha, Nebraska 68131. Except as set forth above
with respect to Mr. Scott, Berkshire Hathaway's officers and directors do
not beneficially own any shares of common stock other than through their
affiliation with Berkshire Hathaway.
(7) The mailing address for Mr. Scott is 1000 Kiewit Plaza, Omaha, Nebraska
68131.
(8) Each of Mr. O'Shei, Mr. Hammett and Mr. Mason resigned as an executive
officer of MidAmerican during the first quarter of 1999.
Except as described in Appendix F to this proxy statement, there were no
transactions in the shares of common stock that were effected during the past
60 days by Berkshire Hathaway, Teton Formation, Teton Acquisition or any their
respective subsidiaries, directors, executive officers or controlling persons
or by Mr. Scott or Mr. Sokol.
61
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
Our common stock is listed on the New York Stock Exchange, Pacific Stock
Exchange and London Stock Exchange under the symbol "MEC." The following table
sets forth, for the fiscal quarters indicated, the high and low trading prices
per share of MidAmerican common stock as quoted on the New York Stock Exchange
composite tape.
<TABLE>
<CAPTION>
HIGH LOW
---------- ---------
<S> <C> <C>
1997:
First Quarter ...................................... $39 1/8 $32 1/8
Second Quarter ..................................... 42 32
Third Quarter ...................................... 41 3/4 30 15/16
Fourth Quarter ..................................... 39 13/16 27 7/8
1998:
First Quarter ...................................... 31 7/16 22 1/2
Second Quarter ..................................... 34 1/4 27 1/2
Third Quarter ...................................... 30 11/16 22 5/8
Fourth Quarter ..................................... 35 23 3/4
1999:
First Quarter ...................................... 36 1/16 26 3/4
Second Quarter ..................................... 35 11/16 26 13/16
Third Quarter ...................................... 35 3/4 28
Fourth Quarter (through December 10, 1999) ......... 33 3/4 26 7/16
</TABLE>
During the past three years, we have not completed an underwritten public
offering of our securities which was registered under the Securities Act of
1933 or exempt from registration under Regulation A under the Securities Act,
except for the underwritten public offering of 19.1 million shares of our
common stock on October 17, 1997 at an initial public offering price of $37 7/8
per share, generating net proceeds to MidAmerican of approximately $699.9
million.
On October 22, 1999, the last full trading day prior to the public
announcement of the signing of the merger agreement, the closing sale price of
our common stock reported on the New York Stock Exchange was $27 1/4 per share
and the high and low trading prices per share of our common stock as quoted on
the New York Stock Exchange Composite tape were $27 5/8 and $27 3/16,
respectively. On December , 1999, the most recent practicable date prior to
the date of this proxy statement, the closing price of MidAmerican common stock
reported on the New York Stock Exchange was $ . You are urged to obtain
current market quotations for MidAmerican common stock prior to making any
decision with respect to the proposed merger.
We have not paid cash dividends on our common stock and intend to continue
this policy for the foreseeable future and retain funds for repayment of
indebtedness and investment in our business. Some of our debt agreements
require our adherence to specified financial ratios in order to pay dividends.
In addition, the merger agreement restricts our ability to pay dividends.
Except as described in Appendix F to this proxy statement, none of
MidAmerican, Berkshire Hathaway, Teton Formation, Teton Acquisition, Mr. Scott
or Mr. Sokol has purchased any shares of common stock since January 1, 1997.
As of November 1, 1999, there were approximately 1,007 holders of record
of our common stock, as shown on the records of our transfer agent.
62
<PAGE>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The following statements in this proxy statement are or may constitute
forward-looking statements:
o certain statements, including possible or assumed future results of
operations of MidAmerican, contained in "Special Factors--Background of
the Merger;" "--Recommendation of the Special Committee and the Board of
Directors; Reasons for the Merger," "--Opinions of Financial Advisors"
and "--Certain Projections Provided to Financial Advisors," including any
forecasts, projections and descriptions of anticipated cost savings
referred to therein, and certain statements incorporated by reference
from documents filed by us with the SEC and any statements made herein or
therein regarding the outcome of current and future rate/regulatory
proceedings, the continued application of regulatory accounting
principles, future cash flows, the potential recovery of stranded costs,
future business prospects, revenues, working capital, liquidity, capital
needs, interest costs, income or the effects of the merger;
o any statements preceded by, followed by or that include the words
"believes," "expects," "anticipates," "intends," "estimates," "projects"
or similar expressions; and
o other statements contained or incorporated by reference into this proxy
statement regarding matters that are not historical facts.
Because such statements are subject to risks and uncertainties, actual
results may differ materially from those expressed or implied by such
forward-looking statements. You are cautioned not to place undue reliance on
such statements, which speak only as of the date of this proxy statement.
Among the factors that could cause actual results to differ materially
are:
o uncertainties relating to our development portfolio;
o uncertainties relating to our operations;
o uncertainties relating to the implementation of our acquisition
strategy;
o uncertainties relating to doing business outside of the United States;
o uncertainties relating to geothermal resources;
o uncertainties relating to domestic and international economic and
political conditions;
o uncertainties regarding the impact of regulations, changes in government
policy, industry deregulation and competition; and
o other risks detailed from time to time in our reports filed with the
SEC.
The cautionary statements contained or referred to in this proxy statement
should be considered in connection with any subsequent written or oral
forward-looking statements that may be issued by us or persons acting on our
behalf. Except for our ongoing obligations to disclose material information as
required by the federal securities laws, we undertake no obligation to release
publicly any revisions to any forward-looking statements to reflect events or
circumstances after the date of this proxy statement or to reflect the
occurrence of unanticipated events. Please refer to our SEC filings, including
the Current Report on Form 8-K dated March 26, 1999, incorporated into this
proxy statement by reference, for a description of such factors. Because the
proposed merger is a "going private" transaction within the meaning of Rule
13e-3 under the Exchange Act, the safe harbor provided in Section 21E of the
Private Securities Litigation Reform Act of 1995 does not apply to this proxy
statement or to information incorporated in this proxy statement by reference to
other documents.
OTHER INFORMATION
PROPOSALS BY SHAREHOLDERS OF MIDAMERICAN
If we complete the merger, we will no longer have public shareholders or
any public participation in our shareholder meetings. If we do not complete the
merger, we intend to hold our next annual shareholder meeting in May 2000. In
that case, you would continue to be entitled to attend and participate in our
shareholder meetings.
63
<PAGE>
If the merger is not completed, any shareholder proposal that is submitted
to us for inclusion in our proxy statement for our annual meeting in 2000
pursuant to Rule 14a-8 under the Exchange Act must be received by us before the
close of business on December 21, 1999.
If you intend to present a proposal at our annual meeting in 2000 but do
not intend to have your proposal included in our proxy statement, you must
notify us on a timely basis of your intent to present such proposal at the
meeting. To be timely, your notice must be delivered to us either by personal
delivery or by U.S. mail, postage prepaid, to our Assistant Corporate Secretary
at the address under "Where You Can Find More Information," not later than 120
days before the meeting. If we give notice of the meeting or publicly disclose
the meeting date later than 120 days before the meeting, your notice must be
delivered to us no later than the close of business on the seventh day after we
notify shareholders of the meeting date. In addition, your notice must
otherwise comply with the requirements of our by-laws. If you would like a copy
of our by-laws, we will furnish one without charge upon your written request to
our Assistant Corporate Secretary.
SEC rules establish standards as to which shareholder proposals are
required to be included in a proxy statement for an annual meeting. We will
only consider proposals meeting the requirements of applicable SEC rules.
INDEPENDENT AUDITORS
The consolidated financial statements incorporated in this proxy statement
by reference from our Annual Report on Form 10-K for the year ended December
31, 1998 have been audited by Deloitte & Touche LLP, independent accountants,
as stated in its reports with respect to our financial statements.
WHERE YOU CAN FIND MORE INFORMATION
As required by law, we file reports, proxy statements and other
information with the SEC. Because the proposed merger is a "going private"
transaction, we, Teton Formation, Teton Acquisition and the members of the
investor group have filed a Rule 13e-3 Transaction Statement on Schedule 13E-3
with respect to the proposed merger. The Schedule 13E-3 and the reports, proxy
statements and other information that we file with the SEC contain additional
information about us. You may read and copy this information at the following
offices of the SEC:
<TABLE>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center 500 West Madison Street
Room 1024 Suite 1300 Suite 1400
Washington, D.C. 20549 New York, New York 10048 Chicago, Illinois 60661
</TABLE>
For further information concerning the SEC's public reference rooms, you
may call the SEC at 1-800-SEC-0330. You may obtain copies of this information
by mail from the public reference section of the SEC, 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, at prescribed rates. You may also access
some of this information via the World Wide Web through the SEC's Internet
address at http://www.sec.gov. Our common stock is listed on the New York Stock
Exchange, and materials may be inspected at the New York Stock Exchange's
offices at 20 Broad Street, New York, New York 10005.
INCORPORATION BY REFERENCE
The SEC allows us to "incorporate by reference" information into this
proxy statement. This means that we can disclose important information to you
by referring you to another document filed separately with the SEC. The
information incorporated by reference is considered to be part of this proxy
statement, and later information filed with the SEC will update and supercede
the information in this proxy statement.
64
<PAGE>
We incorporate by reference each document we file pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this proxy
statement and prior to the special meeting. We also incorporate by reference
into this proxy statement the following documents that we filed with the SEC
(File No. 1-11505) under the Exchange Act:
o our Annual Report on Form 10-K for the year ended December 31, 1998, as
amended;
o our Quarterly Reports on Form 10-Q for the quarters ended March 31,
1999, June 30, 1999 and September 30, 1999; and
o our Current Reports on Form 8-K, filed on January 26, 1999, February 1,
1999, February 23, 1999, March 1, 1999, March 12, 1999, March 15, 1999,
March 26, 1999, March 29, 1999, May 14, 1999, September 14, 1999,
September 29, 1999, October 8, 1999, October 20, 1999, October 22, 1999
and October 25, 1999.
All subsequent documents filed by us with the SEC pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this proxy
statement and prior to the date of the special meeting will be deemed to be
incorporated by reference into this proxy statement and to be a part of the
proxy statement from the date of filing of those documents.
You should rely only on the information contained in (or incorporated by
reference into) this proxy statement. We have not authorized anyone to give any
information different from the information contained in (or incorporated by
reference into) this proxy statement. This proxy statement is dated December
, 1999. You should not assume that the information contained in this proxy
statement is accurate as of any later date, and the mailing of this proxy
statement to you shall not create any implication to the contrary.
Documents incorporated by reference are available from us without charge,
excluding all exhibits (unless we have specifically incorporated by reference
an exhibit into this proxy statement). You may obtain documents incorporated by
reference by requesting them in writing or by telephone as follows:
MidAmerican Energy Holdings Company
666 Grand Avenue
Des Moines, Iowa 50309
Attention: Assistant Corporate Secretary
Telephone: (515) 242-4300
If you would like to request documents from us, please do so by January 7,
2000 in order to ensure timely receipt before the special meeting.
65
<PAGE>
APPENDIX A
EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
by and among
MIDAMERICAN ENERGY HOLDINGS COMPANY,
TETON FORMATION L.L.C.
and
TETON ACQUISITION CORP.
--------------------------------
Dated as of October 24, 1999
--------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I.
THE MERGER
Section 1.1. The Merger ................................................................ A-1
Section 1.2. Effective Time ............................................................ A-1
Section 1.3. Effect of the Merger ...................................................... A-1
Section 1.4. Subsequent Actions ........................................................ A-1
Section 1.5. Articles of Incorporation; By-Laws; Officers and Directors ................ A-2
ARTICLE II.
TREATMENT OF SHARES
Section 2.1. Conversion of Securities .................................................. A-2
Section 2.2. Dissenting Shares ......................................................... A-3
Section 2.3. Surrender of Shares; Stock Transfer Books ................................. A-3
Section 2.4. Options Under Company Stock Plans ......................................... A-4
ARTICLE III.
THE CLOSING
Section 3.1. Closing ................................................................... A-5
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 4.1. Organization and Qualification ............................................ A-5
Section 4.2. Subsidiaries .............................................................. A-5
Section 4.3. Capitalization ............................................................ A-6
Section 4.4. Authority; Non-Contravention; Statutory Approvals; Compliance ............. A-6
Section 4.5. Reports and Financial Statements .......................................... A-8
Section 4.6. Absence of Certain Changes or Events; Absence of Undisclosed Liabilities... A-8
Section 4.7. Litigation ................................................................ A-8
Section 4.8. Proxy Statement ........................................................... A-9
Section 4.9. Tax Matters ............................................................... A-9
Section 4.10. Employee Matters; ERISA ................................................... A-11
Section 4.11. Environmental Protection .................................................. A-14
Section 4.12. Regulation as a Utility ................................................... A-16
Section 4.13. Vote Required ............................................................. A-16
Section 4.14. Insurance ................................................................. A-16
Section 4.15. Opinions of Financial Advisers ............................................ A-16
Section 4.16. Brokers ................................................................... A-16
Section 4.17. Non-Applicability of Certain Provisions of Iowa Act ....................... A-16
Section 4.18. Company Rights Agreement .................................................. A-16
Section 4.19. Year 2000 Compliance ...................................................... A-17
Section 4.20. Board Recommendation ...................................................... A-17
Section 4.21. Investment Company and Investment Advisory Matters ........................ A-17
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Section 5.1. Organization .............................................................. A-17
Section 5.2. Authority; Non-Contravention; Statutory Approvals ......................... A-17
Section 5.3. Proxy Statement ........................................................... A-18
Section 5.4. Brokers ................................................................... A-18
Section 5.5. Financing ................................................................. A-18
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 5.6. Sale of the Company ........................................................ A-18
Section 5.7. Share Ownership ............................................................ A-19
Section 5.8. Regulation Under the 1935 Act .............................................. A-19
Section 5.9. Investor Agreements ........................................................ A-19
ARTICLE VI.
CONDUCT OF BUSINESS PENDING THE MERGER
Section 6.1. Conduct of Business by the Company Pending the Merger ...................... A-19
Section 6.2. Conduct of Business by Parent and Merger Sub Pending the Merger ............ A-21
Section 6.3. Additional Covenants by the Company and Parent Pending the Merger .......... A-22
ARTICLE VII.
ADDITIONAL AGREEMENTS
Section 7.1. Access to Information ...................................................... A-22
Section 7.2. Proxy Statement and Schedule 13E-3 ......................................... A-23
Section 7.3. Regulatory Approvals and Other Matters ..................................... A-23
Section 7.4. Shareholder Approval ....................................................... A-23
Section 7.5. Directors' and Officers' Indemnification ................................... A-24
Section 7.6. Disclosure Schedules ....................................................... A-25
Section 7.7. Public Announcements ....................................................... A-25
Section 7.8. No Solicitations ........................................................... A-25
Section 7.9. Expenses ................................................................... A-26
Section 7.10. Third Party Standstill Agreements .......................................... A-26
Section 7.11. Takeover Statutes .......................................................... A-27
Section 7.12. Subscription Agreements .................................................... A-27
Section 7.13. Employee Benefits Matters .................................................. A-27
ARTICLE VIII.
CONDITIONS
Section 8.1. Conditions to Each Party's Obligation to Effect the Merger ................. A-28
Section 8.2. Conditions to Obligation of the Company to Effect the Merger ............... A-28
Section 8.3. Conditions to Obligation of Parent and Merger Sub to Effect the Merger...... A-28
ARTICLE IX.
TERMINATION, AMENDMENT AND WAIVER
Section 9.1. Termination ................................................................ A-30
Section 9.2. Effect of Termination ...................................................... A-31
Section 9.3. Termination Fee; Expenses .................................................. A-31
Section 9.4. Amendment .................................................................. A-32
Section 9.5. Waiver ..................................................................... A-32
ARTICLE X.
GENERAL PROVISIONS
Section 10.1. Non-Survival; Effect of Representations and Warranties ..................... A-33
Section 10.2. Notices .................................................................... A-33
Section 10.3. Miscellaneous .............................................................. A-33
Section 10.4. Interpretation ............................................................. A-34
Section 10.5. Counterparts; Effect ....................................................... A-34
Section 10.6. Enforcement ................................................................ A-34
Section 10.7. Parties in Interest ........................................................ A-34
Section 10.8. Further Assurances ......................................................... A-35
Section 10.9. Waiver of Jury Trial ....................................................... A-35
Section 10.10. Certain Definitions ........................................................ A-35
</TABLE>
ii
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of October 24, 1999 (this
"Agreement"), by and among MidAmerican Energy Holdings Company, an Iowa
corporation (the "Company"), Teton Formation L.L.C., an Iowa limited liability
company ("Parent"), and Teton Acquisition Corp., an Iowa corporation and a
wholly owned subsidiary of Parent ("Merger Sub").
W I T N E S S E T H :
WHEREAS, the Investors (as defined in Section 5.5) desire to acquire the
entire equity interest in the Company and have formed Parent and Merger Sub for
the purpose of effecting such transaction; and
WHEREAS, the Boards of Directors of the Company and Merger Sub have each
approved, and deem advisable and in the best interests of their respective
shareholders, and the Company, Parent and Merger Sub have approved, the merger
of Merger Sub with and into the Company, with the Company being the surviving
corporation, in accordance with the Iowa Business Corporation Act (the "Iowa
Act") and upon the terms and subject to the conditions set forth in this
Agreement (such transaction is referred to as the "Merger"), as a result of
which the former shareholders of Merger Sub as of the effective time of the
Merger will own all of the outstanding capital stock of the Company.
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, the parties hereto,
intending to be legally bound hereby, agree as follows:
ARTICLE I.
THE MERGER
Section 1.1. The Merger. At the Effective Time (as defined in Section 1.2)
and upon the terms and subject to the conditions of this Agreement and the Iowa
Act, Merger Sub shall be merged with and into the Company, the separate
corporate existence of Merger Sub shall cease, and the Company shall continue
as the surviving corporation (sometimes hereinafter referred to as the
"Surviving Corporation").
Section 1.2. Effective Time. On the Closing Date (as defined in Section
3.1), articles of merger complying with the requirements of the Iowa Act shall
be executed and filed by the Company and Merger Sub with the Secretary of State
of Iowa. The Merger shall become effective on the date on which the articles of
merger are duly filed with the Secretary of State of Iowa or at such later time
as is mutually agreed by the parties and specified in the articles of merger
(the "Effective Time").
Section 1.3. Effect of the Merger. At the Effective Time, the effect of
the Merger shall be as provided in the applicable provisions of the Iowa Act.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time all the property, rights, privileges, powers and franchises of
the Company and Merger Sub shall vest in the Surviving Corporation, and all
debts, liabilities and duties of the Company and Merger Sub shall become the
debts, liabilities and duties of the Surviving Corporation.
Section 1.4. Subsequent Actions. If, at any time after the Effective Time,
the Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of, and assume the liabilities of, either of the Company
or Merger Sub acquired or to be acquired by the Surviving Corporation as a
result of, or in connection with, the Merger or otherwise to carry out this
Agreement, the officers and directors of the Surviving Corporation shall be
authorized to execute and deliver, in the name and on behalf of either the
Company or Merger Sub, all such deeds, bills of sale, assignments and
assurances and to take and do, in the name and on behalf of each of such
corporations or otherwise, all such other actions and things as may be
necessary or
A-1
<PAGE>
desirable to vest, perfect or confirm any and all right, title and interest in,
to and under such rights, properties or assets in, and the assumption of the
liabilities of, the Surviving Corporation or otherwise to carry out this
Agreement.
Section 1.5. Articles of Incorporation; By-Laws; Officers and Directors.
(a) Unless otherwise determined by Parent prior to the Effective Time, at
the Effective Time the Articles of Incorporation of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the Restated Articles of
Incorporation of the Surviving Corporation until thereafter amended as provided
by law and such Restated Articles of Incorporation.
(b) Unless otherwise determined by Parent prior to the Effective Time, the
By-Laws of Merger Sub, as in effect immediately prior to the Effective Time,
shall be the Restated By-Laws of the Surviving Corporation until thereafter
amended as provided by law, the Restated Articles of Incorporation of the
Surviving Corporation and such Restated By-Laws.
(c) Unless otherwise determined by Parent prior to the Effective Time, the
officers of Merger Sub in office at the Effective Time shall be and constitute
the officers of the Surviving Corporation, each holding the same office in the
Surviving Corporation as he or she held in Merger Sub for the terms elected
and/or until their respective successors shall be elected or appointed and
qualified.
(d) Unless otherwise determined by Parent prior to the Effective Time, the
directors of Merger Sub in office at the Effective Time shall be and constitute
the directors of the Surviving Corporation, each holding the same directorship
in the Surviving Corporation as he or she held in Merger Sub for the terms
elected and/or until their respective successors shall be elected or appointed
and qualified.
ARTICLE II.
TREATMENT OF SHARES
Section 2.1. Conversion of Securities. At the Effective Time, by virtue of
the Merger and without any action on the part of Parent, the Company, Merger
Sub or the holder of any of the following securities:
(a) Each share (collectively, the "Shares") of common stock, no par value,
of the Company ("Company Common Stock"), together with the associated purchase
rights ("Company Rights") under the Company Rights Agreement (as defined in
Section 4.18), issued and outstanding immediately prior to the Effective Time
(other than any Shares to be canceled pursuant to Section 2.1(b) and any
Dissenting Shares (as defined in Section 2.2(a)) shall be canceled and
extinguished and be converted into the right to receive $35.05 (the "Per Share
Amount"), in cash payable to the holder thereof, without interest, upon
surrender of the certificate representing such Share in accordance with Section
2.3. Throughout this Agreement, the term "Shares" refers to the shares of
Company Common Stock together with the associated Company Rights.
(b) Each Share held in the treasury of the Company and each Share owned by
Parent, Merger Sub or any direct or indirect Subsidiary (as defined in Section
4.1) of Parent, Merger Sub or the Company (other than Shares held in trust
accounts, managed accounts, custodial accounts and the like that are
beneficially owned by third parties) immediately prior to the Effective Time
shall be canceled and extinguished, and no payment or other consideration shall
be made with respect thereto.
(c) Each share of common stock, no par value, of Merger Sub issued and
outstanding immediately prior to the Effective Time shall thereafter represent
one validly issued, fully paid and nonassessable share of common stock, no par
value, of the Surviving Corporation. Each share of Zero Coupon Convertible
Preferred Stock of Merger Sub issued and outstanding immediately prior to the
Effective Time shall thereafter represent one validly issued, fully paid and
nonassessable share of Zero Coupon Convertible Preferred Stock of the Surviving
Corporation.
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Section 2.2. Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to the contrary, any
Shares held by a holder who has demanded and perfected his demand for appraisal
of his Shares in accordance with Section 1302 of the Iowa Act and as of the
Effective Time has neither effectively withdrawn nor lost his right to such
appraisal ("Dissenting Shares"), shall not be converted into or represent a
right to receive cash pursuant to Section 2.1, but the holder thereof shall be
entitled to only such rights in respect thereof as are granted by Section 1302
of the Iowa Act.
(b) Notwithstanding the provisions of subsection (a) of this Section 2.2,
if any holder of Shares who demands appraisal of his Shares under the Iowa Act
shall effectively withdraw or lose (through failure to perfect or otherwise)
his right to appraisal, then as of the Effective Time or the occurrence of such
event, whichever later occurs, such holder's Shares shall automatically be
converted into and represent only the right to receive cash as provided in
Section 2.1(a), without interest thereon, upon surrender of the certificate or
certificates representing such Shares in accordance with Section 2.3.
(c) The Company shall give Parent (i) prompt notice of any written demands
for appraisal or payment of the fair value of any Shares, withdrawals of such
demands, and any other instruments served pursuant to the Iowa Act received by
the Company and (ii) the opportunity to direct all negotiations and proceedings
with respect to demands for appraisal under the Iowa Act. The Company shall not
voluntarily make any payment with respect to any demands for appraisal and
shall not, except with the prior written consent of Parent, settle or offer to
settle any such demands.
Section 2.3. Surrender of Shares; Stock Transfer Books.
(a) Prior to the Effective Time, the Company shall designate a bank or
trust company to act as agent for the holders of Shares (the "Exchange Agent")
to receive the funds necessary to make the payments contemplated by Section
2.1. At the Effective Time, Parent or Merger Sub shall deposit, or cause to be
deposited (including from available cash balances at the Company), in trust
with the Exchange Agent for the benefit of holders of Shares, the aggregate
consideration to which such holders shall be entitled at the Effective Time
pursuant to Section 2.1.
(b) Each holder of a certificate or certificates representing any Shares
canceled upon the Merger pursuant to Section 2.1(a) may thereafter surrender
such certificate or certificates to the Exchange Agent, as agent for such
holder, to effect the surrender of such certificate or certificates on such
holder's behalf for a period ending one year after the Effective Time. Parent
and Merger Sub agree that as promptly as practicable after the Effective Time
the Surviving Corporation shall cause the distribution to holders of record of
Shares as of the Effective Time of appropriate materials to facilitate such
surrender. Upon the surrender of certificates representing the Shares, the
Surviving Corporation shall cause the Exchange Agent to pay the holder of such
certificates in exchange therefor cash in an amount equal to the Per Share
Amount multiplied by the number of Shares represented by such certificate.
Until so surrendered, each such certificate (other than certificates
representing Dissenting Shares and certificates representing Shares canceled
pursuant to Section 2.1(b)) shall represent solely the right to receive the
aggregate Per Share Amount relating thereto.
(c) If payment of cash in respect of canceled Shares is to be made to a
Person other than the Person in whose name a surrendered certificate or
instrument is registered, it shall be a condition to such payment that the
certificate or instrument so surrendered shall be properly endorsed or shall be
otherwise in proper form for transfer and that the Person requesting such
payment shall have paid any transfer and other taxes required by reason of such
payment in a name other than that of the registered holder of the certificate
or instrument surrendered or shall have established to the satisfaction of the
Surviving Corporation or the Exchange Agent that such tax either has been paid
or is not payable.
(d) At the Effective Time, the stock transfer books of the Company shall
be closed and there shall not be any further registration of transfer of any
shares of capital stock thereafter on the records of the Company. From and
after the Effective Time, the holders of certificates evidencing ownership
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of the Shares outstanding immediately prior to the Effective Time shall cease
to have any rights with respect to such Shares, except as otherwise provided
for herein or by applicable law. If, after the Effective Time, certificates for
Shares are presented to the Surviving Corporation, they shall be canceled and
exchanged for cash as provided in Section 2.1(a) and Sections 2.3(b) and (c).
No interest shall accrue or be paid on any cash payable upon the surrender of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding Shares.
(e) Promptly following the date which is one year after the Effective
Time, the Exchange Agent shall deliver to the Surviving Corporation all cash
(including any interest received with respect thereto), certificates and other
documents in its possession relating to the transactions contemplated hereby,
and the Exchange Agent's duties shall terminate. Thereafter, each holder of a
certificate representing Shares (other than certificates representing
Dissenting Shares and certificates representing Shares canceled pursuant to
Section 2.1(b)) shall be entitled to look only to the Surviving Corporation
(subject to applicable abandoned property, escheat and similar laws) and only
as general creditors thereof with respect to the aggregate Per Share Amount
payable upon due surrender of their certificates, without any interest or
dividends thereon. Notwithstanding the foregoing, neither Parent, the Surviving
Corporation nor the Exchange Agent shall be liable to any holder of a
certificate representing Shares for the Per Share Amount delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law.
(f) The Per Share Amount paid in the Merger shall be net to the holder of
Shares in cash, subject to reduction only for any applicable federal back-up
withholding or, as set forth in Section 2.3(c), stock transfer taxes payable by
such holder.
Section 2.4. Options Under Company Stock Plans.
(a) Except as provided in Section 2.4(b), the Company shall take all
actions necessary to provide that, immediately prior to the Effective Time, (x)
each outstanding option to acquire shares of Company Common Stock (the "Company
Options") granted under any of the Company Stock Plans (as defined in Section
4.3), whether or not then exercisable or vested, shall become fully exercisable
and vested, (y) each Company Option which is then outstanding shall be canceled
and (z) in consideration of such cancellation, and except to the extent that
Parent and the holder of any such Company Option otherwise agree in writing,
the Company (or, at Parent's option, Parent or the Surviving Corporation) shall
pay in cash to such holders of Company Options an amount in respect thereof
equal to the product of (A) the excess, if any, for each Company Option, of the
Per Share Amount over the per share exercise price thereof and (B) the number
of shares of Company Common Stock subject thereto (such payment to be net of
applicable withholding taxes); provided that the foregoing shall not require
any action which violates the Company Stock Plans.
(b) Certain Company Options held by certain members or former members of
Company management, as Parent shall notify the Company in writing prior to the
Effective Time, shall become fully exercisable and vested immediately prior to
the Effective Time and shall thereafter remain exercisable in accordance with
their terms and any other terms which are agreed to in writing between Parent
and such holders.
(c) Except as provided in Section 2.4(b) or as otherwise agreed to in
writing by the parties to this Agreement, the Company shall use all reasonable
efforts to ensure that following the Effective Time no holder of Company
Options or any participant in the Company Stock Plans or any other such plans,
programs or arrangements shall have any right thereunder to acquire any equity
securities (or any interests therein) of the Company, the Surviving Corporation
or any Subsidiary thereof.
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ARTICLE III.
THE CLOSING
Section 3.1. Closing. The closing of the Merger (the "Closing") shall take
place at the offices of Willkie Farr & Gallagher, 787 Seventh Avenue, New York,
New York, 10019 at 10:00 A.M., New York time, on the second business day
immediately following the date on which the last of the conditions set forth in
Article VIII hereof is fulfilled or waived, or at such other time, date and
place as Parent and the Company shall mutually agree (the "Closing Date").
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Merger Sub as
follows:
Section 4.1. Organization and Qualification. The Company and each of the
Company Subsidiaries and, to the knowledge of the Company, each of the Company
Joint Ventures is a corporation or other entity duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation or organization, has all requisite power and authority and has
been duly authorized by all necessary approvals and orders to own, lease and
operate its assets and properties and to carry on its business as it is now
being conducted and is duly qualified and in good standing to do business in
each jurisdiction in which the nature of its business or the ownership or
leasing of its assets and properties makes such qualification necessary other
than in such jurisdictions where the failure to so qualify and be in good
standing, when taken together with all other such failures, would not have a
material adverse effect on the business, operations, properties, assets,
financial condition, Company Prospects (as defined below) or the results of
operations of the Company and the Company Subsidiaries taken as a whole or on
the consummation of the transactions contemplated by this Agreement (to the
extent such adverse effect does not arise from (i) general economic conditions
or (ii) the securities markets generally) (any such material adverse effect, a
"Company Material Adverse Effect"). The term "Subsidiary" of a Person shall
mean any corporation or other entity (including partnerships and other business
associations and joint ventures) in which such Person directly or indirectly
owns at least a majority of the voting power represented by the outstanding
capital stock or other voting securities or interests having voting power under
ordinary circumstances to elect a majority of the directors or similar members
of the governing body, or otherwise to direct the management and policies, of
such corporation or entity, and the term "Company Subsidiary" shall mean a
Subsidiary of the Company. The term "Joint Venture" of a Person shall mean any
corporation or other entity (including partnerships and other business
associations and joint ventures) in which such Person directly or indirectly
owns an equity interest that is less than a majority of any class of the
outstanding voting securities or equity of any such entity, other than equity
interests in entities in which such Person does not control the operations and
does not appoint at least 50% of the board of directors (or comparable
governing body), and the term "Company Joint Venture" shall mean a Joint
Venture of the Company. The term "Company Prospects" shall mean the prospects
of the Company and the Company Subsidiaries, taken as a whole, but only as they
may be affected by statutory or regulatory changes (whether relating to
utility, environmental or other statutory or regulatory matters) or by
expropriation events.
Section 4.2. Subsidiaries. Section 4.2 of the Company Disclosure Schedule
delivered by the Company to Parent prior to the execution of this Agreement
(the "Company Disclosure Schedule") sets forth a list of all the Company
Subsidiaries and the Company Joint Ventures, including the name of each such
entity, a brief description of the principal line or lines of business
conducted by each such entity and the interest of the Company and the Company
Subsidiaries therein. Each of the Company and MidAmerican Funding, LLC
("MidAmerican Funding") is a "public utility holding company" (as defined in
the Public Utility Holding Company Act of 1935, as amended (the "1935 Act"))
exempt from all provisions (other than Section 9(a)(2)) of the 1935 Act,
pursuant to Section 3(a)(1) in accordance with Rule 2 of the 1935 Act, and
MidAmerican Energy Company ("MidAmerican Utility") is a "public utility
company" within the meaning of Section 2(a)(5) of the 1935 Act. With the
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exception of MidAmerican Utility and MidAmerican Funding, no Company Subsidiary
or Company Joint Venture is a "holding company" or a "public utility company"
within the meaning of Sections 2(a)(7) and 2(a)(5) of the 1935 Act,
respectively, nor, except with respect to their relationship with the Company
and MidAmerican Funding, are any of such entities an "affiliate" or a
"subsidiary company" of a holding company within the meaning of Sections
2(a)(11) and 2(a)(8) of the 1935 Act, respectively. Except as set forth in
Section 4.2 of the Company Disclosure Schedule, (i) all of the issued and
outstanding shares of capital stock of each Company Subsidiary are validly
issued, fully paid, nonassessable and free of preemptive rights and are owned,
directly or indirectly, by the Company, free and clear of any liens, claims,
encumbrances, security interests, charges and options of any nature whatsoever,
and (ii) there are no outstanding subscriptions, options, calls, contracts,
voting trusts, proxies or other pledges, security interests, encumbrances,
commitments, understandings, restrictions, arrangements, rights or warrants,
including any right of conversion or exchange under any outstanding security,
instrument or other agreement, obligating the Company or any Company Subsidiary
to issue, deliver or sell, pledge, grant a security interest or encumber, or
cause to be issued, delivered or sold, pledged or encumbered or a security
interest to be granted on, shares of capital stock of any Company Subsidiary or
obligating the Company or any Company Subsidiary to grant, extend or enter into
any such agreement or commitment.
Section 4.3. Capitalization. The authorized capital stock of the Company
consists of 180,000,000 shares of Company Common Stock and 2,000,000 shares of
preferred stock, no par value, none of which preferred stock is outstanding. As
of the close of business on October 22, 1999, (i) 59,877,313 shares of Company
Common Stock are outstanding, (ii) not more than 7,156,363 shares of Company
Common Stock are reserved for issuance pursuant to the Company's existing stock
option agreements and plans and its 1994 Employee Stock Purchase Plan and
401(k) Savings Plan (such agreements and plans, collectively, the "Company
Stock Plans"), (iii) 23,102,187 shares of Company Common Stock are held by the
Company in its treasury or by its wholly owned Subsidiaries, and (iv) except as
set forth in Section 4.3 of the Company Disclosure Schedule, no bonds,
debentures, notes or other indebtedness having the right to vote (or
convertible into securities having the right to vote) on any matters on which
shareholders may vote ("Voting Debt") is issued or outstanding. All of the
issued and outstanding shares of Company Common Stock are validly issued, fully
paid, nonassessable and free of preemptive rights. As of the date of this
Agreement, except as set forth in Section 4.3 of the Company Disclosure
Schedule or as may be provided by the Company Stock Plans, there are no
outstanding subscriptions, options, calls, contracts, voting trusts, proxies or
other pledges, security interests, encumbrances, commitments, understandings,
restrictions, arrangements, rights or warrants, including any right of
conversion or exchange under any outstanding security, instrument or other
agreement, obligating the Company to issue, deliver or sell, pledge, grant a
security interest or encumber, or cause to be issued, delivered or sold,
pledged or encumbered or a security interest to be granted on, shares of
capital stock or any Voting Debt of the Company or obligating the Company to
grant, extend or enter into any such agreement or commitment.
Section 4.4. Authority; Non-Contravention; Statutory Approvals;
Compliance.
(a) Authority. The Company has all requisite power and authority to enter
into this Agreement and, subject to the receipt of the Company Shareholders'
Approval (as defined in Section 4.13) and the Company Required Statutory
Approvals (as defined in Section 4.4(c)), to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation by the Company of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of the Company,
subject to obtaining the Company Shareholders' Approval. This Agreement has
been duly and validly executed and delivered by the Company, and, assuming the
due authorization, execution and delivery hereof by the other signatories
hereto, this Agreement constitutes the valid and binding obligation of the
Company enforceable against it in accordance with its terms, subject, as to
enforceability, to bankruptcy, insolvency, reorganization and other laws of
general applicability relating to or affecting creditors' rights and to general
principles of equity.
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(b) Non-Contravention. The execution and delivery of this Agreement by the
Company do not, and the consummation of the transactions contemplated hereby
will not, in any respect, violate, conflict with or result in a breach of any
provision of, or constitute a default (with or without notice or lapse of time
or both) under, or result in the termination or modification of, or accelerate
the performance required by, or result in a right of termination, cancellation
or acceleration of any obligation or the loss of a benefit under, or result in
the creation of any lien, security interest, charge or encumbrance upon any of
the agreements, properties or assets of the Company or any of the Company
Subsidiaries or the Company Joint Ventures (any such violation, conflict,
breach, default, right of termination, modification, cancellation or
acceleration, loss or creation, is referred to herein as a "Violation" with
respect to the Company, and such term when used in Article V shall have a
correlative meaning with respect to Parent and Merger Sub) pursuant to any
provisions of (i) the articles of incorporation, by-laws or similar governing
documents of the Company or any of the Company Subsidiaries or the Company
Joint Ventures, (ii) subject to obtaining the Company Required Statutory
Approvals and the receipt of the Company Shareholders' Approval, any statute,
law, ordinance, rule, regulation, judgment, decree, order, injunction, writ,
permit or license of any court, federal, state, local or foreign governmental
or regulatory body (including a stock exchange or other self-regulatory body)
or authority (each, a "Governmental Authority") applicable to the Company or
any of the Company Subsidiaries or the Company Joint Ventures or any of their
respective properties or assets or (iii) subject to obtaining the third-party
consents set forth in Section 4.4(b) of the Company Disclosure Schedule (the
"Company Required Consents"), any note, bond, mortgage, indenture, deed of
trust, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which the Company or any of
the Company Subsidiaries or the Company Joint Ventures is a party or by which
it or any of its properties or assets may be bound or affected, excluding from
the foregoing clauses (ii) and (iii) such Violations which would not, in the
aggregate, have a Company Material Adverse Effect.
(c) Statutory Approvals. Except as set forth in Section 4.4(c) of the
Company Disclosure Schedule, no declaration, filing or registration with, or
notice to or authorization, consent or approval of, any Governmental Authority
is necessary for the execution and delivery of this Agreement by the Company or
the consummation by the Company of the transactions contemplated hereby (the
"Company Required Statutory Approvals," it being understood that references in
this Agreement to "obtaining" such Company Required Statutory Approvals shall
mean making such declarations, filings or registrations; giving such notices;
obtaining such authorizations, consents or approvals; and having such waiting
periods expire as are necessary to avoid a violation of law).
(d) Compliance. Except as set forth in Section 4.4(d) or 4.11 of the
Company Disclosure Schedule or as disclosed in the Company SEC Reports (as
defined in Section 4.5) filed as of the date of this Agreement, neither the
Company nor any of the Company Subsidiaries nor, to the knowledge of the
Company, any Company Joint Venture is in violation of, is, to the knowledge of
the Company, under investigation with respect to any violation of, or has been
given notice or been charged with any violation of, any law, statute, order,
rule, regulation, ordinance or judgment (including, without limitation, any
applicable environmental law, ordinance or regulation) of any Governmental
Authority, except for violations which individually or in the aggregate do not,
and would not reasonably be expected to, have a Company Material Adverse
Effect. Except as set forth in Section 4.4(d) or 4.11 of the Company Disclosure
Schedule, the Company and the Company Subsidiaries and, to the knowledge of the
Company, the Company Joint Ventures have all permits, licenses, franchises and
other governmental authorizations, consents and approvals necessary to conduct
their businesses as presently conducted which are material to the operation of
the businesses of the Company and the Company Subsidiaries. Except as set forth
in Section 4.4(d) of the Company Disclosure Schedule, the Company and each of
the Company Subsidiaries and, to the knowledge of the Company, Company Joint
Ventures is not in breach or violation of or in default in the performance or
observance of any term or provision of, and no event has occurred which, with
lapse of time or action by a third party, could result in a default by the
Company or any Company Subsidiary or, to the knowledge of the Company, any
Company Joint Venture under (i) its articles of incorporation, by-laws or other
organizational document or (ii) any contract, commitment, agreement, indenture,
mortgage, loan
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agreement, note, lease, bond, license, approval or other instrument to which it
is a party or by which the Company or any Company Subsidiary or any Company
Joint Venture is bound or to which any of its property is subject, except in
the case of clause (ii) above, for violations, breaches or defaults which
individually or in the aggregate do not, and would not reasonably be expected
to, have a Company Material Adverse Effect.
Section 4.5. Reports and Financial Statements. The filings required to be
made by the Company and the Company Subsidiaries under the Securities Act of
1933, as amended (the "Securities Act"), the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), the 1935 Act, the Public Utility Regulatory
Policies Act of 1978 ("PURPA"), the Federal Power Act (the "Power Act") and
applicable state, municipal, local and other laws, including franchise and
public utility laws and regulations, including all forms, statements, reports,
agreements (oral or written) and all documents, exhibits, amendments and
supplements appertaining thereto, have been filed with the Securities and
Exchange Commission (the "SEC"), the Federal Energy Regulatory Commission (the
"FERC"), and the appropriate Iowa, Illinois, South Dakota, Nebraska or other
appropriate Governmental Authorities, as the case may be, and complied, as of
their respective dates, in all material respects with all applicable
requirements of the appropriate statutes and the rules and regulations
thereunder. The Company has made available to Parent a true and complete copy
of each report, schedule, registration statement and definitive proxy statement
and all amendments thereto filed with the SEC by the Company or any Company
Subsidiary (or their predecessors, including, without limitation, CalEnergy
Company, Inc.) pursuant to the requirements of the Securities Act or Exchange
Act since January 1, 1999 (as such documents have since the time of their
filing been amended, the "Company SEC Reports"). As of their respective dates,
the Company SEC Reports did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading. The audited consolidated financial statements and
unaudited interim financial statements of the Company and MidAmerican Utility
included in the Company SEC Reports (collectively, the "Company Financial
Statements") have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis ("GAAP") (except as may be
indicated therein or in the notes thereto) and fairly present the financial
position of the Company and MidAmerican Utility, as the case may be, as of the
dates thereof and the results of their operations and cash flows for the
periods then ended, subject, in the case of the unaudited interim financial
statements, to normal, recurring audit adjustments. True, accurate and complete
copies of the articles of incorporation and by-laws of the Company and
MidAmerican Utility, as in effect on the date of this Agreement, are included
(or incorporated by reference) in the Company SEC Reports.
Section 4.6. Absence of Certain Changes or Events; Absence of Undisclosed
Liabilities.
(a) Absence of Certain Changes or Events. Except as set forth in Section
4.6(a) of the Company Disclosure Schedule or as disclosed in the Company SEC
Reports filed prior to the date of this Agreement, since December 31, 1998, the
Company and each of the Company Subsidiaries and, to the knowledge of the
Company, each of the Company Joint Ventures, have conducted their business only
in the ordinary course of business consistent with past practice and there has
not been, and no fact or condition exists which would have, or could reasonably
be expected to have, a Company Material Adverse Effect.
(b) Absence of Undisclosed Liabilities. Neither the Company nor any
Company Subsidiary, nor, to the knowledge of the Company, any Company Joint
Venture, has any liabilities or obligations (whether absolute, accrued,
contingent or otherwise and including, without limitation, margin loans) of a
nature required by GAAP to be reflected in a consolidated corporate balance
sheet, except liabilities, obligations or contingencies which are accrued or
reserved against in the consolidated financial statements of the Company and
MidAmerican Utility or reflected in the notes thereto for the year ended
December 31, 1998, or which were incurred after December 31, 1998 in the
ordinary course of business and would not, in the aggregate, have a Company
Material Adverse Effect.
Section 4.7. Litigation. Except as set forth in Section 4.7 or 4.11 of the
Company Disclosure Schedule or as disclosed in the Company SEC Reports filed
prior to the date of this Agreement,
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(a) there are no claims, suits, actions or proceedings by any Governmental
Authority or any arbitrator, pending or, to the knowledge of the Company,
threatened, nor are there, to the knowledge of the Company, any investigations
or reviews by any Governmental Authority or any arbitrator pending or
threatened against, relating to or affecting the Company or any of the Company
Subsidiaries or, to the knowledge of the Company, the Company Joint Ventures,
(b) there have not been any significant developments since December 31, 1998
with respect to such disclosed claims, suits, actions, proceedings,
investigations or reviews and (c) there are no judgments, decrees, injunctions,
rules or orders of any Governmental Authority or any arbitrator applicable to
the Company or any of the Company Subsidiaries or, to the knowledge of the
Company, applicable to any of the Company Joint Ventures, which, when taken
together with any other nondisclosures described in clauses (a), (b) or (c),
could reasonably be expected to have a Company Material Adverse Effect.
Section 4.8. Proxy Statement. None of the information supplied or to be
supplied by or on behalf of the Company for inclusion or incorporation by
reference in the proxy statement in definitive form ("Proxy Statement")
relating to the Company Meeting (as defined in Section 7.4(a)) will, at the
date mailed to shareholders of the Company or at the time of the Company
Meeting (giving effect to any documents incorporated by reference therein),
include any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading or necessary to correct
any statement in any earlier authorized communication with respect to the
solicitation of proxies on behalf of the Company for the Company Meeting which
has become false or misleading. Notwithstanding the foregoing, the Company does
not make any representation or warranty with respect to any information that
has been supplied by Parent, Merger Sub or their affiliates (other than the
Company and the Company Subsidiaries), accountants, counsel or other authorized
representatives for use in any of the foregoing documents. The Proxy Statement
will comply as to form in all material respects with the provisions of
applicable federal securities law.
Section 4.9. Tax Matters. "Taxes," as used in this Agreement, means any
federal, state, county, local or foreign taxes, charges, fees, levies or other
assessments, including all net income, gross income, sales and use, ad valorem,
transfer, gains, profits, excise, franchise, real and personal property, gross
receipt, capital stock, production, business and occupation, disability,
employment, payroll, license, estimated, stamp, custom duties, severance or
withholding taxes or charges imposed by any governmental entity, and includes
any interest and penalties (civil or criminal) on or additions to any such
taxes and any expenses incurred in connection with the determination,
settlement or litigation of any Tax liability. "Tax Return," as used in this
Agreement, means a report, return or other information required to be supplied
to a governmental entity with respect to Taxes including, without limitation,
where permitted or required, combined or consolidated returns for any group of
entities that includes the Company or any Company Subsidiary.
(a) Filing of Timely Tax Returns. The Company and each of the Company
Subsidiaries have filed (or there has been filed on their behalf) all material
Tax Returns required to be filed by each of them under applicable law. All such
Tax Returns were and are in all material respects true, complete and correct
and filed on a timely basis.
(b) Payment of Taxes. The Company and each of the Company Subsidiaries
have, within the time and in the manner prescribed by law, paid (and until the
Closing Date will pay within the time and in the manner prescribed by law) all
Taxes that are currently due and payable, except for those contested in good
faith and for which adequate reserves have been taken.
(c) Tax Reserves. The Company and the Company Subsidiaries have
established (and until the Closing Date will maintain) on their books and
records reserves which adequately reflect its estimate of the amounts required
to pay all Taxes in accordance with GAAP.
(d) Tax Liens. There are no Tax liens upon any material assets of the
Company or any of the Company Subsidiaries except liens for Taxes not yet due.
(e) Withholding Taxes. The Company and each of the Company Subsidiaries
have complied (and until the Closing Date will comply) in all material respects
with the provisions of the Internal
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Revenue Code of 1986, as amended (the "Code"), relating to the payment and
withholding of Taxes, including, without limitation, the withholding and
reporting requirements under Code Sections 1441 through 1464, 3401 through 3406
and 6041 through 6049, as well as similar provisions under any other laws, and
have, within the time and in the manner prescribed by law, withheld from
employee wages and paid over to the proper governmental authorities all amounts
required.
(f) Extensions of Time For Filing Tax Returns. Except as set forth in
Section 4.9(f) of the Company Disclosure Schedule, neither the Company nor any
of the Company Subsidiaries has requested any extension of time within which to
file any Tax Return, which Tax Return has not since been timely filed.
(g) Waivers of Statute of Limitations. Except as set forth in Section
4.9(g) of the Company Disclosure Schedule, neither the Company nor any of the
Company Subsidiaries has executed any outstanding waivers or comparable
consents regarding the application of the statute of limitations with respect
to any Taxes or Tax Returns.
(h) Expiration of Statute of Limitations. Except as disclosed in Section
4.9(h) of the Company Disclosure Schedule, the statute of limitations for the
assessment of all Taxes has expired for all applicable Tax Returns of the
Company and the Company Subsidiaries or those Tax Returns have been examined by
the appropriate taxing authorities for all tax periods ending before the date
of this Agreement, and no deficiency for any Taxes has been proposed, asserted
or assessed against The Company or any of the Company Subsidiaries that has not
been resolved and paid in full.
(i) Audit, Administrative and Court Proceedings. Except as disclosed in
Section 4.9(i) of the Company Disclosure Schedule, no audits or other
administrative proceedings or court proceedings are presently pending, or, to
the knowledge of the Company, threatened, with regard to any Taxes or Tax
Returns of the Company or any of the Company Subsidiaries.
(j) Tax Rulings. Neither the Company nor any of the Company Subsidiaries
has received or requested a Tax Ruling (as defined below) or entered into a
Closing Agreement (as defined below), with any taxing authority that would have
a continuing adverse effect after the Closing Date. "Tax Ruling," as used in
this Agreement, shall mean a written ruling of a taxing authority relating to
Taxes. "Closing Agreement," as used in this agreement, shall mean a written and
legally binding agreement with a taxing authority relating to Taxes.
(k) Availability of Tax Returns. The Company has made available to Parent,
where requested by Parent, complete and accurate copies of (i) all federal and
state income Tax Returns for open years, and any amendments thereto, filed by
the Company or any of the Company Subsidiaries, (ii) all audit reports or
written proposed adjustments (whether formal or informal) received from any
taxing authority relating to any Tax Return filed by the Company or any of the
Company Subsidiaries and (iii) any Tax Ruling or request for a Tax Ruling
applicable to the Company or any of the Company Subsidiaries and Closing
Agreements entered into by the Company or any of the Company Subsidiaries.
(l) Tax Sharing Agreements. Except as disclosed in Section 4.9(l) of the
Company Disclosure Schedule, neither the Company nor any Company Subsidiary is
a party to any agreement relating to allocating or sharing of Taxes.
(m) Code Section 341(F). Neither the Company nor any of the Company
Subsidiaries has filed (or will file prior to the Closing) a consent pursuant
to Code Section 341(f) or has agreed to have Code Section 341(f)(2) apply to
any disposition of a subsection (f) asset (as that term is defined in Code
Section 341(f)(4)), owned by the Company or any of the Company Subsidiaries.
(n) Code Section 168. Except as set forth in Section 4.9(n) of the Company
Disclosure Schedule, no property of the Company or any of the Company
Subsidiaries is property that the Company or any Company Subsidiary or any
party to this transaction is or will be required to treat as being owned by
another person pursuant to the provisions of Code Section 168(f)(8) (as in
effect prior to its amendment by the Tax Reform Act of 1986) or is "tax-exempt
use property" within the meaning of Code Section 168(h).
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(o) Code Section 481 Adjustments. Except as set forth in Section 4.9(o) of
the Company Disclosure Schedule, neither the Company nor any of the Company
Subsidiaries is required to include in income for any tax period ending after
the date hereof any adjustment pursuant to Code Section 481(a) by reason of a
voluntary change in accounting method initiated by the Company or any of the
Company Subsidiaries, and, to the knowledge of the Company, the Internal
Revenue Service ("IRS") has not proposed any such adjustment or change in
accounting method.
(p) Consolidated Tax Returns. Except as disclosed in Section 4.9(p) of the
Company Disclosure Schedule, neither the Company nor any of the Company
Subsidiaries has ever been a member of an affiliated group of corporations
(within the meaning of Code Section 1504(a)) filing consolidated returns, other
than the affiliated group of which the Company is the common parent.
(q) 5% Foreign Shareholders. To the Company's knowledge, based on Schedule
13D and 13G filings with the SEC with respect to the Company, no foreign person
owns, as of the date of this Agreement, 5% or more of the outstanding shares of
Company Common Stock.
Section 4.10. Employee Matters; ERISA.
(a) Benefit Plans. Section 4.10(a) of the Company Disclosure Schedule
contains a true and complete list of each employee benefit plan, practice,
program or arrangement currently sponsored, maintained or contributed to by the
Company or any of the Company Subsidiaries for the benefit of employees, former
employees or directors and their beneficiaries in respect of services provided
to any such entity, including, but not limited to, any employee benefit plans
within the meaning of Section 3(3) of Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), employee pension benefit plan, program,
arrangement or agreement, any health, medical, welfare, disability, life
insurance, bonus, option, stock appreciation plan, performance stock plan,
restricted stock plan, deferred compensation plan, retiree benefits plan,
severance pay and other employee benefit or fringe benefit plan and any
employment, consulting, non-compete, severance or change in control agreement
(collectively, the "Company Benefit Plans"), together with, for any option,
stock appreciation plan, performance stock plan, restricted stock plan,
deferred compensation plan and supplemental retirement plan, the amounts or
benefits granted or payable under each, as of September 30, 1999 and as of the
Effective Time (assuming no termination of employment as of such times), and
exercise prices regarding Company Options or other securities which represent
the right (contingent or other) to purchase or receive shares of Company Common
Stock or, following the Merger, of Surviving Corporation Common Stock. For the
purposes of this Section 4.10, the term "Company" shall be deemed to include
predecessors thereof.
(b) Contributions. Except as set forth in Section 4.10(b) of the Company
Disclosure Schedule, all material contributions and other payments required to
be made by the Company or any of the Company Subsidiaries to any Company
Benefit Plan (or to any person pursuant to the terms thereof) have been timely
made or the amount of such payment or contribution obligation has been
reflected in the Company Financial Statements. Except as set forth in Section
4.10(b) of the Company Disclosure Schedule, (i) the current value of all
accrued benefits under any Company Benefit Plan which is a defined benefit plan
did not, as of the date of the most recent actuarial valuation for such plan,
exceed the then current value of the assets of such plan, based on the
actuarial assumptions set forth in such valuation for calculating the minimum
funding requirements of Code Section 412, which actuarial assumptions and
calculations have been provided to Parent prior to the date of this Agreement,
and (ii) neither the Company nor any Company Subsidiary contributes or has
contributed, during the six-year period immediately prior to the date of this
Agreement, to a multiemployer plan (as defined in Section 3(37) of ERISA), or
has any liability under ERISA Section 4203 or Section 4205 in respect of any
such plan.
(c) Qualification; Compliance. Except as set forth in Section 4.10(c) of
the Company Disclosure Schedule, each of the Company Benefit Plans intended to
be "qualified" within the meaning of Section 401(a) of the Code has been
determined by the IRS to be so qualified, and, to the knowledge of the Company,
no circumstances exist that are reasonably expected by the Company to result in
the revocation of any such determination. The Company and each of the Company
Subsidiaries are in
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compliance in all material respects with, and each Company Benefit Plan is and
has been operated in all material respects in compliance with the terms thereof
and all applicable laws, rules and regulations governing such plan, including,
without limitation, ERISA and the Code. Each Company Benefit Plan intended to
provide for the deferral of income, the reduction of salary or other
compensation or to afford other income tax benefits is reasonably designed to
comply with the requirements of the applicable provisions of the Code or other
laws, rules and regulations required to provide such income tax benefits.
(d) Liabilities. With respect to the Company Benefit Plans individually
and in the aggregate, there are no actions, suits, claims pending or, to the
knowledge of the Company, threatened, and, to the knowledge of the Company, no
event has occurred that could reasonably be expected to subject the Company or
any of the Company Subsidiaries to any liability arising under the Code, ERISA
or any other applicable law (including, without limitation, any liability of
any kind whatsoever, whether direct or indirect, contingent, inchoate or
otherwise, to any such plan or the Pension Benefit Guaranty Corporation (the
"PBGC")), or under any indemnity agreement to which the Company or any of the
Company Subsidiaries is a party, in each such case, which liability,
individually or in the aggregate, could reasonably be expected to have a
Company Material Adverse Effect.
(e) Welfare Plans. Except as set forth in Section 4.10(e) of the Company
Disclosure Schedule, none of the Company Benefit Plans that are "welfare
plans", within the meaning of Section 3(1) of ERISA, provides for any benefits
payable to or on behalf of any employee or director after termination of
employment or service, as the case may be, other than elective continuation
required pursuant to Code Section 4980B or coverage which expires at the end of
the calendar month following such event. Each such plan that is a "group health
plan" (as defined in Code Section 4980B(g)) has been operated in compliance
with Code Section 4980B at all times, except for any non-compliance that could
not reasonably be expected to give rise to a Company Material Adverse Effect.
(f) Documents Made Available. The Company has made available to Parent a
true and correct copy of each collective bargaining agreement to which the
Company or any of the Company Subsidiaries is a party or under which the
Company or any of the Company Subsidiaries has obligations, and with respect to
each Company Benefit Plan, to the extent applicable, (i) such plan and summary
plan description (including all amendments to each such document), (ii) the
most recent annual report filed with the IRS, (iii) each related trust
agreement, insurance contract, service provider or investment management
agreement (including all amendments to each such document), (iv) the most
recent determination of the IRS with respect to the qualified status of such
plan and (v) the most recent actuarial report or valuation.
(g) Payments Resulting from Merger and Other Severance Payments. Except as
set forth in Section 4.10(g) of the Company Disclosure Schedule or as
specifically provided for in this Agreement, the announcement or consummation
of any transaction contemplated by this Agreement will not (either alone or
upon the occurrence of any additional or further acts or events, including,
without limitation, termination of employment) result, as of September 30, 1999
or as of the Effective Time, in any (A) payment (whether of severance pay or
otherwise) becoming due from the Company or any of the Company Subsidiaries to
any officer, employee, former employee or director thereof or to the trustee
under any "rabbi trust" or similar arrangement or (B) benefit being established
or becoming accelerated, vested or payable under any Company Benefit Plan.
(h) Labor Agreements. As of the date hereof, except as set forth in
Section 4.10(h) of the Company Disclosure Schedule, neither the Company nor any
of the Company Subsidiaries is a party to any collective bargaining agreement
or other labor agreement with any union or labor organization. Except as set
forth in Section 4.10(h) of the Company Disclosure Schedule, to the knowledge
of the Company, as of the date hereof, there is no current union representation
question involving employees of the Company or any of the Company Subsidiaries,
nor does the Company know of any activity or proceeding of any labor
organization (or representative thereof) or employee group to organize any such
employees. Except as set forth in Section 4.10(h) of the Company Disclosure
Schedule, (i) there is no unfair labor practice, employment discrimination or
other complaint against the Company or any
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of the Company Subsidiaries pending or, to the knowledge of the Company,
threatened, which has or could reasonably be expected to have a Company
Material Adverse Effect, (ii) there is no strike, dispute, slowdown, work
stoppage or lockout pending, or, to the knowledge of the Company, threatened,
against or involving the Company or any of the Company Subsidiaries which has
or could reasonably be expected to have, a Company Material Adverse Effect and
(iii) there is no proceeding, claim, suit, action or governmental investigation
pending or, to the knowledge of the Company, threatened, in respect of which
any director, officer, employee or agent of the Company or any of the Company
Subsidiaries is or may be entitled to claim indemnification from the Company
pursuant to their respective articles of incorporation or by-laws or as
provided in the Indemnification Agreements listed in Section 4.10(h) of the
Company Disclosure Schedule. Except as set forth in Section 4.10(h) of the
Company Disclosure Schedule, the Company and the Company Subsidiaries have
complied in all material respects with all laws relating to the employment of
labor, including without limitation any provisions thereof relating to wages,
hours, collective bargaining and the payment of social security and similar
taxes, and no person has, to the knowledge of the Company, asserted that the
Company or any of the Company Subsidiaries is liable in any material amount for
any arrears of wages or any taxes or penalties for failure to comply with any
of the foregoing.
(i) Parachute Payments. Section 4.10(i) of the Company Disclosure Schedule
sets forth (1) the name of each officer of the Company and the President of
each of MidAmerican Utility and the Company's U.K. utility Subsidiary who, in
connection with the transactions contemplated with this Agreement, will
receive, or will or may become entitled to receive in the future or upon
termination of such person's employment, any payments (including without
limitation accelerated vesting of Company Options or other equity-based awards)
which could reasonably be expected to constitute "excess parachute payments"
with respect to such person within the meaning of Section 280G of the Code
("Excess Parachute Payments"), and (2) with respect to each such person, the
maximum amount of Excess Parachute Payments which could reasonably be expected
to be so received (determined in accordance with proposed regulations of the
IRS promulgated under Section 280G of the Code).
(j) Section 162(m). Except as set forth in Section 4.10(j) of the Company
Disclosure Schedule, no payments to any executive officer of the Company or any
Company Subsidiaries will fail to be deductible for Federal income tax purposes
by reason of the deduction limit imposed under Section 162(m) of the Code.
Section 4.10(j) of the Company Disclosure Schedule sets forth the name of each
executive officer who will receive compensation which may not be fully
deductible by reason of the application of Section 162(m), and a reasonable
estimate of the amount of such potentially nondeductible compensation.
(k) Changes in Compensation, Benefits Since September 30, 1999. Except as
specifically described in Section 4.10(k) of the Company Disclosure Schedule,
since September 30, 1999, the Company has not, nor has any of the Company
Subsidiaries, (i) entered into, adopted or amended or increased the amount or
accelerated the payment or vesting of any benefit or amount payable under, any
employee benefit plan or other contract, agreement, commitment, arrangement,
plan, trust, fund or policy maintained by, contributed to or entered into by
the Company or any of the Company Subsidiaries (including, without limitation,
the Company Benefit Plans set forth in Section 4.10(a) of the Company
Disclosure Schedule, as in effect on September 30, 1999) or increased, or
entered into any contract, agreement, commitment or arrangement to increase in
any manner, the compensation or fringe benefits, or otherwise to extend, expand
or enhance the engagement, employment or any related rights, of any director,
officer or other employee of the Company or any of the Company Subsidiaries,
except pursuant to binding legal commitments existing on September 30, 1999 and
specifically identified in Section 4.10(a) of the Company Disclosure Schedule
and except for normal increases in the ordinary course of business consistent
with past practice that, in the aggregate, did not result in a material
increase in benefits or compensation expense to the Company or any of the
Company Subsidiaries; (ii) entered into or amended any employment, severance,
pension, deferred compensation or special pay arrangement with respect to the
termination of employment or other similar contract, agreement or arrangement
with (A) any director or officer or (B) other employee other than in the
ordinary course of business consistent with past practice; or (iii) deposited
into any
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trust (including any "rabbi trust") amounts in respect of any employee benefit
obligations or obligations to directors other than transfers into trusts (other
than a rabbi or other trust with respect to any non-qualified deferred
compensation) in accordance with past practice or pursuant to binding legal
agreements existing on September 30, 1999.
Section 4.11. Environmental Protection.
(a) Definitions. As used in this Agreement:
(i) "Environmental Claim" means any and all administrative, regulatory or
judicial actions, suits, demands, demand letters, directives, claims,
liens, investigations, proceedings or notices of noncompliance or violation
(written or oral) by any person or entity (including any Governmental
Authority) alleging potential liability (including, without limitation,
potential responsibility for or liability for enforcement, investigatory
costs, cleanup costs, spent fuel or waste disposal costs, decommissioning
costs, governmental response costs, removal costs, remediation costs,
natural resources damages, property damages, personal injuries or
penalties) arising out of, based on or resulting from (A) the presence,
Release or threatened Release into the environment of any Hazardous
Materials at any location in which the Company or any of the Company
Subsidiaries has an economic or ownership interest, whether or not owned,
operated, leased or managed by the Company or any of the Company
Subsidiaries or Company Joint; or (B) circumstances forming the basis of
any violation or alleged violation of any Environmental Law or (C) any and
all claims by any third party seeking damages, contribution,
indemnification, cost recovery, compensation or injunctive relief resulting
from the presence or Release of any Hazardous Materials.
(ii) "Environmental Laws" means all applicable federal, state and local
laws, rules, regulations, ordinances, orders, directives and any binding
judicial or administrative interpretation thereof, and regulatory common
law and equitable doctrines relating to pollution, the environment
(including, without limitation, indoor or ambient air, surface water,
groundwater, land surface or subsurface strata) or protection of human
health or safety as it relates to the environment including, without
limitation, those relating to Releases or threatened Releases of Hazardous
Materials, or otherwise relating to the manufacture, generation,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Materials.
(iii) "Hazardous Materials" means (A) any petroleum or petroleum
products, radioactive materials, asbestos in any form that is or could
become friable, urea formaldehyde foam insulation and transformers or other
equipment that contain dielectric fluid containing polychlorinated
biphenyls; (B) any chemicals, materials or substances which are now defined
as or included in the definition of "hazardous substances," "hazardous
wastes," "hazardous materials," "extremely hazardous wastes," "restricted
hazardous wastes," "toxic substances," "toxic pollutants" or words of
similar import; under any Environmental Law and (C) any other chemical,
material, substance or waste, exposure to which is now prohibited, limited
or regulated under any Environmental Law in a jurisdiction in which the
Company or any of the Company Subsidiaries or Company Joint Ventures
operates.
(iv) "Release" means any release, spill, emission, leaking, injection,
deposit, disposal, discharge, dispersal, leaching or migration into the
atmosphere, soil, surface water, groundwater or property.
(b) Compliance. Except as set forth in Section 4.11(b) of the Company
Disclosure Schedule, the Company and each of the Company Subsidiaries and, to
the knowledge of the Company, the Company Joint Ventures are in compliance with
all applicable Environmental Laws except where the failure to so comply would
not have a Company Material Adverse Effect, and neither the Company nor any of
the Company Subsidiaries has received any communication (written or oral), from
any person or Governmental Authority that alleges that the Company or any of
the Company Subsidiaries or the Company Joint Ventures is not in such
compliance with applicable Environmental Laws. To the knowledge of the Company,
compliance with all applicable Environmental Laws will not require the
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Company or any Company Subsidiary or, to the knowledge of the Company, any
Company Joint Venture to incur costs that will be reasonably likely to result
in a Company Material Adverse Effect, including but not limited to the costs of
the Company and Company Subsidiary and Company Joint Venture pollution control
equipment required or reasonably contemplated to be required in the future.
(c) Environmental Permits. Except as set forth in Section 4.11(c) of the
Company Disclosure Schedule, the Company and each of the Company Subsidiaries
and, to the knowledge of the Company, the Company Joint Ventures, have obtained
or has applied for all permits, registrations and governmental authorizations
required under any Environmental Law (collectively, the "Environmental
Permits") necessary for the construction of its facilities or the conduct of
its operations except where the failure to so obtain would not have a Company
Material Adverse Effect, and all such Environmental Permits are in good
standing or, where applicable, a renewal application has been timely filed and
is pending agency approval, and the Company and the Company Subsidiaries and,
to the knowledge of the Company, the Company Joint Ventures are in compliance
with all terms and conditions of all Environmental Permits necessary for the
construction of its facilities or the conduct of its operations, except where
the failure to so comply, in the aggregate, would not have a Company Material
Adverse Effect.
(d) Environmental Claims. Except as set forth in Section 4.11(d) of the
Company Disclosure Schedule, there is no Environmental Claim pending (or, to
the knowledge of the Company, threatened) (A) against the Company or any of the
Company Subsidiaries or, to the knowledge of the Company, any of the Company
Joint Ventures, (B) to the knowledge of the Company, against any person or
entity whose liability for any Environmental Claim the Company or any of the
Company Subsidiaries or, to the knowledge of the Company, any of the Company
Joint Ventures has or may have retained or assumed either contractually or by
operation of law, or (C) against any real or personal property or operations
which the Company or any of the Company Subsidiaries or, to the knowledge of
the Company, any of the Company Joint Ventures owns, leases or manages, in
whole or in part, which would reasonably be expected to have, in the aggregate,
a Company Material Adverse Effect.
(e) Releases. Except as set forth in Section 4.11(e) of the Company
Disclosure Schedule, the Company has no knowledge of any Releases of any
Hazardous Material that would be reasonably likely to form the basis of any
Environmental Claim against the Company or any of the Company Subsidiaries or
the Company Joint Ventures, or against any person or entity whose liability for
any Environmental Claim the Company or any of the Company Subsidiaries or the
Company Joint Ventures has or may have retained or assumed either contractually
or by operation of law except for any Environmental Claim which would not have,
in the aggregate, a Company Material Adverse Effect.
(f) Predecessors. Except as set forth in Section 4.11(f) of the Company
Disclosure Schedule, the Company has no knowledge, with respect to any
predecessor of the Company or any of the Company Subsidiaries or the Company
Joint Ventures, of any Environmental Claim pending or threatened, or of any
Release of Hazardous Materials that would be reasonably likely to form the
basis of any Environmental Claim, which, if determined adversely could
reasonably be expected to require payments of $20 million or more or which
could reasonably be expected to have a Company Material Adverse Effect.
(g) Disclosure. The Company has disclosed in writing to Parent all
material facts which the Company reasonably believes form the basis of an
Environmental Claim which could have a Company Material Adverse Effect arising
from (i) the cost of the Company pollution control equipment (including,
without limitation, upgrades and other modifications to existing equipment)
currently required or reasonably contemplated to be required in the future,
(ii) current remediation costs or costs to the Company or any of the Company
Subsidiaries for remediation reasonably contemplated to be required in the
future or (iii) any other environmental matter affecting the Company or any of
the Company Subsidiaries.
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(h) Cost Estimates. To the Company's knowledge, no environmental matter
set forth in the Company SEC Reports or the Company Disclosure Schedule could
reasonably be expected to exceed the cost estimates provided in the Company SEC
Reports by an amount that individually or in the aggregate could reasonably be
expected to have a Company Material Adverse Effect.
Section 4.12. Regulation as a Utility. MidAmerican Utility is regulated as
a public utility by the FERC and in the States of Illinois, Iowa, Nebraska and
South Dakota and in no other state. Except as set forth in the preceding
sentence or Section 4.12 of the Company Disclosure Schedule, neither the
Company nor any "subsidiary company" or "affiliate" (as each such term is
defined in the 1935 Act) of the Company is subject to regulation as a public
utility or public service company (or similar designation) by the FERC or any
municipality, locality, state in the United States or any foreign country.
Section 4.13. Vote Required. The approval of the Merger by the affirmative
vote of a majority of the votes entitled to be cast by holders of Company
Common Stock (the "Company Shareholders' Approval") is the only vote of the
holders of any class or series of the securities of the Company or any of the
Company Subsidiaries required to approve this Agreement, the Merger and the
other transactions contemplated hereby.
Section 4.14. Insurance. Except as set forth in Section 4.14 of the
Company Disclosure Schedule, the Company and each of the Company Subsidiaries
is, and has been continuously since January 1, 1998, insured with financially
responsible insurers in such amounts and against such risks and losses as are
customary in all material respects for companies conducting the business as
conducted by the Company and the Company Subsidiaries during such time period.
Neither the Company nor any of the Company Subsidiaries has received any notice
of cancellation or termination with respect to any material insurance policy of
the Company or any of the Company Subsidiaries. The insurance policies of the
Company and each of the Company Subsidiaries are valid and enforceable policies
in all material respects.
Section 4.15. Opinions of Financial Advisers. The Company has obtained the
opinions of Warburg Dillon Read LLC ("Dillon Read") and Lehman Brothers Inc.
("Lehman"), each dated as of the date of this Agreement, to the effect that, as
of the date hereof, the Per Share Amount to be paid to holders of Company
Common Stock (other than the Investors) pursuant to this Agreement is fair from
a financial point of view to such holders. True and correct copies of such
opinions have been provided by the Company to Parent.
Section 4.16. Brokers. No broker, finder or investment banker (other than
Dillon Read and Lehman) is entitled to any brokerage, finder's or other fee or
commission in connection with the Merger based upon arrangements made by or on
behalf of the Company. The Company has heretofore furnished to Parent a
complete and correct copy of all agreements between the Company and each of
Dillon Read and Lehman, pursuant to which each such firm would be entitled to
any payment relating to the Merger. The fees payable under such agreements and
any other brokerage, finder's or other fee or commission payable in connection
with the Merger based upon arrangements made by or on behalf of the Company do
not exceed $11 million in the aggregate.
Section 4.17. Non-Applicability of Certain Provisions of Iowa Act. None of
the business combination provisions of Section 1110 of the Iowa Act or any
similar provisions of the Iowa Act, the articles of incorporation or by-laws of
the Company are applicable to the transactions contemplated by this Agreement
because such provisions do not apply by their terms or because any required
approvals of the Board of Directors of the Company have been obtained.
Section 4.18. Company Rights Agreement. Prior to the date of this
Agreement, the Company has delivered to Parent and its counsel a true and
complete copy of the Amended and Restated Rights Agreement, dated as of
September 14, 1999, between ChaseMellon Shareholder Services, L.L.C., as Rights
Agent, and the Company (the "Company Rights Agreement") in effect as of the
date hereof, and has authorized all necessary action (and promptly after the
date of this Agreement and prior to the Closing Date, will have taken all
necessary action), including amending the Company
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Rights Plan, such that the consummation of the transactions contemplated by
this Agreement will not result in the separation of the Company Rights from the
Shares, the Company Rights becoming non-redeemable, the Rights associated with
Shares beneficially owned by the Investors (or their affiliates or associates)
becoming void or voidable, or the triggering of any right or entitlement of
shareholders of the Company under the Company Rights Agreement or any similar
agreement to which the Company or any of its affiliates is a party.
Section 4.19. Year 2000 Compliance. The Company and the Company
Subsidiaries have put into effect reasonable and customary practices and
programs to be Year 2000 Compliant (as defined below)) designed to enable all
material software, hardware and equipment (including microprocessors) that are
owned or utilized by the Company or any of the Company Subsidiaries in the
operations of its or their respective business to be capable, by December 31,
1999, of accounting for all calculations using a century and date sensitive
algorithm for the year 2000 and the fact that the year 2000 is a leap year and
to otherwise continue to function without any material interruption caused by
the occurrence of the year 2000 (such capabilities are herein referred to as
being "Year 2000 Compliant").
Section 4.20. Board Recommendation. The Board of Directors of the Company,
at a meeting duly called and held, has by unanimous vote of those directors
present (who constituted all of the directors then in office other than David
L. Sokol, Walter Scott, Jr. and Bernard W. Reznicek, who did not participate in
such deliberations or vote due to their status as, and/or affiliation with, one
of the Investors) (i) determined that this Agreement, the Merger and the other
transaction contemplated hereby are fair to and in the best interests of the
shareholders of the Company, and (ii) resolved to recommend that the holders of
Company Common Stock approve this Agreement, the Merger and the other
transactions contemplated hereby.
Section 4.21. Investment Company and Investment Advisory Matters. Neither
the Company nor any of the Company Subsidiaries is an "investment company" as
defined in the Investment Company Act of 1940, as amended. Neither the Company
nor any of the Company Subsidiaries is an "investment advisor" as defined in
the Investment Advisers Act of 1940, as amended, or conducts activities of or
controls an "investment adviser" as defined therein, whether or not registered
under such Act.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub hereby represent and warrant to the Company as
follows:
Section 5.1. Organization. Parent is a limited liability company duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization. Merger Sub is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation. Parent and Merger Sub were organized solely for the purposes of
consummating the Merger and the other transactions contemplated by this
Agreement and taking action with respect thereto. Except for obligations or
liabilities incurred in connection with the transactions contemplated by this
Agreement or in connection with their organization, at the Effective Time
neither Parent nor Merger Sub will have incurred any obligations or liabilities
or engaged in any business activities of any kind.
Section 5.2. Authority; Non-Contravention; Statutory Approvals.
(a) Authority. Parent and Merger Sub have all requisite power and
authority to enter into this Agreement and, subject to the Parent Required
Statutory Approvals (as defined in Section 5.2(c)), to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation by Parent and Merger Sub of the transactions contemplated
hereby have been duly authorized by all necessary limited liability company
action on the part of Parent and all necessary corporate action on the part of
Merger Sub. This Agreement has been duly and validly executed and delivered by
Parent and Merger Sub, and, assuming the due authorization, execution and
delivery hereof by the Company, this Agreement constitutes the valid and
binding obligation of each of Parent
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and Merger Sub enforceable against them in accordance with its terms, subject,
as to enforceability, to bankruptcy, insolvency, reorganization and other laws
of general applicability relating to or affecting creditors' rights and to
general principles of equity.
(b) Non-Contravention. The execution and delivery of this Agreement by
Parent and Merger Sub do not, and the consummation of the transactions
contemplated hereby will not, result in a Violation pursuant to any provisions
of (i) the articles of formation or operating agreement of Parent or the
articles of incorporation or by-laws of Merger Sub, (ii) subject to obtaining
the Parent Required Statutory Approvals, any statute, law, ordinance, rule,
regulation, judgment, decree, order, injunction, writ, permit or license of any
Governmental Authority applicable to Parent or Merger Sub or any of their
properties or assets or (iii) any note, bond, mortgage, indenture, deed of
trust, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which Parent or Merger Sub
is a party or by which it or any of its properties or assets may be bound or
affected, excluding from the foregoing clauses (ii) and (iii) such Violations
which would not, in the aggregate, have a material adverse effect on the
ability of Parent or Merger Sub to consummate the transactions contemplated by
this Agreement (any such material adverse effect, a "Parent Material Adverse
Effect").
(c) Statutory Approvals. Except as described in Section 5.2(c) of the
Parent Disclosure Schedule delivered by Parent to the Company prior to the
execution of this Agreement (the "Parent Disclosure Schedule"), no declaration,
filing or registration with, or notice to or authorization, consent or approval
of, any Governmental Authority is necessary for the execution and delivery of
this Agreement by Parent and Merger Sub or the consummation by Parent and
Merger Sub of the transactions contemplated hereby (the "Parent Required
Statutory Approvals"), it being understood that references in this Agreement to
"obtaining" Parent Required Statutory Approvals shall mean making such
declarations, filings or registrations; giving such notices; obtaining such
authorizations, consents or approvals; and having such waiting periods expire
as are necessary to avoid a violation of law).
Section 5.3. Proxy Statement. None of the information supplied by Parent
or Merger Sub, or their officers, directors, representatives, agents or
employees, for inclusion in the Proxy Statement, or in any amendments thereof
or supplements thereto, will, on the date the Proxy Statement is first mailed
to shareholders or at the time of the Company Meeting (giving effect to any
documents incorporated by reference therein), contain any statement which, at
such time and in light of the circumstances under which it will be made, will
be false or misleading with respect to any material fact, or will omit to state
any material fact necessary in order to make the statements therein not false
or misleading or necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Company
Meeting which has become false or misleading.
Section 5.4. Brokers. No broker, finder or investment banker (other than
Credit Suisse First Boston ("CSFB")) is entitled to any brokerage, finder's or
other fee or commission in connection with the Merger based upon arrangements
made by or on behalf of Parent or Merger Sub. Parent has heretofore furnished
to the Company a complete and correct copy of all agreements between Parent or
Merger Sub and CSFB, pursuant to which such firm would be entitled to any
payment relating to the Merger.
Section 5.5. Financing. Merger Sub has, on or prior to the date hereof,
entered into subscription agreements, dated as of the date of this Agreement,
with each of David L. Sokol, Walter Scott, Jr. and Berkshire Hathaway Inc.
(collectively, the "Subscription Agreements"), pursuant to which the
subscribers thereunder (the "Investors") have agreed, on the terms and subject
to the conditions contained in the Subscription Agreements, to provide an
aggregate of $2.352 billion to Merger Sub in cash and/or shares of Common Stock
or options to purchase shares of Common Stock (valued for these purposes at the
Per Share Amount) in exchange for securities of Merger Sub. Merger Sub has
furnished true and correct copies of the Subscription Agreements to the
Company.
Section 5.6. Sale of the Company. Neither Parent nor Merger Sub nor any of
their affiliates has any agreement, understanding or any present intention (i)
to sell the Company or any material part of
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the Company (other than the purchase of securities of Merger Sub by (A) one or
more subsidiaries of Berkshire Hathaway Inc. which are consolidated with
Berkshire Hathaway Inc. for financial accounting purposes, in accordance with
the Subscription Agreement with Berkshire Hathaway Inc. and (B) the Scott
Family Entities (as defined in the Subscription Agreement with Walter Scott,
Jr.), in accordance with the Subscription Agreement with Walter Scott, Jr.) or
(ii) enter into, or cause the Company to enter into, any extraordinary
transaction.
Section 5.7. Share Ownership. Section 5.7 of the Parent Disclosure
Schedule sets forth the number of shares of Company Common Stock beneficially
owned, as of the date of this Agreement, by each of Parent and Merger Sub and
their respective Subsidiaries and affiliates, either individually or as part of
a group for purposes of Rule 13d-3 under the Exchange Act.
Section 5.8. Regulation Under the 1935 Act. Neither Parent nor Merger Sub
is a "public utility company" or a "holding company" (as each such term is
defined in the 1935 Act), and neither Parent nor Merger Sub is a "subsidiary
company" or "affiliate" (as each such term is defined in the 1935 Act) of a
"public utility company" or "holding company," in each case, without giving
effect to the Merger.
Section 5.9. Investor Agreements. Except (i) for the Subscription
Agreements and the other agreements contemplated thereby, (ii) as would not
reasonably be expected to have a Parent Material Adverse Effect and (iii)
except as set forth in Section 5.9 of the Parent Disclosure Schedule, there are
no governance, voting or similar agreements among the Investors relating to
Parent, Merger Sub or the Company.
ARTICLE VI.
CONDUCT OF BUSINESS PENDING THE MERGER
Section 6.1. Conduct of Business by the Company Pending the Merger. The
Company covenants and agrees, as to itself and each of the Company
Subsidiaries, that after the date of this Agreement and prior to the Effective
Time or earlier termination of this Agreement, except as expressly contemplated
or permitted in this Agreement, or to the extent Parent shall have otherwise
consented in writing, which decision regarding consent shall be made as soon as
reasonably practicable (it being understood that if a particular activity is
permissible as a result of its being disclosed and, where applicable, approved
in writing by Parent under any one of the Section 6.1 subsections of the
Company Disclosure Schedule, that activity will not be prohibited under any of
the subsections of Section 6.1):
(a) Ordinary Course of Business. The Company shall, and shall cause the
Company Subsidiaries to, carry on their respective businesses in the usual,
regular and ordinary course in substantially the same manner as heretofore
conducted and use their commercially reasonable efforts to preserve intact
their present business organizations and goodwill, preserve the goodwill and
relationships with customers, suppliers and others having business dealings
with them and, subject to prudent management of workforce needs and ongoing or
planned programs relating to downsizing, re-engineering and similar matters,
keep available the services of their present officers and employees to the end
that their goodwill and ongoing businesses shall not be impaired in any
material respect at the Effective Time. Except as set forth in Section 6.1(a)
of the Company Disclosure Schedule, the Company shall not, nor shall the
Company permit any of the Company Subsidiaries to, (i) enter into a new line of
business involving any material investment of assets or resources or any
material exposure to liability or loss to the Company and the Company
Subsidiaries taken as a whole, or (ii) acquire, or agree to acquire, by merger
or consolidation with, or by purchase or otherwise, a substantial equity
interest in or a substantial portion of the assets of, any business or any
corporation, partnership, association or other business organization or
division thereof, or otherwise acquire or agree to acquire any assets (other
than equipment, fuel, supplies and similar items or for capital expenditures,
in each case, in the ordinary course of business consistent with past
practice); provided, however, that notwithstanding the above, the Company or
any of the Company Subsidiaries may enter into a new line of business or make
such an other acquisition to the extent the investment or other acquisition, as
the case may be (which shall include the amount of equity invested plus the
amount of indebtedness
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incurred, assumed or otherwise owed by or with recourse to the Company or any
Company Subsidiary (other than the entity being acquired or in which the
investment is made or any special purpose entity formed in connection with such
investment or other acquisition)), in a new line of business or acquisition, as
the case may be, does not exceed, together with all other such investments and
other acquisitions made from and after the date of this Agreement, $100 million
in the aggregate; and provided, further, that no such investment shall be made
in, and no such other acquisition shall consist of, any common equity
securities of any U.S. gas or electric utility company.
(b) Dividends. The Company shall not, nor shall the Company permit any of
the Company Subsidiaries to, (i) declare or pay any dividends on or make other
distributions in respect of any of their capital stock other than (A) to the
Company or its wholly owned Subsidiaries and (B) dividends required to be paid
on any outstanding preferred stock of the Company or its Subsidiaries in
accordance with the terms of the preferred stocks identified in Section 6.1(b)
of the Company Disclosure Schedule; or (ii) split, combine, reclassify, redeem
or repurchase any of their capital stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of, or in substitution
for, shares of their capital stock.
(c) Issuance of Securities. Except as described in Section 6.1(c) of the
Company Disclosure Schedule, the Company shall not, nor shall the Company
permit any of the Company Subsidiaries to, issue, agree to issue, deliver,
sell, award, pledge, dispose of or otherwise encumber or authorize or propose
the issuance, delivery, sale, award, pledge, grant of a security interest,
disposal or other encumbrance of, any shares of their capital stock of any
class or any securities convertible into or exchangeable for, or any rights,
warrants or options to acquire, any such shares or convertible or exchangeable
securities, other than (i) issuances by a wholly owned Subsidiary of its
capital stock to its direct or indirect parent and (ii) issuances of shares of
Company Common Stock after the date of this Agreement pursuant to Company
Options and other Company convertible securities, in each case existing as of
the date hereof and as identified in Section 4.10(a) of the Company Disclosure
Schedule.
(d) Indebtedness. Except as set forth in Section 6.1(d) of the Company
Disclosure Schedule, the Company shall not, nor shall the Company permit any of
the Company Subsidiaries to, incur or guarantee any indebtedness (including any
debt borrowed or guaranteed or otherwise assumed including, without limitation,
the issuance of debt securities or warrants or rights to acquire debt) or enter
into any "keep well" or indemnity or other agreement to maintain any financial
statement condition of another Person or enter into any arrangement having the
economic effect of any of the foregoing other than (i) indebtedness or
guarantees or "keep well" or other agreements incurred in the ordinary course
of business consistent with past practice (including refinancings, the issuance
of commercial paper or the use of existing or replacement credit facilities or
hedging activities), (ii) arrangements between the Company and wholly owned
Company Subsidiaries or among wholly owned Company Subsidiaries, (iii) in
connection with the refunding or defeasance of existing indebtedness that
becomes due in accordance with its terms before the Effective Time, or (iv) as
may be necessary in connection with investments or acquisitions permitted by
Section 6.1(a).
(e) Compensation, Benefits. Except as may be required by applicable law,
as specifically set forth in Section 6.1(e) of the Company Disclosure Schedule
or as contemplated by this Agreement, the Company shall not, nor shall the
Company permit any of the Company Subsidiaries to, (i) enter into, adopt or
amend or increase the amount or accelerate the payment or vesting of any
benefit or amount payable under, any employee benefit plan or other contract,
agreement, commitment, arrangement, plan, trust, fund or policy maintained by,
contributed to or entered into by the Company or any of the Company
Subsidiaries (including, without limitation, the Company Benefit Plans set
forth in Section 4.10(a) of the Company Disclosure Schedule, as in effect on
September 30, 1999) or increase, or enter into any contract, agreement,
commitment or arrangement to increase in any manner, the compensation or fringe
benefits, or otherwise to extend, expand or enhance the engagement, employment
or any related rights, of any director, officer or other employee of the
Company or any of the Company Subsidiaries, except pursuant to binding legal
commitments existing on September 30, 1999 and specifically identified in
Section 4.10(a) of the Company Disclosure Schedule and except for normal
increases in the ordinary course of business consistent with past practice
that, in the aggregate,
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do not result in a material increase in benefits or compensation expense to the
Company or any of the Company Subsidiaries; (ii) enter into or amend any
employment, severance, pension, deferred compensation or special pay
arrangement with respect to the termination of employment or other similar
contract, agreement or arrangement with (A) any director or officer or (B)
other employee other than in the ordinary course of business consistent with
past practice; or (iii) deposit into any trust (including any "rabbi trust")
amounts in respect of any employee benefit obligations or obligations to
directors; provided that transfers into any trust, other than a rabbi or other
trust with respect to any non-qualified deferred compensation, may be made in
accordance with past practice or pursuant to legally binding agreements in
effect on September 30, 1999.
(f) 1935 Act. The Company shall not, nor shall the Company permit any of
the Company Subsidiaries to, except as required or contemplated by this
Agreement, engage in any activities (i) which would cause a change in its
status, or that of the Company Subsidiaries, under the 1935 Act, including any
action or inaction that would cause the prior approval of the SEC under the
1935 Act to be required for the consummation of the Merger and the other
transactions contemplated hereby, or (ii) that would impair the ability of the
Company, MidAmerican Funding, Parent or the Surviving Corporation or any
Subsidiary of Surviving Corporation to claim an exemption as of right under
Rule 2 of the 1935 Act following the Merger or (iii) that would subject Parent
or any affiliate (within the meaning of Section 2(a)(11) of the 1935 Act) of
Parent or any of the Investor Entities (as defined in Section 6.2(b)) to
regulation as a registered holding company under such Act following the Merger.
(g) Tax-Exempt Status. The Company shall not, nor shall the Company permit
any Company Subsidiary to, take any action that would likely jeopardize the
qualification of the Company's or any Company Subsidiary's outstanding revenue
bonds which qualify as of the date hereof under Section 142(a) of the Code as
"exempt facility bonds" or as tax-exempt industrial development bonds under
Section 103(b)(4) of the Internal Revenue Code of 1954, as amended, prior to
the Tax Reform Act of 1986.
Section 6.2. Conduct of Business by Parent and Merger Sub Pending the
Merger. Each of Parent and Merger Sub covenant and agree that after the date of
this Agreement and prior to the Effective Time or earlier termination of this
Agreement, except as expressly contemplated or permitted in this Agreement, or
to the extent the Company shall have otherwise consented in writing, which
decision regarding consent shall be made as soon as reasonably practicable (it
being understood that if a particular activity is permissible as a result of
its being disclosed and, where applicable, approved in writing by the Company
under any one of the Section 6.2 subsections of the Parent Disclosure Schedule,
that activity will not be prohibited under any of the subsections of Section
6.2):
(a) Limited Business Activities. Except for obligations or liabilities
incurred in connection with the transactions contemplated by this Agreement or
in connection with their organization, neither Parent nor Merger Sub shall
incur any obligations or liabilities or engage in any business activities of
any kind.
(b) 1935 Act. Neither Parent nor Merger Sub shall, except as required or
contemplated by this Agreement, engage in any activities (i) which would cause
a change in its status under the 1935 Act, including any action or inaction
that would cause the prior approval of the SEC under the 1935 Act to be
required for the consummation of the Merger and the other transactions
contemplated hereby, (ii) that would impair the ability of the Company,
MidAmerican Funding, Parent or Merger Sub to claim an exemption as of right
under Rule 2 of the 1935 Act following the Merger or (iii) that would subject
Parent or any affiliate (within the meaning of Section 2(a)(11) of the 1935
Act) of Parent to regulation as a registered holding company under such Act
following the Merger; provided that, notwithstanding anything contained in this
Agreement to the contrary, in no event shall Parent or Merger Sub or any
affiliate (within the meaning of Section 2(a)(11) of the 1935 Act) of either
such entity or any of Berkshire Hathaway Inc., any subsidiary of Berkshire
Hathaway Inc., any Scott Family Entity or any entity controlled by either David
L. Sokol or Walter Scott, Jr. (all such persons and entities, collectively, the
"Investor Entities") be required to restructure their capitalization or amend
any of their existing shareholder arrangements in order to permit Parent and
Merger Sub to
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qualify for an exemption from the requirement to register as a holding company
under such Act following the Merger or in order to ensure that none of Parent,
Merger Sub or Parent's affiliates (within the meaning of Section 2(a)(11) of
the 1935 Act) or any Investor Entity will become subject to regulation as a
registered holding company under such Act following the Merger.
Section 6.3. Additional Covenants by the Company and Parent Pending the
Merger. Each of Parent and the Company covenants and agrees, each as to itself
and each of its Subsidiaries, that after the date of this Agreement and prior
to the Effective Time or earlier termination of this Agreement, except as
expressly contemplated or permitted in this Agreement, or to the extent the
other parties hereto shall otherwise consent in writing, which decision
regarding consent shall be made as soon as reasonably practicable:
(a) Cooperation, Notification. Each party shall (i) confer on a regular
and frequent basis with one or more representatives of the other party to
discuss, subject to applicable law, material operational matters and the
general status of the Company's ongoing operations, (ii) promptly advise the
other party of any change or event which has had, or would reasonably be
expected to result in, a Company Material Adverse Effect or a Parent Material
Adverse Effect, as the case may be, and (iii) pursuant to Section 7.3, promptly
provide the other party with copies of all filings made by such party or any of
its Subsidiaries with any state or federal court, administrative agency,
commission or other Governmental Authority. In addition, the Company shall
promptly notify Parent of any significant changes in the Company's business,
properties, assets, financial condition or results of operations or in the
Company Prospects.
(b) No Breach, Etc. Each of the parties shall not, nor shall it permit any
of its Subsidiaries to, take any action that would or is reasonably likely to
result in a material breach of any provision of this Agreement or in any of its
representations and warranties set forth in this Agreement being untrue on and
as of the Closing Date.
ARTICLE VII.
ADDITIONAL AGREEMENTS
Section 7.1. Access to Information. Upon reasonable notice, the Company
shall, and shall cause the Company Subsidiaries to, afford to the officers,
directors, employees, accountants, counsel, investment bankers, financial
advisors and other representatives of Parent (collectively, "Representatives")
reasonable access, during normal business hours throughout the period prior to
the Effective Time, to all of its properties, books, contracts, commitments,
records and other information (including, but not limited to, Tax Returns) and,
during such period, each of the parties hereto shall, and shall cause its
Subsidiaries to, furnish promptly to the other party access to each significant
report, schedule and other document filed or received by it or any of its
Subsidiaries pursuant to the requirements of federal or state securities laws
or filed with or sent to the SEC, the FERC, the public utility commission of
any State, the Nuclear Regulatory Commission, the Department of Labor, the
Immigration and Naturalization Service, the Environmental Protection Agency
(state, local and federal), the IRS, the Department of Justice, the Federal
Trade Commission, or any other federal, state or foreign regulatory agency or
commission or other Governmental Authority. In addition, during such period,
the Company shall, and shall cause the Company Subsidiaries to, furnish
promptly to Parent and Merger Sub access to all information concerning the
Company, the Company Subsidiaries, directors, officers and shareholders,
properties, facilities or operations owned, operated or otherwise controlled by
the Company, or if not so owned, operated or controlled, which properties,
facilities or operations that the Company may nonetheless obtain access to
through the exercise of reasonable diligence, and such other matters as may be
reasonably requested by Parent in connection with any filings, applications or
approvals required or contemplated by this Agreement or for any other reason
related to the transactions contemplated by this Agreement. Parent shall, and
shall cause its Subsidiaries and Representatives (other than its
Representatives who have entered into separate confidentiality agreements with
the Company) to, hold in strict confidence all documents and
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information concerning the Company furnished to it in connection with the
transactions contemplated by this Agreement in accordance with the
Confidentiality Agreement, dated as of October 1, 1999, between David L. Sokol
and the Company (the "Confidentiality Agreement").
Section 7.2. Proxy Statement and Schedule 13E-3.
(a) The Company shall prepare, in consultation with Parent, the Proxy
Statement and shall file the Proxy Statement with the SEC as soon as is
reasonably practicable after the date of this Agreement and shall use all
reasonable efforts to respond to comments from the SEC and to cause the Proxy
Statement to be mailed to the Company's shareholders at the earliest
practicable time. The Company will not mail, amend or supplement the Proxy
Statement unless the Proxy Statement or any amendment or supplement thereof is
satisfactory in content to Parent in the exercise of its reasonable judgment.
(b) As soon as practicable after the date of this Agreement, Parent and
the Company shall file with the SEC, and shall use all reasonable efforts to
cause any of their respective affiliates engaging in this transaction to file
with the SEC, a Rule 13e-3 Transaction Statement on Schedule 13E-3 (the
"Schedule 13E-3 Transaction Statement") with respect to the Merger. Each of the
parties hereto agrees to use all reasonable efforts to cooperate and to provide
each other with such information as any of such parties may reasonably request
in connection with the preparation of the Proxy Statement and the Schedule
13E-3 Transaction Statement.
(c) Each party hereto agrees promptly to supplement, update and correct
any information provided by it for use in the Proxy Statement and the Schedule
13E-3 Transaction Statement if and to the extent that such information is or
shall have become incomplete, false or misleading.
Section 7.3. Regulatory Approvals and Other Matters.
(a) HSR Filings. Each party hereto shall file or cause to be filed with
the Federal Trade Commission and the Department of Justice any notifications
required to be filed under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), and the rules and regulations promulgated
thereunder with respect to the transactions contemplated hereby. Such parties
will use all reasonable efforts to coordinate such filings and any responses
thereto, to make such filings promptly and to respond promptly to any requests
for additional information made by either of such agencies.
(b) Other Approvals. Each party hereto shall cooperate and use all
reasonable efforts to promptly prepare and file all necessary documentation, to
effect all necessary applications, notices, petitions, filings and other
documents, and to use all reasonable efforts to obtain all necessary permits,
consents, approvals and authorizations of all Governmental Authorities and all
other persons necessary or advisable to consummate the transactions
contemplated hereby, including, without limitation, the Company Required
Statutory Approvals, the Parent Required Statutory Approvals and the Company
Required Consents (and any concurrent or related rate filings, if any). Parent
and the Company agree that they will consult with each other with respect to
the obtaining of all such necessary or advisable permits, consents, approvals
and authorizations of Governmental Authorities; provided, however, that it is
agreed that the Company shall have primary responsibility for the preparation
and filing of any applications with state public utility commissions for
approval of the Merger. Each of Parent and the Company shall have the right to
review and approve in advance drafts of all such necessary applications,
notices, petitions, filings and other documents made or prepared in connection
with the transactions contemplated by this Agreement, which approval shall not
be unreasonably withheld or delayed. The Company shall promptly notify Parent
of any failure or prospective failure to obtain any such consents and shall
provide copies of all Company Required Consents obtained by the Company to
Parent.
Section 7.4. Shareholder Approval.
(a) Approval of Company Shareholders. The Company shall, as soon as
reasonably practicable after the date of this Agreement, (i) take all steps
necessary to duly call, give notice of, convene and
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hold a meeting of its shareholders (the "Company Meeting"), as promptly as
practicable after the date of this Agreement, for the purpose of securing the
Company Shareholders' Approval, (ii) distribute to its shareholders the Proxy
Statement in accordance with applicable federal and state law and with its
articles of incorporation and by-laws, (iii) subject to the fiduciary duties of
its Board of Directors, recommend to its shareholders the approval of the
Merger, this Agreement and the transactions contemplated hereby and (iv)
cooperate and consult with Parent with respect to each of the foregoing
matters.
(b) Meeting Date. The Company shall duly call and give notice of the
Company Meeting, and shall commence distribution of the Proxy Statement to its
shareholders, within five business days after the clearance of the Proxy
Statement by the staff of the SEC (or after the expiration of the ten calendar
day period after filing the preliminary proxy statement with the SEC if the
staff of the SEC has not commented on or otherwise notified the Company within
such ten day period of the staff's intent to review and comment on the
preliminary proxy statement).
Section 7.5. Directors' and Officers' Indemnification.
(a) Indemnification. From and after the Effective Time, the Surviving
Corporation shall, to the fullest extent not prohibited by applicable law,
indemnify, defend and hold harmless each person who is now, or has been at any
time prior to the date hereof, or who becomes prior to the Effective Time, an
officer or director of any of the parties hereto (each an "Indemnified Party"
and collectively, the "Indemnified Parties") against all losses, expenses
(including reasonable attorney's fees and expenses), claims, damages or
liabilities or, subject to the proviso of the next succeeding sentence, amounts
paid in settlement, arising out of actions or omissions occurring at or prior
to the Effective Time that, in whole or in part, (i) are based on or arising
out of the fact that such person is or was a director or officer of such party
or (ii) arise out of or pertain to the transactions contemplated by this
Agreement (the "Indemnified Liabilities"). In the event of any such loss,
expense, claim, damage or liability (whether or not arising prior to the
Effective Time), (i) the Surviving Corporation shall pay the reasonable fees
and expenses of counsel for the Indemnified Parties selected by the Indemnified
Parties, which counsel may also serve as counsel to the Surviving Corporation
(unless there is a conflict between the positions of the Surviving Corporation
and the Indemnified Parties on any significant issue) and which counsel shall
be reasonably satisfactory to the Surviving Corporation (which consent shall
not be unreasonably withheld), promptly after statements therefor are received
and otherwise advance to such Indemnified Party upon request reimbursement of
documented expenses reasonably incurred, in either case to the extent not
prohibited by the Iowa Act, (ii) the Surviving Corporation will cooperate in
the defense of any such matter and (iii) any determination required to be made
with respect to whether an Indemnified Party's conduct complies with the
standards set forth under the Iowa Act and the articles of incorporation or
by-laws of the Company shall be made by independent counsel mutually acceptable
to the Surviving Corporation and the Indemnified Party (the "Independent
Counsel"); provided, however, that the Surviving Corporation shall not be
liable for any settlement effected without its written consent (which consent
shall not be unreasonably withheld). The Indemnified Parties as a group may
retain only one law firm with respect to each related matter except to the
extent there is, in the opinion of the Independent Counsel, under applicable
standards of professional conduct, a conflict on any significant issue between
positions of such Indemnified Party and any other Indemnified Party or
Indemnified Parties.
(b) Insurance. For a period of six years after the Effective Time, the
Surviving Corporation shall cause to be maintained in effect policies of
directors' and officers' liability insurance maintained by the Company;
provided, that the Surviving Corporation may substitute therefor policies of at
least the same coverage containing terms that are no less advantageous with
respect to matters occurring prior to the Effective Time to the extent such
liability insurance can be maintained annually at a cost to the Surviving
Corporation not greater than 200 percent of the current annual premiums for
such directors' and officers' liability insurance, which existing premium costs
are disclosed on Schedule 7.5(b) of the Company Disclosure Schedule; provided,
further, that if such insurance cannot be so maintained or obtained at such
cost, the Surviving Corporation shall maintain or obtain as much of such
insurance for the Company as can be so maintained or obtained at a cost equal
to 200 percent of the current annual premiums of the Company for its directors'
and officers' liability insurance.
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(c) Successors. In the event the Surviving Corporation or any of its
successors or assigns (i) consolidates with or merges into any other person or
entity and shall not be the continuing or surviving corporation or entity of
such consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any person or entity, then and in either such case,
proper provisions shall be made so that the successors and assigns of the
Surviving Corporation shall assume the obligations set forth in this Section
7.5.
(d) Survival of Indemnification. To the fullest extent not prohibited by
law, from and after the Effective Time, all rights to indemnification as of the
date hereof in favor of the employees, agents, directors and officers of
Parent, the Company and its Subsidiaries with respect to their activities as
such prior to the Effective Time, as provided in their respective articles of
incorporation and by-laws in effect on the date of this Agreement, shall
survive the Merger and shall continue in full force and effect for a period of
not less than six years from the Effective Time.
Section 7.6. Disclosure Schedules. On or before the date hereof, (i)
Parent has delivered to the Company the Parent Disclosure Schedule, accompanied
by a certificate signed by an officer of Parent stating the Parent Disclosure
Schedule has been delivered pursuant to this Section 7.6 and (ii) the Company
has delivered to Parent the Company Disclosure Schedule, accompanied by a
certificate signed by the chief financial officer of the Company stating the
Company Disclosure Schedule has been delivered pursuant to this Section 7.6.
The Parent Disclosure Schedule and the Company Disclosure Schedule are
collectively referred to herein as the "Disclosure Schedules." The Disclosure
Schedules shall be deemed to constitute an integral part of this Agreement and
to modify the respective representations, warranties, covenants or agreements
of the parties hereto contained herein to the extent that such representations,
warranties, covenants or agreements expressly refer to the Disclosure
Schedules. Anything to the contrary contained herein or in the Disclosure
Schedules notwithstanding, any and all statements, representations, warranties
or disclosures set forth in the Disclosure Schedules delivered on or before the
date hereof shall be deemed to have been made on and as of the date hereof.
From time to time prior to the Closing, the parties shall promptly supplement
or amend the Disclosure Schedules with respect to any matter, condition or
occurrence hereafter arising affecting the representations and warranties
contained herein which, if existing or occurring at the date of this Agreement,
would have been required to be set forth or described in the Disclosure
Schedules pertaining to the parties' representations and warranties contained
herein. No supplement or amendment shall be deemed to cure any breach of any
representation or warranty made in this Agreement or have any effect for the
purpose of determining satisfaction of the conditions set forth in Section
8.2(b) or 8.3(b).
Section 7.7. Public Announcements. Subject to each party's disclosure
obligations imposed by law or regulation, Parent and the Company will cooperate
with each other in the development and distribution of all news releases and
other public information disclosures with respect to this Agreement or any of
the transactions contemplated hereby and shall not issue any public
announcement or statement with respect hereto or thereto without the consent of
the other party (which consent shall not be unreasonably withheld and which
decision regarding consent shall be made as soon as reasonably practicable).
Section 7.8. No Solicitations. From and after the date hereof, the Company
will not, and will not authorize or permit any of its Representatives to,
directly or indirectly, (i) solicit, initiate or encourage (including by way of
furnishing information) or take any other action to facilitate any inquiries or
the making of any proposal which constitutes or may reasonably be expected to
lead to an Acquisition Proposal (as defined below), (ii) enter into any
agreement with respect to any Acquisition Proposal or (iii) in the event of an
unsolicited written Acquisition Proposal, engage in negotiations or discussions
with, or provide any information or data to, any Person (other than to Parent,
any of its affiliates or Representatives and except for information which has
been previously publicly disseminated by the parties) relating to any
Acquisition Proposal; provided, however, that nothing contained in this Section
7.8 or any other provision hereof shall prohibit the Company or its Board of
Directors from (i) taking and disclosing to its shareholders a position with
respect to a tender or an exchange offer by
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a third party pursuant to Rules 14d-9 and 14e-2 promulgated under the Exchange
Act or (ii) making such disclosure to its shareholders as, in good faith
judgment of its Board of Directors, after consultation with outside counsel, is
required under applicable law.
Without limiting the foregoing, it is understood that any violation of the
restrictions set forth in the preceding sentence by an executive officer of the
Company or any investment banker, attorney or other Representative of the
Company, whether or not such person is purporting to act on behalf of the
Company or otherwise, shall be deemed to be a breach of this Section 7.8 by the
Company. Notwithstanding any other provision hereof, the Company may (i) at any
time prior to the time its shareholders shall have voted to approve this
Agreement, engage in discussions or negotiations with a third party who
(without any solicitation, initiation, encouragement, discussion or negotiation
(except as permitted by Section 7.8), directly or indirectly, by or with the
Company or its Representatives after the date hereof) seeks to initiate such
discussions or negotiations and may furnish such third party information
concerning the Company and its business, properties and assets if, and only if,
(A)(w) the third party has first made an Acquisition Proposal that is
reasonably expected to be more favorable to the Company's shareholders than the
Merger, taking into account all legal, regulatory, timing and financial aspects
of the Merger and of the Acquisition Proposal, including the degree of
certainty of financing therefor, (x) the Acquisition Proposal is reasonably
capable of being completed (as determined in good faith by the Company's Board
of Directors after consultation with its financial advisors and outside
counsel), (y) the third party has demonstrated that financing for the
Acquisition Proposal is reasonably likely to be obtained (as determined in good
faith by the Company's Board of Directors after consultation with its financial
advisors) and (z) its Board of Directors shall have concluded in good faith,
after considering applicable provisions of state law and after consultation
with outside counsel, that a failure to do so could reasonably be expected to
constitute a breach by its Board of Directors of its fiduciary duties to its
shareholders under applicable law and (B) prior to furnishing such information
to or entering into discussions or negotiations with such person or entity, the
Company (x) provides prompt notice to Parent to the effect that it is
furnishing information to or entering into discussions or negotiations with
such person or entity and (y) receives from such person an executed
confidentiality agreement substantially similar to the Confidentiality
Agreement, together with its written acknowledgment and agreement to pay at
closing the termination and other fees set forth in Section 9.3 if such
Acquisition Proposal is consummated or any other Acquisition Proposal is
consummated with such party or any of its affiliates, and (ii) comply with Rule
14e-2 promulgated under the Exchange Act with regard to a tender or exchange
offer. The Company shall immediately cease and terminate any existing
solicitation, initiation, encouragement, activity, discussion or negotiation
with any parties conducted heretofore by the Company or its Representatives
with respect to the foregoing. The Company shall notify Parent hereto orally
and in writing of any such inquiries, offers or proposals (including, without
limitation, the material terms and conditions of any such proposal and the
identity of the person making it), within 24 hours of the receipt thereof,
shall keep Parent informed of the status and details of any such inquiry, offer
or proposal, and shall give Parent three business days' advance notice of any
agreement (specifying the material terms and conditions thereof) to be entered
into with or any information to be supplied to any person making such inquiry,
offer or proposal.
The term "Acquisition Proposal" shall mean a written proposal or offer
(other than by Parent or Merger Sub) for a tender or exchange offer, merger,
consolidation or other business combination involving the Company or any
material Company Subsidiary or any proposal to acquire in any manner a
substantial equity interest in or a substantial portion of the assets of the
Company or any material Company Subsidiary, other than the transactions
contemplated by this Agreement. As used in this Section, "Board of Directors"
includes any committee thereof.
Section 7.9. Expenses. Subject to Section 9.3, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses.
Section 7.10. Third Party Standstill Agreements. During the period from
the date of this Agreement through the Effective Time, neither the Company nor
any of its Subsidiaries shall
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terminate, amend, modify or waive any material provision of any confidentiality
or standstill agreement to which it is a party. During such period, the Company
and its Subsidiaries shall enforce, to the fullest extent permitted under
applicable law, the provisions of any such agreement, including, but not
limited to, by obtaining injunctions to prevent any breaches of such agreements
and to enforce specifically the terms and provisions thereof in any court
having jurisdiction.
Section 7.11. Takeover Statutes. If any "business combination," "fair
price," "moratorium," "control stock acquisition" or other form of antitakeover
statute or regulation shall become applicable to the Merger or the transactions
contemplated hereby, the Company and the members of the Board of Directors of
the Company shall grant such approvals and take such actions as are reasonably
necessary so that the Merger or the transactions contemplated hereby may be
consummated as promptly as practicable on the terms contemplated hereby and
otherwise act to eliminate or minimize the effects of such statute or
regulation on the Merger or the transactions contemplated hereby.
Section 7.12. Subscription Agreements. Parent and Merger Sub agree that
they will not, without the prior consent of the Company, enter into any
amendment to, or modification or waiver of, any of the Subscription Agreements
if such amendment, modification or waiver would (i) reduce the aggregate amount
of funds committed under the Subscription Agreements, (ii) add additional
conditions to the consummation of the transactions contemplated by the
Subscription Agreements or (iii) have a material adverse effect on or delay the
receipt of any of the Parent Statutory Approvals or the consummation of the
Merger. Parent and Merger Sub shall enforce to the fullest extent permitted
under applicable law, the provisions of Subscription Agreements, including but
not limited to obtaining injunctions to enforce specifically the terms and
provisions thereof in any court having jurisdiction. Parent and Merger Sub
shall use all reasonable efforts to fulfill all of their obligations under the
Subscription Agreements and to cause all conditions to funding under the
Subscription Agreements (other than conditions to funding that are conditions
to consummation of the Merger under this Agreement) to be fulfilled as promptly
as reasonably practicable. Parent and Merger Sub shall give the Company prompt
written notice of (i) any material breach or threatened material breach by any
party of the terms or provisions of the Subscription Agreements, (ii) any
termination or threatened termination of any of the Subscription Agreements or
(iii) any exercise or threatened exercise of any condition under any of the
Subscription Agreements.
Section 7.13. Employee Benefits Matters. (a) Except to the extent
necessary to avoid duplication of benefits, the Surviving Corporation shall
give Company Employees full credit for purposes of eligibility and vesting
under any employee benefit plans or arrangements maintained by the Surviving
Corporation or any of its Subsidiaries in which such employees are eligible to
participate for such employees' service with the Company and its Subsidiaries
to the same extent recognized by the Company and its Subsidiaries immediately
prior to the Effective Time. The Surviving Corporation shall (i) waive all
limitations as to preexisting conditions exclusions and waiting periods with
respect to participation and coverage requirements applicable to Company
Employees under any welfare plan that such employees may be eligible to
participate in after the Effective Time, other than limitations or waiting
periods that are already in effect with respect to such employees and that have
not been satisfied as of the Effective Time under any welfare plan maintained
for the Company Employees immediately prior to the Effective Time, and (ii)
provide each Company Employee with credit for any co-payments and deductibles
paid prior to the Effective Time in satisfying any applicable deductible or
out-of-pocket requirements under any welfare plans that such employees are
eligible to participate in after the Effective Time.
(b) The Surviving Corporation shall comply with the terms of all Company
Benefit Plans.
(c) The Company shall take all such steps as may be reasonably required to
cause the transactions contemplated by Article II hereof and any other
dispositions of the Company equity securities (including derivative securities)
in connection with this Agreement by each individual who is a director or
officer of the Company to be exempt under Rule 16b-3 promulgated under the
Exchange Act, such steps to be taken in accordance with the No-Action Letter
dated January 12, 1999, issued by the SEC to Skadden, Arps, Slate, Meagher &
Flom LLP.
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ARTICLE VIII.
CONDITIONS
Section 8.1. Conditions to Each Party's Obligation to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the satisfaction on or prior to the Closing Date of the following
conditions, except, to the extent permitted by applicable law, that such
conditions may be waived in writing pursuant to Section 9.5 by the joint action
of the parties hereto:
(a) Shareholder Approval. The Company Shareholders' Approval shall have
been obtained.
(b) No Injunction. No temporary restraining order or preliminary or
permanent injunction or other order by any federal or state court preventing
consummation of the Merger or the other transactions contemplated hereby shall
have been issued and be continuing in effect, and the Merger and the other
transactions contemplated hereby shall not have been prohibited under any
applicable federal or state law or regulation; provided, however, that the
parties hereto shall use all reasonable efforts to have any such order,
injunction, or prohibition vacated.
(c) Statutory Approvals. The Company Required Statutory Approvals and the
Parent Required Statutory Approvals shall have been obtained at or prior to the
Effective Time, such approvals shall have become Final Orders (as defined
below) and such Final Orders shall not impose terms or conditions which, in the
aggregate, would have, or could reasonably be expected to have, a Company
Material Adverse Effect or a Parent Material Adverse Effect, or which would be
materially inconsistent with the agreements of the parties contained herein.
The term "Final Order" shall mean action by the relevant regulatory authority
which has not been reversed, stayed, enjoined, set aside, annulled or
suspended, with respect to which any waiting period prescribed by law before
the transactions contemplated hereby may be consummated has expired, and as to
which all conditions to the consummation of such transactions prescribed by
law, regulation or order have been satisfied.
(d) HSR Act. All applicable waiting periods under the HSR Act shall have
expired or been terminated.
Section 8.2. Conditions to Obligation of the Company to Effect the
Merger. The obligation of the Company to effect the Merger shall be further
subject to the satisfaction, on or prior to the Closing Date, of the following
conditions, except as may be waived by the Company in writing pursuant to
Section 9.5:
(a) Performance of Obligations of Parent and Merger Sub. Parent and Merger
Sub will have performed in all material respects their agreements and covenants
contained in or contemplated by this Agreement, which are required to be
performed by them at or prior to the Effective Time.
(b) Representations and Warranties. The representations and warranties of
Parent and Merger Sub set forth in Article V of this Agreement shall be true
and correct, unless the failure of such representations and warranties to be so
true and correct, in the aggregate, have not had and would not reasonably be
expected to have a Parent Material Adverse Effect (ignoring, for purposes of
this Section 8.2(b), any materiality standard expressly included in such
representations or warranties) as of the date hereof (or, to the extent such
representations and warranties speak as of an earlier or later date, as of such
earlier or later date) and as of the Closing Date (except to the extent such
representations and warranties speak as of an earlier or later date) as if made
on and as of the Closing Date, except as otherwise contemplated by this
Agreement.
(c) Closing Certificates. The Company shall have received a certificate
signed by the managing member of Parent, dated the Closing Date, to the effect
that, to the best of such person's knowledge, the conditions set forth in
Section 8.2(a) and Section 8.2(b) have been satisfied.
(d) Legal Opinions as to Corporate and Regulatory Matters. The Company
shall have received the opinions of (i) Willkie Farr & Gallagher, Parent's
special counsel, in form and substance customary for transactions of this type
and reasonably satisfactory to the Company, dated the Effective Time, as to the
authorization, validity and enforceability of this Agreement and (ii) LeBoeuf,
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Lamb, Greene & MacRae, L.L.P., Parent's special regulatory counsel, in form and
substance customary for transactions of this type and reasonably satisfactory
to the Company, dated the Effective Time, as to certain regulatory matters,
including that all regulatory approvals, permits and consents have been
obtained; provided, that such firms may reasonably rely on local counsel
(including local counsel as to local regulatory matters) as to matters of local
law.
Section 8.3. Conditions to Obligation of Parent and Merger Sub to Effect
the Merger. The obligation of Parent and Merger Sub to effect the Merger shall
be further subject to the satisfaction, on or prior to the Closing Date, of the
following conditions, except as may be waived by Parent in writing pursuant to
Section 9.5:
(a) Performance of Obligations of the Company. The Company (and/or
appropriate Company Subsidiaries) will have performed in all material respects
its agreements and covenants contained in or contemplated by this Agreement
which are required to be performed by it at or prior to the Effective Time.
(b) Representations and Warranties. The representations and warranties of
the Company set forth in this Agreement shall be true and correct, unless the
failure of such representations and warranties to be so true and correct, in
the aggregate, have not had and would not reasonably be expected to have a
Company Material Adverse Effect (ignoring, for purposes of this Section 8.3(b),
any materiality standard expressly included in such representations or
warranties) as of the date hereof (or, to the extent such representations and
warranties speak as of an earlier or later date, as of such earlier or later
date) and as of the Closing Date (except to the extent such representations and
warranties speak as of an earlier or later date) as if made on and as of the
Closing Date, except as otherwise contemplated by this Agreement.
(c) Company Material Adverse Effect. No Company Material Adverse Effect
shall have occurred and there shall exist no fact or circumstance that would
or, insofar as reasonably can be foreseen, could have a Company Material
Adverse Effect.
(d) Company Required Consents. The Company Required Consents shall have
been obtained.
(e) Insurance Matters. The condition regarding certain insurance matters
set forth in Section 8.3(e) of the Parent Disclosure Schedule shall have been
satisfied.
(f) Closing Certificates. Parent shall have received a certificate signed
by the chief executive officer and the chief financial officer of the Company,
dated the Closing Date, to the effect that, to the best of such officers'
knowledge, the conditions set forth in Sections 8.3(a), (b), (c), (d) and (e)
have been satisfied.
(g) 1935 Act Status. The Investors shall have received evidence reasonably
satisfactory to them that neither they nor any of their affiliates (within the
meaning of Section 2(a)(11) of the 1935 Act) nor any other of the Investor
Entities will be subject to regulation as a registered holding company under
the 1935 Act following the Merger; provided, that the Investors shall have used
all commercially reasonable efforts to obtain such evidence, subject to the
proviso in Section 6.2(b).
(h) Legal Opinions as to Corporate and Regulatory Matters. Parent shall
have received the opinions of (i) Dorsey and Whitney LLP, the Company's special
Iowa counsel, in form and substance customary for transactions of this type and
reasonably satisfactory to Parent, dated the Effective Time, as to the
authorization, validity and enforceability of this Agreement and (ii) LeBoeuf,
Lamb, Greene & MacRae, L.L.P., the Company's special regulatory counsel, in
form and substance customary for transactions of this type and reasonably
satisfactory to Parent, dated the Effective Time, as to certain regulatory
matters, including that all regulatory approvals, permits and consents have
been obtained; provided, that LeBoeuf, Lamb, Greene & MacRae, L.L.P. may
reasonably rely on local counsel (including local counsel as to local
regulatory matters) as to matters of local law.
(i) Company Options. Except as otherwise agreed by Parent in writing as
provided in Section 2.4, all Company Options under the Company Stock Plans
shall have been validly cancelled and none shall remain outstanding no later
than the Effective Time, and no holder of Company
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Options or any participant in the Company Stock Plans or any other Company
Benefit Plan shall have any right thereunder to acquire any equity securities
or interests therein of the Company, the Surviving Corporation or any of their
respective Subsidiaries.
(j) Dissenting Shares. Holders of not more than ten percent (10%) of the
outstanding shares of Company Common Stock shall have perfected such holder's
right to dissent in accordance with the applicable provisions of the Iowa Act
and shall not have withdrawn or lost such rights.
ARTICLE IX.
TERMINATION, AMENDMENT AND WAIVER
Section 9.1. Termination. This Agreement may be terminated at any time
prior to the Closing Date, whether before or after the Company Shareholders'
Approval has been obtained:
(a) by mutual written consent of Parent and the Board of Directors of the
Company;
(b) by any party hereto, by written notice to the other, if the Effective
Time shall not have occurred on or before April 30, 2000; provided, that such
date shall automatically be changed to July 31, 2000 if on April 30, 2000 the
conditions set forth in Section 8.1(c) and/or 8.3(g) have not been satisfied or
waived and the other conditions to the consummation of the transactions
contemplated hereby are then capable of being satisfied, and the approvals
required by Section 8.1(c) and/or 8.3(g), as the case may be, which have not
yet been obtained are being pursued with diligence; and provided, further, that
the right to terminate this Agreement under this Section 9.1(b) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of the Effective
Time to occur on or before such date;
(c) by any party hereto, by written notice to the other party, if the
Company Shareholders' Approval shall not have been obtained at a duly held the
Company Meeting, including any adjournments thereof;
(d) by any party hereto, after consultation with outside counsel, if any
state or federal law, order, rule or regulation is adopted or issued, which has
the effect of prohibiting the Merger, or by any party hereto, if any court of
competent jurisdiction in the United States or any State shall have issued an
order, judgment or decree permanently restraining, enjoining or otherwise
prohibiting the Merger, and such order, judgment or decree shall have become
final and nonappealable; provided, that such terminating party shall have
complied with its obligations pursuant to Section 10.8.
(e) by the Company, upon three business days' prior notice to Parent if,
as a result of an Acquisition Proposal described in clauses (A)(w), (x) and (y)
of the second paragraph of Section 7.8, (i) the Board of Directors of the
Company shall have concluded in good faith, after considering applicable
provisions of state law and after consultation with outside counsel, that their
fiduciary duties could reasonably require that such Acquisition Proposal be
accepted; (ii) the Company shall have complied with all its obligations under
Sections 7.4 and 7.8; (iii) the person making the Acquisition Proposal shall
have acknowledged and agreed in writing to pay or cause to be paid the
termination and other fees set forth in Section 9.3 if such Acquisition
Proposal is consummated or any other Acquisition Proposal is consummated with
such person or any of its affiliates and (iv) during the three business days
prior to any such termination, the Company shall, and shall cause its
respective financial and legal advisors to, in good faith seek to negotiate
with Parent to make such adjustments in the terms and conditions of this
Agreement as would enable the Company to proceed with the transactions
contemplated herein;
(f) by Parent, by written notice to the Company, if (i)(A) there shall
have been any breach of any representation or warranty, or any non-willful
breach of any covenant or agreement, of the Company hereunder, other than such
breaches, which, together with any other such breaches, has not had and would
not reasonably be expected to have a Company Material Adverse Effect, or (B)
there shall have been any material breach (if willful) of any covenant or
agreement of the Company hereunder and, in case of each of clauses (A) and (B)
above, such breach shall not have been remedied within twenty days after
receipt by the Company of notice in writing from Parent, specifying the nature
of
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such breach and requesting that it be remedied and provided, that, any
materiality standard expressly included in such representations, warranties,
covenants or agreements shall be ignored for purposes of this Section
9.1(f)(i); or (ii) the Board of Directors of the Company (A) shall withdraw or
modify in any manner adverse to Parent its approval of this Agreement and the
transactions contemplated hereby or its recommendation to its shareholders
regarding the approval of this Agreement, (B) shall fail to reaffirm such
approval or recommendation within five business days after a written request
therefor of Parent (unless such request is made during the last seven business
days immediately prior to the Company Meeting, in which case, such
reaffirmation shall fail to be made within two business days after the
request), (C) shall approve or recommend any Acquisition Proposal or (D) shall
resolve to take any of the actions specified in clause (A), (B) or (C);
(g) by the Company, by written notice to Parent, if (A) there shall have
been any breach of any representation or warranty, or any non-willful breach of
any covenant or agreement, of Parent or Merger Sub hereunder, other than such
breaches, which, together with any other such breaches, has not had and would
not reasonably be expected to have a Parent Material Adverse Effect, or (B)
there shall have been any material breach (if willful) of any covenant or
agreement of Parent or Merger Sub hereunder (which shall be deemed to include,
for this purpose only, the failure of Parent and Merger Sub to deposit, or
cause to be deposited (including from available cash balances at the Company),
the cash to the Exchange Agent required pursuant to Section 2.3(a), assuming
all other conditions to Closing have been satisfied or otherwise waived in
writing by Parent), and, in case of each of clauses (A) and (B) above, such
breach shall not have been remedied within twenty days after receipt by Parent
of notice in writing from the Company, specifying the nature of such breach and
requesting that it be remedied and provided, that, any materiality standard
expressly included in such representations, warranties, covenants or agreements
shall be ignored for purposes of this Section 9.1(g);
(h) by the Company if any of the Subscription Agreements shall have been
terminated at any time when Parent would not be entitled to terminate this
Agreement pursuant to Section 9.1(b), (c), (d) or (f) and, within ten (10)
business days after any such termination, such Subscription Agreement shall not
have been replaced with another Subscription Agreement with such Investor or
another Investor and containing terms at least as favorable to Merger Sub as
the terminated Subscription Agreement; provided, that, following any such
replacement, Berkshire Hathaway Inc. shall own (including ownership through one
or more subsidiaries of Berkshire Hathaway Inc. which are consolidated with
Berkshire Hathaway Inc. for financial accounting purposes) at least 70% of the
equity (determined by reference to economic interest) in the Surviving
Corporation upon consummation of the Merger.
Section 9.2. Effect of Termination. In the event of termination of this
Agreement by either the Company or Parent pursuant to Section 9.1, there shall
be no liability on the part of either Parent or the Company or their respective
officers, members or directors hereunder, except as provided in Section 7.9 and
9.3 and except that the agreement contained in the last sentence of Section 7.1
shall survive the termination.
Section 9.3. Termination Fee; Expenses.
(a) Termination and Expense Fees. If this Agreement (i) is terminated by
Parent pursuant to Section 9.1(f)(ii), or (ii) is terminated by the Company
pursuant to Section 9.1(e), then the Company shall pay to Parent promptly (but
not later than five business days after such notice is given or received by the
Company pursuant to Section 9.1(f)(ii) or 9.1(e)) a termination fee equal to
$40 million in cash plus an additional $8 million in cash (the "Expense
Amount") constituting reimbursement of expenses and fees incurred or to be
incurred by Parent or Merger Sub in connection with or related to the Merger
and the transactions contemplated by this Agreement, without any requirement
that Parent or Merger Sub account for actual expenses. If (i) this Agreement is
terminated pursuant to Section 9.1(b), 9.1(c) or 9.1(f)(i) and (ii) at the time
of such termination, there shall have been an Acquisition Proposal made by a
third party which, at the time of such termination, shall not have been (x)
rejected by the Company and its Board of Directors and
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(y) withdrawn by the third party and (iii) within eighteen months of any such
termination, the Company or its affiliate becomes a subsidiary or part of such
third party or a subsidiary or part of an affiliate of such third party, or
merges with or into the third party or a subsidiary or affiliate of the third
party or enters into a definitive agreement to consummate an Acquisition
Proposal with such third party or affiliate thereof, then the Company shall pay
to Parent, at the closing of the transaction (and as a condition to the
closing) in which the Company or its affiliate becomes such a subsidiary or
part of such other person or the closing of such Acquisition Proposal occurs, a
termination fee equal to $40 million in cash plus (unless the Expense Amount is
paid pursuant to the following sentence) the Expense Amount. If this Agreement
is terminated pursuant to (i) Section 9.1(b) due to any failure to satisfy any
of the conditions set forth in Sections 8.1(b), 8.1(c) or 8.3 (other than
8.3(g)), or (ii) Section 9.1(d) or Section 9.1(f)(i), the Company shall pay to
Parent promptly (but not later than five business days after such notice of
termination is given or received by the Company) the Expense Amount.
(b) If this Agreement is terminated by the Company, by written notice to
Parent, due to the failure of Parent and Merger Sub to deposit, or cause to be
deposited (including from available cash balances at the Company), the cash to
the Exchange Agent required pursuant to Section 2.3(a) at a time when all
conditions to Parent's obligation to close have been satisfied or otherwise
waived in writing by Parent, then Parent shall pay to the Company a termination
fee of $40 million, plus additional damages (but only if and to the extent
proven) in an amount not to exceed $40 million.
(c) Expenses. The parties agree that the agreements contained in this
Section 9.3 are an integral part of the transactions contemplated by this
Agreement and constitute liquidated damages and not a penalty. Notwithstanding
anything to the contrary contained in this Section 9.3, if one party fails to
promptly pay to the other any fee or expense due under this Section 9.3, in
addition to any amounts paid or payable pursuant to such Section, the
defaulting party shall pay the costs and expenses (including legal fees and
expenses) in connection with any action, including the filing of any lawsuit or
other legal action, taken to collect payment, together with interest on the
amount of any unpaid fee at the publicly announced prime rate of Citibank, N.A.
from the date such fee was required to be paid.
(d) Limitation Of Fees. Notwithstanding anything herein to the contrary,
if any Investor (x) would, upon consummation of the Merger, become subject to
regulation as a public utility holding company required to register under the
1935 Act and (y) solely as a result thereof, this Agreement is terminated, then
no fees under this Section 9.3 shall be payable by the Company.
Section 9.4. Amendment. This Agreement may be amended by Parent and the
Boards of Directors of the Company and Merger Sub, at any time before or after
the Company Shareholders' Approval has been obtained and prior to the Effective
Time, but after such Approval has been obtained, no such amendment shall (a)
alter or change the Per Share Amount or (b) alter or change any of the terms
and conditions of this Agreement if any of the alterations or changes, alone or
in the aggregate, would materially adversely affect the rights of holders of
Company Common Stock. This Agreement may not be amended except by an instrument
in writing signed on behalf of each of the parties hereto.
Section 9.5. Waiver. At any time prior to the Effective Time, the parties
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any of the agreements or
conditions contained herein, to the extent permitted by applicable law. Any
agreement on the part of a party hereto to any such extension or waiver shall
be valid if set forth in an instrument in writing signed on behalf of such
party.
A-32
<PAGE>
ARTICLE X.
GENERAL PROVISIONS
Section 10.1. Non-Survival; Effect of Representations and Warranties. No
representations or warranties in this Agreement shall survive the Effective
Time, except as otherwise provided in this Agreement.
Section 10.2. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given (a) when delivered personally,
(b) when sent by reputable overnight courier service or (c) when telecopied
(which is confirmed by copy sent within one business day by a reputable
overnight courier service) to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice):
(i) If to Parent or Merger Sub, to:
Teton Formation L.L.C.
c/o MidAmerican Energy Holdings Company
666 Grand Avenue
Des Moines, Iowa 50309
Attn: Chief Executive Officer
Telecopy: (515) 242-4031
Telephone: (515) 242-4300
with copies to:
Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019
Attn: Peter J. Hanlon
Telecopy: (212) 728-8111
Telephone: (212) 728-8000
Munger, Tolles & Olson LLP
355 South Grand Avenue
Los Angeles, CA 90071,
Attn: Robert E. Denham
Telecopy: (213) 687-3702
Telephone: (213) 683-9100
Fraser, Stryker, Vaughn, Meusey, Olson, Boyer & Bloch, P.C.
500 Energy Plaza
409 South 17th Street
Omaha, Nebraska 68102
Attn: John K. Boyer
Telecopy: (402) 341-8290
Telephone: (402) 341-6000
and
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, New York 10019
Attn: Douglas W. Hawes
Telecopy: (212) 424-8500
Telephone: (212) 424-8000
A-33
<PAGE>
(ii) if to the Company, to:
MidAmerican Energy Holdings Company
666 Grand Avenue
Des Moines, Iowa 50309
Attn: General Counsel
Telecopy: (515) 242-4080
Telephone: (515) 242-4300
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Attn: Alan C. Myers
Telecopy: (212) 735-2000
Telephone: (212) 735-3000
Section 10.3. Miscellaneous. This Agreement (a) constitutes the entire
agreement and supersedes all other prior agreements and understandings, both
written and oral, among the parties, or any of them, with respect to the
subject matter hereof (other than the Confidentiality Agreement), (b) shall not
be assigned by operation of law or otherwise and (c) shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts executed in and to be fully performed in such State, without giving
effect to its conflicts of law rules or principles and except to the extent the
provisions of this Agreement (including the documents or instruments referred
to herein) are expressly governed by or derive their authority from the Iowa
Act.
Section 10.4. Interpretation. When a reference is made in this Agreement
to Sections or Exhibits, such reference shall be to a Section or Exhibit of
this Agreement, respectively, unless otherwise indicated. The table of contents
and headings contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Agreement.
Whenever the words "include," "includes" or "including" are used in this
Agreement, they shall be deemed to be followed by the words "without
limitation."
Section 10.5. Counterparts; Effect. This Agreement may be executed in one
or more counterparts, each of which shall be deemed to be an original, but all
of which shall constitute one and the same agreement.
Section 10.6. Enforcement. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of New York or in New York state court, this being in
addition to any other remedy to which they are entitled at law or in equity. In
addition, each of the parties hereto (a) consents to submit itself to the
personal jurisdiction of any federal court located in the State of New York or
any New York state court in the event any dispute arises out of this Agreement
or any of the transactions contemplated by this Agreement, (b) agrees that it
will not attempt to deny such personal jurisdiction by motion or other request
for leave from any such court and (c) agrees that it will not bring any action
relating to this Agreement or any of the transactions contemplated by this
Agreement in any court other than a federal or state court sitting in the State
of New York.
Section 10.7. Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and, except for rights of
Indemnified Parties as set forth in Section 7.5, nothing in this Agreement,
express or implied, is intended to confer upon any other person any rights or
remedies of any nature whatsoever under or by reason of this Agreement.
A-34
<PAGE>
Section 10.8. Further Assurances. Each party will execute such further
documents and instruments and take such further actions as may reasonably be
requested by any other party in order to consummate the Merger in accordance
with the terms hereof.
Section 10.9. Waiver of Jury Trial. Each party to this Agreement waives,
to the fullest extent permitted by applicable law, any right it may have to a
trial by jury in respect of any action, suit or proceeding arising out of or
relating to this Agreement.
Section 10.10. Certain Definitions. The term "affiliate," except where
otherwise defined herein, shall mean, as to any Person, any other Person which
directly or indirectly controls, or is under common control with, or is
controlled by, such Person. The term "control" (including, with its correlative
meanings, "controlled by" and "under common control with") shall mean
possession, directly or indirectly, of power to direct or cause the direction
of management or policies (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise).
IN WITNESS WHEREOF, the Company, Parent and Merger Sub have caused this
Agreement as of the date first written above to be signed by their respective
officers thereunto duly authorized.
MIDAMERICAN ENERGY HOLDINGS COMPANY
By: /s/ Steven A. McArthur
---------------------------------------
Name: Steven A. McArthur
Title: Senior Vice President
TETON FORMATION L.L.C.
By: /s/ David L. Sokol
---------------------------------------
Name: David L. Sokol
Title: Managing Member
TETON ACQUISITION CORP.
By: /s/ David L. Sokol
---------------------------------------
Name: David L. Sokol
Title: Chief Executive Officer &
President
A-35
<PAGE>
INDEX OF PRINCIPAL TERMS
<TABLE>
<CAPTION>
TERM PAGE
- ---- ----
<S> <C>
Acquisition Proposal .......................... A-26
Agreement ..................................... A-1
Board of Directors ............................ A-26
Closing ....................................... A-5
Closing Date .................................. A-5
Code .......................................... A-10
Company ....................................... A-1
Company Benefit Plans ......................... A-11
Company Common Stock .......................... A-2
Company Disclosure Schedule ................... A-5
Company Financial Statements .................. A-8
Company Material Adverse Effect ............... A-5
Company Meeting ............................... A-24
Company Options ............................... A-4
Company Required Consents ..................... A-7
Company Required Statutory Approvals .......... A-7
Company Rights ................................ A-2
Company Rights Agreement ...................... A-16
Company SEC Reports ........................... A-8
Company Stock Plans ........................... A-6
Confidentiality Agreement ..................... A-23
CSFB .......................................... A-18
Dillon Read ................................... A-16
Dissenting Shares ............................. A-3
Effective Time ................................ A-1
Environmental Permits ......................... A-15
ERISA ......................................... A-11
Excess Parachute Payments ..................... A-13
Exchange Act .................................. A-8
Exchange Agent ................................ A-3
Expense Amount ................................ A-31
FERC .......................................... A-8
GAAP .......................................... A-8
Governmental Authority ........................ A-7
HSR Act ....................................... A-23
Indemnified Liabilities ....................... A-24
Indemnified Parties ........................... A-24
Indemnified Party ............................. A-24
Independent Counsel ........................... A-24
Investor Entities ............................. A-21
Investors ..................................... A-18
Iowa Act ...................................... A-1
IRS ........................................... A-11
Lehman ........................................ A-16
Merger ........................................ A-1
Merger Sub .................................... A-1
MidAmerican Funding ........................... A-5
MidAmerican Utility ........................... A-5
</TABLE>
A-36
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
- ---- ----
<S> <C>
Parent ....................................... A-1
Parent Disclosure Schedule ................... A-18
Parent Material Adverse Effect ............... A-18
Parent Required Statutory Approvals .......... A-18
PBGC ......................................... A-12
Per Share Amount ............................. A-2
Power Act .................................... A-8
Proxy Statement .............................. A-9
PURPA ........................................ A-8
Representatives .............................. A-22
Schedule 13E-3 Transaction Statement ......... A-23
SEC .......................................... A-8
Securities Act ............................... A-8
Shares ....................................... A-2
Subscription Agreements ...................... A-18
Surviving Corporation ........................ A-1
Violation .................................... A-7
Voting Debt .................................. A-6
Year 2000 Compliant .......................... A-17
</TABLE>
A-37
<PAGE>
APPENDIX B
FORM OF
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
MIDAMERICAN ENERGY HOLDINGS COMPANY
TO THE SECRETARY OF STATE
OF THE STATE OF IOWA:
Pursuant to the provisions of Division X and Sections 490.1101 and 1103 of
the Iowa Business Corporation Act (the "Act"), the undersigned corporation
hereby adopts the following Amended and Restated Articles of Incorporation
("Articles of Incorporation"):
ARTICLE I.
The name of the corporation is "MidAmerican Energy Holdings Company"
(hereinafter sometimes called the "Corporation") and its registered office
shall be located at 666 Grand Avenue, Des Moines, Iowa 50309 with the right to
establish and maintain branch offices at such other points within and without
the State of Iowa as the Board of Directors of the Corporation (the "Board of
Directors") may, from time to time, determine. The name of the Corporation's
registered agent at such registered office is John A. Rasmussen, Jr.
ARTICLE II.
The nature of the business or purposes to be conducted or promoted is to
engage in any or all lawful act or activity for which a corporation may be
incorporated under the Act.
ARTICLE III.
A. The aggregate number of shares which the Corporation shall have
authority to issue is 60,000,000 shares of Common Stock, no par value ("Common
Stock"), and 50,000,000 shares of Preferred Stock, no par value ("Preferred
Stock").
B. The shares of authorized Common Stock shall be identical in all
respects and shall have equal rights and privileges. For all purposes, each
registered holder of Common Stock shall, at each meeting of shareholders, be
entitled to one vote for each share of Common Stock held, either in person or
by proxy duly authorized in writing. Except to the extent required by law or as
permitted by these Articles of Incorporation, as amended from time to time, the
registered holders of the shares of Common Stock shall have exclusive voting
rights.
C. The Board of Directors, at any time or from time to time, may, and is
hereby authorized to, issue and dispose of any of the authorized and unissued
shares of Common Stock and any issued but not outstanding shares for such kind
and amount of consideration and to such persons, firms or corporations, as may
be determined by the Board of Directors, subject to any provisions of law then
applicable. The holders of Common Stock shall have no preemptive rights to
acquire or subscribe to any shares, or securities convertible into shares, of
Common Stock.
D. A first series of the Preferred Stock is created pursuant to Article
IIIA hereof. The Board of Directors, at any time or from time to time may, and
is hereby authorized to, further divide the authorized and unissued shares of
Preferred Stock into one or more classes or series and in connection with the
creation of any class or series to determine, in whole or in part, to the full
extent now or hereafter permitted by law, by adopting one or more articles of
amendment to the Articles of Incorporation providing for the creation thereof,
the designation, preferences, limitations and relative rights of such class or
series, which may provide for special, conditional or limited voting rights, or
no rights to vote at all, and to issue and dispose of any of such shares and
any issued but not outstanding shares for such kind and amount of consideration
and to such persons, firms or corporations, as may be determined by the Board
of Directors, subject to any provisions of law then applicable.
B-1
<PAGE>
E. The Board of Directors, at any time or from time to time may, and is
hereby authorized to, create and issue, whether or not in connection with the
issue and sale of any shares of its Common Stock, Preferred Stock or other
securities of the Corporation, warrants, rights and/or options entitling the
holders thereof to purchase from the Corporation any shares of its Common
Stock, Preferred Stock or other securities of the Corporation. Such warrants,
rights, or options shall be evidenced by such instrument or instruments as
shall be approved by the Board of Directors. The terms upon which, the time or
times (which may be limited or unlimited in duration) at or within which, and
the price or prices (which shall be not less than the minimum amount prescribed
by law, if any) at which any such shares or other securities may be purchased
from the Corporation upon the exercise of any such warrant, right or option
shall be fixed and stated in the resolution or resolutions of the Board of
Directors providing for the creation and issue of such warrants, rights or
options. The Board of Directors is hereby authorized to create and issue any
such warrants, rights or options from time to time for such consideration, if
any, and to such persons, firms or corporations, as the Board of Directors may
determine.
F. The Corporation may authorize the issue of some or all of the shares of
any or all of the classes of its capital stock without certificates.
G. The Corporation shall not be required to issue certificates
representing any fraction or fractions of a share of stock of any class but may
issue in lieu thereof one or more non-dividend bearing and non-voting scrip
certificates in such form or forms as shall be approved by the Board of
Directors, each scrip certificate representing a fractional interest in one
share of stock of any class. Such scrip certificates upon presentation together
with similar scrip certificates representing in the aggregate an interest in
one or more full shares of stock of any class shall entitle the holders thereof
to receive one or more full shares of stock of such class. Such scrip
certificates may contain such terms and conditions as shall be fixed by the
Board of Directors and may become void and of no effect after a period to be
determined by the Board of Directors and to be specified in such scrip
certificates.
H. The Corporation shall be entitled to treat the person in whose name any
share of Common Stock or Preferred Stock is registered as the owner thereof for
all purposes and shall not be bound to recognize any equitable or other claim
to, or interest in, such share on the part of any person, whether or not the
Corporation shall have notice thereof except as may be expressly provided
otherwise by the laws of the State of Iowa.
ARTICLE IIIA.
A. Creation, Designation and Amount of First Series of Preferred Stock. A
first series of the Preferred Stock is hereby created as follows: The shares of
such series (the "Preferred Shares") shall be designated as "Zero Coupon
Convertible Preferred Stock", and the number of shares constituting such
Preferred Stock shall be 40,000,000.
B. Dividends and Distributions. In case the Corporation shall at any time
or from time to time declare, order, pay or make a dividend or other
distribution (including, without limitation, any distribution of stock or other
securities or property or rights or warrants to subscribe for securities of the
Corporation or any of its subsidiaries by way of a dividend, distribution or
spin-off) on its Common Stock, other than (i) a distribution made in compliance
with the provisions of Section F of this Article IIIA or (ii) a dividend or
distribution made in Common Stock, the holders of the Preferred Shares shall be
entitled (unless such right shall be waived by the affirmative vote or consent
of the holders of at least two-thirds of the number of the then outstanding
Preferred Shares) to receive from the Corporation with respect to each
Preferred Share held, any dividend or distribution that would be received by a
holder of the number of shares (including fractional shares) of Common Stock
into which such Preferred Share is convertible on the record date for such
dividend or distribution, with fractional shares of Common Stock deemed to be
entitled to the corresponding fraction of any dividend or distribution that
would be received by a whole share. Any such dividend or distribution shall be
declared, ordered, paid or made at the same time such dividend or distribution
is declared, ordered, paid or made on the Common Stock.
B-2
<PAGE>
C. Conversion Rights.
Each Preferred Share is convertible at the option of the holder thereof
into one Conversion Unit at any time upon the occurrence of a Conversion Event.
A Conversion Unit will initially be one share of Common Stock of the
Corporation adjusted as follows:
(i) Stock splits, combinations, reclassifications etc. In case the
Corporation shall at any time or from time to time declare a dividend or
make a distribution on the outstanding shares of Common Stock payable in
Common Stock or subdivide or reclassify the outstanding shares of Common
Stock into a greater number of shares or combine or reclassify the
outstanding shares of Common Stock into a smaller number of shares of
Common Stock, then, and in each such event, the number of shares of Common
Stock into which each Preferred Share is convertible shall be adjusted so
that the holder thereof shall be entitled to receive, upon conversion
thereof, the number of shares of Common Stock which such holder would have
been entitled to receive after the happening of any of the events described
above had such share been converted immediately prior to the happening of
such event or the record date therefor, whichever is the earlier. Any
adjustment made pursuant to this clause (i) shall become effective (I) in
the case of any such dividend or distribution on the record date for the
determination of holders of shares of Common Stock entitled to receive such
dividend or distribution, or (II) in the case of any such subdivision,
reclassification or combination, on the day upon which such corporate
action becomes effective.
(ii) Issuances of Additional Shares below Fair Value Price. In case the
Corporation shall issue shares of Common Stock (or rights or warrants or
other securities exercisable or convertible into or exchangeable
(collectively, a "conversion") for shares of Common Stock) (collectively,
"convertible securities") (other than in Permitted Transactions) at a price
per share (or having a conversion price per share) less than the Fair Value
Price as of the date of issuance of such shares (or of such convertible
securities), then, and in each such event, the number of shares of Common
Stock into which each Preferred Share is convertible shall be adjusted so
that the holder thereof shall be entitled to receive, upon conversion
thereof, the number of shares of Common Stock determined by multiplying the
number of shares of Common Stock into which such share was convertible
immediately prior to such date of issuance by a fraction, (I) the numerator
of which is the sum of (1) the number of shares of Common Stock outstanding
on such date and (2) the number of additional shares of Common Stock issued
(or into which the convertible securities may convert), and (II) the
denominator of which is the sum of (1) the number of shares of Common Stock
outstanding on such date and (2) the number of shares of Common Stock which
the aggregate consideration receivable (including any amounts payable upon
conversion of convertible securities) by the Corporation for the total
number of additional shares of Common Stock so issued (or into which the
convertible securities may convert) would purchase at the Fair Value Price
on such date. For purposes of the foregoing, "Permitted Transactions" shall
include issuances (i) as consideration for the acquisition of businesses
and/or related assets, and (ii) in connection with employee benefit plans
and any other transaction approved by the Board of Directors (including the
approval of the directors elected by the holders of the Preferred Shares),
and "Fair Value Price" shall mean the average of the closing prices on the
principal stock exchange or over-the-counter quotation system on which the
Common Stock is then listed or quoted, or if not then listed or quoted, the
fair value of the Corporation's Common Stock as determined in good faith by
the Board of Directors. Although Permitted Transactions do not require
adjustment of a Conversion Unit, the issuance of equity and equity-linked
securities in a Permitted Transaction remains subject to the vote of the
Preferred Shares as provided in Section D of this Article IIIA. Any
adjustment made pursuant to this clause (ii) shall become effective
immediately upon the date of such issuance.
(iii) Mergers, Consolidations, Sales of Assets etc. In case the
Corporation shall be a party to any transaction (including a merger,
consolidation, sale of all or substantially all of the Corporation's
assets, liquidation or recapitalization of the Corporation, but excluding
any transaction described in clause (i) or (ii) above) in which the
previously outstanding Common Stock shall be changed into or, pursuant to
the operation of law or the terms of the transaction to which the
Corporation is a party, exchanged for different securities of the
Corporation or common stock or other securities or interests
B-3
<PAGE>
in another Person or other property (including cash) or any combination of
the foregoing, then, as a condition of the consummation of such
transaction, lawful and adequate provision shall be made so that each
holder of Preferred Shares shall be entitled, upon conversion, to an amount
per share equal to (A) the aggregate amount of stock, securities, cash
and/or any other property (payable in kind), as the case may be, into which
or for which each share of Common Stock is changed or exchanged times (B)
the number of shares of Common Stock into which such share was convertible
immediately prior to the consummation of such transaction. Any adjustment
made pursuant to this clause (iii) shall become effective immediately upon
the consummation of such transaction.
In calculating the adjustments provided in clauses (i), (ii) and (iii)
above, a Conversion Unit shall include any fractional share resulting from the
calculation.
A "Conversion Event" includes (i) any conversion of Preferred Shares that
would not cause the holder of the shares of Common Stock issued upon conversion
(or any affiliate of such holder) or the Corporation to become subject to
regulation as a registered holding company, or as a subsidiary of a registered
holding company, under the Public Utility Holding Company Act of 1935 ("PUHCA")
either as a result of the repeal or amendment of PUHCA, the number of shares
involved or the identity of the holder of such shares and (ii) a Company Sale.
A "Company Sale" includes any involuntary or voluntary liquidation,
dissolution, recapitalization, winding-up or termination of the Corporation and
any merger, consolidation or sale of all or substantially all of the assets of
the Corporation.
The holder of any Preferred Shares may exercise such holder's right to
convert each such share into a Conversion Unit by surrendering for such purpose
to the Corporation, at its principal office or at such other office or agency
maintained by the Corporation for that purpose, a certificate or certificates
representing the Preferred Shares to be converted accompanied by a written
notice stating that such holder elects to convert all or a specified whole
number of such shares in accordance with the provisions of this Section C of
this Article IIIA and specifying the name or names in which such holder wishes
the certificate or certificates for securities included in the Conversion Unit
or Units to be issued. In case such notice shall specify a name or names other
than that of such holder, such notice shall be accompanied by payment of all
transfer taxes payable upon the issuance of securities included in the
Conversion Unit or Units in such name or names. Other than such taxes, the
Corporation will pay any and all issue and other taxes (other than taxes based
on income) that may be payable in respect of any issue or delivery of the
securities and other property then included in a Conversion Unit or Units upon
conversion of Preferred Shares pursuant hereto. As promptly as practicable, and
in any event within three Business Days after the surrender of such certificate
or certificates and the receipt of such notice relating thereto and, if
applicable, payment of all transfer taxes (or the demonstration to the
satisfaction of the Corporation that such taxes have been paid), the
Corporation shall deliver or cause to be delivered (i) certificates
representing the number of validly issued, fully paid and nonassessable shares
of Common Stock (or other securities included in the Conversion Unit or Units)
to which the holder of Preferred Shares so converted shall be entitled and (ii)
if less than the full number of Preferred Shares evidenced by the surrendered
certificate or certificates are being converted, a new certificate or
certificates, of like tenor, for the number of shares evidenced by such
surrendered certificate or certificates less the number of shares converted.
Such conversion shall be deemed to have been made at the close of business on
the date of giving of such notice and such surrender of the certificate or
certificates representing the Preferred Shares to be converted so that the
rights of the holder thereof as to the shares being converted shall cease
except for the right to receive the securities and other property included in
the Conversion Unit or Units in accordance herewith, and the Person entitled to
receive the securities and other property included in the Conversion Unit or
Units shall be treated for all purposes as having become the record holder of
such securities and other property included in the Conversion Unit or Units at
such time. No holder of Preferred Shares shall be prevented from converting
Preferred Shares, and any conversion of Preferred Shares in accordance with the
terms of this Section C of this Article IIIA shall be effective upon surrender,
whether or not the transfer books of the Corporation for the Common Stock are
closed for any purpose.
The Corporation shall at all times reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of effecting the
conversion of the Preferred Shares, such number of shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all then
B-4
<PAGE>
outstanding Preferred Shares. The Corporation shall from time to time, subject
to and in accordance with the Act, increase the authorized amount of Common
Stock if at any time the number of authorized shares of Common Stock remaining
unissued shall not be sufficient to permit the conversion at such time of all
then outstanding Preferred Shares.
Whenever the number of shares of Common Stock and other property
comprising a Conversion Unit into which each Preferred Share is convertible is
adjusted as provided in this Section C of this Article IIIA, the Corporation
shall promptly mail to the holders of record of the outstanding Preferred
Shares at their respective addresses as the same shall appear in the
Corporation's stock records a notice stating that the number of shares of
Common Stock and other property comprising a Conversion Unit into which each
Preferred Share is convertible has been adjusted and setting forth the new
number of shares of Common Stock (or describing the new stock, securities, cash
or other property) into which each Preferred Share is convertible, as a result
of such adjustment, a brief statement of the facts requiring such adjustment
and the computation thereof, and when such adjustment became effective.
D. Voting Rights.
The holders of the Preferred Shares shall have the following voting
rights:
(A) The holders of the then-outstanding Preferred Shares shall be entitled
to elect, as a class, two (out of a total of ten) directors to the Board of
Directors and to elect the replacement for any director elected by them who for
any reason ceases to serve as a director. In addition, without first obtaining
the consent or approval of the holders of a majority of the then-outstanding
Preferred Shares, voting as a separate class, the Corporation will not (a)
effect any Fundamental Transaction or (b) amend the provisions of the Articles
of Incorporation of the Corporation in any manner which would alter or change
the powers, preferences or special rights of the Preferred Shares or that would
otherwise adversely affect the rights of the holders of the Preferred Shares. A
"Fundamental Transaction" includes the following (in each case referring to a
single transaction or series of related transactions): (i) the sale, lease,
exchange, mortgage or other disposition (including any spin-off or split-up) of
any business or assets having a fair market value of 25% or more of the fair
market value of the business or assets of the Corporation and its subsidiaries
taken as a whole, the merger or consolidation of the Corporation with any other
Person, a liquidation, dissolution or winding-up of the Corporation or any
recapitalization or reclassification of the securities of the Corporation; (ii)
the acquisition of any business or assets (by way of merger, acquisition of
stock or assets or otherwise) or the making of capital expenditures not
included in the applicable annual budget approved by the Board of Directors, in
each case for a consideration or involving expenditures in excess of
$50,000,000; (iii) the issuance, grant or sale, or the repurchase, of any
equity securities (or any equity-linked securities or obligations) of the
Corporation (or securities convertible into or exchangeable or exercisable for
any such equity securities); (iv) transactions with officers, directors,
stockholders and affiliates of the Corporation except (x) to the extent
effectuated on terms no less favorable to the Corporation than those obtainable
in an arms' length transaction with an unaffiliated Person or (y) in the case
of cash compensation arrangements, which are approved by the Board of Directors
(without regard to the directors elected by the holders of the Preferred
Shares); (v) the removal as chief executive officer of the Corporation of the
person occupying that position on the date of original issuance of the
Preferred Shares (the "Initial CEO") and (vi) the appointment or removal of any
person as chief executive officer of the Corporation after the removal,
resignation, death or disability of the Initial CEO (the consent of the holders
of the Preferred Stock as to the matters set forth in this clause (vi) not to
be unreasonably withheld).
(B) Except as set forth herein, or as otherwise provided by law, holders
of the Preferred Shares shall have no voting rights.
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E. Reacquired Shares.
Any Preferred Shares converted, purchased or otherwise acquired by the
Corporation in any manner whatsoever shall be retired and canceled promptly
after the acquisition thereof. All such shares shall upon their cancellation
become authorized but unissued shares of Preferred Stock and may be reissued as
part of a new series of Preferred Stock subject to the conditions and
restrictions on issuance set forth herein, in the Articles of Incorporation, or
in any Articles of Amendment creating a series of Preferred Stock or any
similar stock or as otherwise required by law.
F. Liquidation, Dissolution or Winding Up.
Upon any involuntary or voluntary liquidation, dissolution,
recapitalization, winding-up or termination of the Corporation, the assets of
the Corporation available for distribution to the holders of the Corporation's
capital stock shall be distributed in the following priority, with no
distribution pursuant to the second priority until the first priority has been
fully satisfied and no distribution pursuant to the third priority until the
first and second priorities have both been fully satisfied, First, to the
holders of the Preferred Shares for each Preferred Share, a liquidation
preference of $1.00 per share, Second, to the holders of Common Stock, ratably,
an amount equal to (i) $1.00 divided by the number of shares of Common Stock
then comprising a Conversion Unit, multiplied by (ii) the number of shares of
Common Stock then outstanding, and Third, to the holders of the Preferred
Shares and the Common Stock (ratably, on the basis of the number of shares of
Common Stock then outstanding and, in the case of the Preferred Shares, the
number of shares of Common Stock then comprising a Conversion Unit multiplied
by the total number of Preferred Shares outstanding), all remaining assets of
the Corporation available for distribution to the holders of the Corporation's
capital stock.
Neither the consolidation, merger or other business combination of the
Corporation with or into any other Person or Persons nor the sale, lease,
exchange or conveyance of all or any part of the property, assets or business
of the Corporation to a Person or Persons, shall be deemed to be a liquidation,
dissolution or winding up of the Corporation for purposes of this Section F of
this Article IIIA.
G. Redemption. The Preferred Shares are not subject to redemption at the
option of the Corporation nor subject to any sinking fund or other mandatory
right of redemption accruing to the holders thereof.
H. Defined Terms. For purposes of this Article IIIA, the following terms
shall have the meanings set forth below:
"Business Day" means any day other than a Saturday, Sunday, or a day on
which banking institutions in the State of New York or the State of Iowa
are authorized or obligated by law or executive order to close.
"Person" shall mean any person or entity of any nature whatsoever,
specifically including an individual, a firm, a company, a corporation, a
partnership, a trust or other entity.
I. Conflict. If and to the extent the provisions of Article V conflict
with the provisions of this Article IIIA, the provisions of Article V shall
prevail.
ARTICLE IV.
The term of corporate existence of the Corporation shall be perpetual.
ARTICLE V.
A. All corporate powers shall be exercised by or under the authority of,
and the business and affairs of the Corporation shall be managed under the
direction of, the Board of Directors. The number of directors of the
Corporation shall be fixed in accordance with the Bylaws but shall be no less
than three and no greater than sixteen, and such number may be increased or
decreased within such range from time to time in accordance with the Bylaws,
but no decrease shall have the effect of shortening the term of any incumbent
director. Directors shall be elected by the shareholders at each annual meeting
of the
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Corporation as specified herein and in the Bylaws. The directors shall be
divided, with respect to the time for which they severally hold office, into
three classes, as nearly equal in number as possible, with the term of office
of the first class to expire at the 1999 annual meeting of shareholders, the
term of office of the second class to expire at the 2000 annual meeting and the
term of office of the third class to expire at the 2001 annual meeting of
shareholders.
B. Each director shall hold office until his or her successor shall have
been duly elected and qualified or until his or her prior death, retirement,
resignation or removal. At each annual meeting of shareholders following the
initial classification and election of directors, (i) directors elected to
succeed those directors whose terms then expire shall be elected for a term of
office to expire at the third succeeding annual meeting of shareholders after
their election, with each director to hold office until his or her successor
shall have been duly elected and qualified, and (ii) if authorized by a
resolution of the Board of Directors, directors may be elected to fill any
vacancy on the Board of Directors, regardless of how such vacancy shall have
been created. Should a vacancy occur or be created, whether arising through
death, resignation or removal of a director or through an increase in the
number of directors, such vacancy shall be filled solely by a majority vote of
the remaining directors though less than a quorum of the Board of Directors. A
director so elected to fill a vacancy shall hold office for a term expiring at
the annual meeting of shareholders at which the term of the class to which such
director has been elected expires.
C. Any director or the entire Board of Directors may be removed only for
cause as set forth in this paragraph C. Removal of a director for cause must be
approved by the affirmative vote of a majority of the Board or Directors at any
meeting or by the holders of shares of capital stock of the Corporation having
at least sixty-six and two-thirds percent (66 2/3%) of the votes of all
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors, voting together as a single class, only
at a meeting of shareholders called for the purpose of removing the director
and after notice stating that the purpose, or one of the purposes, of the
meeting is removal of the director.
D. The Board of Directors, by a vote of a majority of the entire Board,
may appoint from the directors an executive committee and such other committees
as they may deem judicious; and to such extent as shall be provided in the
resolution of the Board or in the Bylaws, may delegate to such committees all
or any of the powers of the Board of Directors which may be lawfully delegated,
and such committees shall have and thereupon may exercise all or any of the
powers so delegated to them. The Board of Directors or the Bylaws may provide
the number of members necessary to constitute a quorum of any committee and the
number of affirmative votes necessary for action by any committee.
E. The Board of Directors shall elect such officers of the Corporation as
specified in the Bylaws. All vacancies in the offices of the Corporation shall
be filled by the Board of Directors. The Board of Directors shall also have
authority to appoint such other managing officers and agents as they may from
time to time determine.
ARTICLE VI.
Special meetings of shareholders of the Corporation may be called at any
time by each of the Chairman of the Board of Directors, the Chief Executive
Officer and the President, by the Board of Directors and by the holders of at
least fifty percent (50%) of the votes entitled to be cast on any issue
proposed to be considered at the proposed special meeting, on at least ten
days' notice to each shareholder entitled to vote at the special meeting,
specifying the time, place and purpose or purposes of the special meeting.
ARTICLE VII.
The private property of the shareholders of the Corporation shall be exempt
from all corporate debts.
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ARTICLE VIII.
The Board of Directors may adopt Bylaws, and from time to time may alter,
amend or repeal any Bylaws; but any Bylaws adopted by the Board of Directors
may be altered or repealed by the affirmative vote of holders of at least
sixty-six and two-thirds percent (66 2/3%) of the voting power of all shares of
capital stock of the Corporation entitled to vote generally in the election of
directors at any annual meeting or at any special meeting provided notice of
such proposed alteration or repeal be included in the notice of meeting.
ARTICLE IX.
A. A director of the Corporation shall not be personally liable to the
Corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director, except for liability:
(i) for any breach of the director's duty of loyalty to the Corporation
or its shareholders; or
(ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; or
(iii) for any transaction from which the director derives an improper
personal benefit; or
(iv) under Section 490.833, or a successor provision, of the Act.
B. If, after the date these Articles of Incorporation are filed with the
Iowa Secretary of State, the Act is amended to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director of the Corporation shall be deemed eliminated or
limited to the fullest extent permitted by the Act, as so amended. Any repeal
or modification of Section A or this Section B of this Article IX, by the
shareholders of the Corporation shall be prospective only and shall not
adversely affect any right or protection of a director of the Corporation
existing at the time of such repeal or modification.
ARTICLE X.
A. Each person who was or is a party or is threatened to be made a party
to or is involved in any action, suit or proceeding, whether civil, criminal,
administrative, investigative or arbitration and whether formal or informal
("proceeding"), by reason of the fact that he or she, or a person of whom he or
she is the legal representative, is or was a director, officer or employee, of
the Corporation or is or was serving at the request of the Corporation as a
director, officer or employee of another corporation or of a partnership, joint
venture, trust or other enterprise, including service with respect to employee
benefit plans, whether the basis of such proceeding is alleged action in an
official capacity while serving as a director, officer or employee or in any
other capacity while serving as a director, officer or employee, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Act, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than the Act
permitted the Corporation to provide prior to such amendment), against all
reasonable expenses, liability and loss (including without limitation
attorneys' fees, all costs, judgments, fines, Employee Retirement Income
Security Act excise taxes or penalties and amounts paid or to be paid in
settlement) reasonably incurred or suffered by such person in connection
therewith. Such right shall be a contract right and shall include the right to
be paid by the Corporation expenses incurred in defending any such proceeding
in advance of its final disposition; provided, however, that the payment of
such expenses incurred by a director, officer or employee in his or her
capacity as a director, officer or employee (and not in any other capacity in
which service was or is rendered by such person while a director, officer or
employee including, without limitation, service to an employee benefit plan) in
advance of the final disposition of such proceeding, shall be made only upon
delivery to the Corporation of (i) a written undertaking, by or on behalf of
such director, officer or employee, to repay all amounts so advanced if it
should be determined ultimately that such director, officer or employee is not
entitled to be indemnified under this Article X or otherwise, or (ii) a written
affirmation by or on behalf of such director, officer or employee that, in such
person's good faith belief, such person has met the standards of conduct set
forth in the Act.
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B. If a claim under Section A is not paid in full by the Corporation
within thirty (30) days after a written claim has been received by the
Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expenses
of prosecuting such claim. It shall be a defense to any such action that the
claimant has not met the standards of conduct which make it permissible under
the Act for the Corporation to indemnify the claimant for the amount claimed,
but the burden of proving such defense shall be on the Corporation. The failure
of the Corporation (including its Board of Directors, independent legal counsel
or its shareholders) to have made a determination prior to the commencement of
such action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
Act, shall not be a defense to the action or create a presumption that the
claimant had not met the applicable standard of conduct.
C. Indemnification provided hereunder shall, in the case of the death of
the person entitled to indemnification, inure to the benefit of such person's
heirs, executors or other lawful representatives. The invalidity or
unenforceability of any provision of this Article X shall not affect the
validity or enforceability of any other provision of this Article X.
D. Any action taken or omitted to be taken by any director, officer or
employee in good faith and in compliance with or pursuant to any order,
determination, approval or permission made or given by a commission, board,
official or other agency of the United States or of any state or other
governmental authority with respect to the property or affairs of the
Corporation or any such business corporation, not-for-profit corporation, joint
venture, trade association or other entity over which such commission, board,
official or agency has jurisdiction or authority or purports to have
jurisdiction or authority shall be presumed to be in compliance with the
standard of conduct set forth in Section 490.851 (or any successor provision)
of the Act whether or not it may thereafter be determined that such order,
determination, approval or permission was unauthorized, erroneous, unlawful or
otherwise improper.
E. Unless finally determined, the termination of any litigation, whether
by judgment, settlement, conviction or upon a plea of nolo contendere, or its
equivalent, shall not create a presumption that the action taken or omitted to
be taken by the person seeking indemnification did not comply with the standard
of conduct set forth in Section 490.851 (or any successor provision) of the
Act.
F. The rights conferred on any person by this Article X shall not be
exclusive of any other right which any person may have or hereafter acquire
under any statute, provision of the Articles of Incorporation, Bylaws,
agreement, vote of shareholders or disinterested directors or otherwise.
G. The Corporation may maintain insurance, at its expense, to protect
itself and any such director, officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Corporation
would have the power to indemnify such person against such expense, liability
or loss under the Act.
ARTICLE XI.
Any action required or permitted to be taken by the shareholders of the
Corporation must be effected at an annual or special meeting of shareholders of
the Corporation and may not be effected by any consent in writing by such
shareholders.
ARTICLE XII.
Any amendment, alteration, change or repeal of Article VA, VB, VC, VI,
VIII, XI or this Article XII of these Articles of Incorporation shall require
the affirmative vote of the holders of at least sixty-six and two-thirds
percent (66 2/3%) of the voting power of all shares of capital stock of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class.
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APPENDIX C
LEHMAN BROTHERS
October 24, 1999
Special Committee of the Board of Directors
Board of Directors
MidAmerican Energy Holdings, Inc.
302 South 36th St., Suite 400
Omaha, NE 68131
Ladies and Gentlemen:
We understand that MidAmerican Energy Holdings ("MEHC" or the "Company")
intends to enter into an agreement with TETON LLC (the "Acquirer") pursuant to
which the Company will merge with a subsidiary of the Acquirer and, upon the
effectiveness of such merger, each outstanding share of common stock of the
Company will be converted into the right to receive $35.05 in cash (the
"Proposed Transaction"). The Acquirer is an investor group consisting of David
Sokol (Chairman & CEO of MEHC), Walter Scott (Director of MEHC) and Berkshire
Hathaway Inc., with Berkshire Hathaway having a 75% interest in the Company on
a fully diluted basis. The Proposed Transaction is expected to close by April
30, 2000. The terms and conditions of the Proposed Transaction are set forth in
more detail in the October 22, 1999 draft of the Merger Agreement (the
"Agreement") between the Acquirer and the Company.
We have been requested by the Special Committee of the Board of Directors
of the Company to render our opinion with respect to the fairness, from a
financial point of view, to the stockholders of the Company of the
consideration to be received by such stockholders in the Proposed Transaction.
We have not been requested to opine as to, and our opinion does not in any
manner address, the Company's underlying business decision to proceed with or
effect the Proposed Transaction.
In arriving at our opinion, we reviewed and analyzed: (1) the Agreement
and the specific terms of the Proposed Transaction, (2) financial and operating
information with respect to the business, operations and prospects of the
Company and its operating business units furnished to us by the Company, (3)
publicly available information concerning the Company that we believe to be
relevant to our analysis, including its Annual Report on Form 10-K for the
fiscal year ended December 31, 1998 and Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1999 and June 30, 1999, (4) a trading history of the
Company's common stock from October 27, 1997 to the present and a comparison of
that trading history with those of other companies that we deemed relevant, (5)
a comparison of the historical financial results and present financial
condition of the Company with those of other companies that we deemed relevant,
(6) a comparison of the financial terms of the Proposed Transaction with the
financial terms of certain other transactions that we deemed relevant, (7)
after consultation with regulatory counsel, the estimated time required to
consummate the Proposed Transaction, and (8) alternative transactions that
possibly could be entered into by the Company, including the time required to
consummate such transactions. In addition, we have had discussions with the
management of the Company concerning its business, operations, assets,
financial condition and prospects and have undertaken such other studies,
analyses and investigations as we deemed appropriate.
In arriving at our opinion, we have assumed and relied upon the accuracy
and completeness of the financial and other information used by us without
assuming any responsibility for independent verification of such information
and have further relied upon the assurances of management of the Company that
they are not aware of any facts or circumstances that would make such
information inaccurate or misleading. With respect to the financial projections
of the Company, upon advice of the Company we have assumed that such
projections have been reasonably prepared on a basis reflecting the best
currently available estimates and judgments of the management of the Company as
to the future financial performance of the Company and that the Company will
perform substantially in
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accordance with such projections. In arriving at our opinion, we have not
conducted a physical inspection of the properties and facilities of the Company
and have not made or obtained any evaluations or appraisals of the assets or
liabilities of the Company. In addition, you have not authorized us to solicit,
and we have not solicited, any indications of interest from any third party
with respect to the purchase of all or a part of the Company's business. Our
opinion necessarily is based upon market, economic and other conditions as they
exist on, and can be evaluated as of, the date of this letter.
Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that, from a financial point of view, the consideration to be
received by the stockholders of the Company in the Proposed Transaction is fair
to such stockholders.
We have acted as financial advisor to the Board of Directors in connection
with the Proposed Transaction and will receive a fee for our services which is
in part contingent upon the sale of the Company. In addition, the Company has
agreed to indemnify us for certain liabilities that may arise out of the
rendering of this opinion. We also have performed various investment banking
services for the Company in the past (including representing the Company
(formerly CalEnergy Company) in its acquisition of MidAmerican Energy Holdings
Inc.), and have received customary fees for such services. In the ordinary
course of our business, we actively trade in the debt and equity securities of
the Company for our own account and for the accounts of our customers and,
accordingly, may at any time hold a long or short position in such securities.
This opinion is for the use and benefit of the Board of Directors of the
Company and is rendered to the Board of Directors in connection with its
consideration of the Proposed Transaction. This opinion is not intended to be
and does not constitute a recommendation to any stockholder of the Company as
to how such stockholder should vote with respect to the Proposed Transaction.
Very truly yours,
/s/ Lehman Brothers
---------------------------
LEHMAN BROTHERS
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APPENDIX D
[WARBURG DILLON READ LETTERHEAD]
October 24, 1999
The Board of Directors and the Special Committee of the Board of Directors
MidAmerican Energy Holdings Company
666 Grand Avenue
Des Moines, IA 50309
Dear Members of the Board of Directors and Members of the Special Committee:
We understand that MidAmerican Energy Holdings Company, an Iowa
corporation (the "Company"), is considering a transaction whereby Teton
Acquisition Corp., an Iowa corporation ("Merger Sub") and a wholly owned
subsidiary of Teton Formation L.L.C., an Iowa limited liability company
("Teton") formed by Berkshire Hathaway Inc., Walter Scott Jr., a member of the
Board of Directors of the Company, and David L. Sokol, Chairman of the Board
and Chief Executive Officer of the Company (collectively, the "Investor
Group"), will merge (the "Merger") with the Company. Pursuant to the terms of
an Agreement and Plan of Merger (the "Merger Agreement"), each issued and
outstanding share of common stock of the Company (the "Common Stock") other
than shares held in treasury by the Company, shares owned by Teton, Merger Sub
or any subsidiary of the Company, or dissenting shares (as defined in the
Merger Agreement) ("Excluded Shares"), will be converted into the right to
receive $35.05 in cash (the "Consideration"). The terms and conditions of the
Transaction are more fully set forth in the Merger Agreement.
You have requested our opinion as to the fairness, from a financial point
of view, of the Consideration to be received by the holders of Common Stock
(other than Excluded Shares) in the Merger.
In arriving at our opinion, we have, among other things: (i) reviewed
certain publicly available business and historical financial information
relating to the Company; (ii) reviewed certain internal financial information
and other data relating to the business and financial prospects of the Company,
including estimates and financial forecasts prepared by management of the
Company, that were provided to us by the Company and are not publicly
available; (iii) reviewed the historical market prices and trading volumes of
the Common Stock of the Company; (iv) conducted discussions with members of the
senior management of the Company; (v) reviewed publicly available financial and
stock market data with respect to certain other companies in lines of business
we believe to be generally comparable to those of the Company; (vi) compared
the financial terms of the Merger with the publicly available terms of certain
other transactions which we considered relevant; (vii) reviewed the October 21,
1999 draft of the Merger Agreement and (viii) conducted such other financial
studies, analyses and investigations, and considered such other information as
we deemed necessary or appropriate.
In connection with our review, at your direction, we have not assumed any
responsibility for independent verification of any of the information reviewed
by us for the purpose of this opinion and have, at your direction, relied on
its being complete and accurate in all material respects. In addition, at your
direction, we have not made any independent evaluation or appraisal of any of
the assets or liabilities (contingent or otherwise) of the Company nor have we
been furnished with any such evaluation or appraisal. With respect to the
financial forecasts and estimates referred to above, we have assumed, at your
direction, that they have been reasonably prepared on a basis reflecting the
best currently available estimates and judgments of the management of the
Company as to the future performance of the Company. Our opinion is necessarily
based on economic, monetary, regulatory, market and other conditions as in
effect on, and the information made available to us as of, the date hereof.
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Our opinion does not address the Company's underlying business decision to
effect the Merger or constitute a recommendation to any shareholder of the
Company as to how such shareholder should vote with respect to the Merger. At
your direction, we have not been asked to, nor do we, offer any opinion as to
the material terms of the Merger Agreement or the form of the Transaction. In
rendering this opinion, we have assumed, with your consent, that the final
executed form of the Merger Agreement does not differ in any material respect
from the draft that we have examined, and that Teton and the Company will
comply with all the material terms of the Merger Agreement. We have not
negotiated the terms of the Merger and we have not been authorized to and have
not solicited indications of interest in a business combination with the
Company from any party.
In the past, Warburg Dillon Read LLC ("WDR") and its predecessors have
provided investment banking services to the Company and its predecessors and
received customary compensation for the rendering of such services. An
affiliate of WDR has credit facilities outstanding to the Company totaling
approximately $74,000,000. In the ordinary course of business, WDR, its
successors and affiliates may trade securities of the Company for their own
accounts and, accordingly, may at any time hold a long or short portion in such
securities.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Consideration to be received by the holders of shares of
Common Stock (other than the Excluded Shares) in the Merger is fair, from a
financial point of view, to such holders.
Very truly yours,
WARBURG DILLON READ LLC
By: /s/ Kenneth S. Crews By: /s/ Jason D. Sweet
---------------------------------- ---------------------------------
Kenneth S. Crews Jason D. Sweet
Managing Director Managing Director
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APPENDIX E
IOWA BUSINESS CORPORATION ACT
DISSENTERS' RIGHTS PROVISIONS
DIVISION XIII
DISSENTERS' RIGHTS
PART A
490.1301 DEFINITIONS FOR DIVISION XIII. In this division:
1. "Beneficial shareholders" means the person who is a beneficial owner
of shares held by a nominee as the record shareholder.
2. "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation by
merger or share exchange of that issuer.
3. "Dissenter" means a shareholder who is entitled to dissent from
corporate action under section 490.1302 and who exercises that right when and
in the manner required by sections 490.1320 through 490.1328.
4. "Fair value", with respect to a dissenter's shares, means the value of
the shares immediately before the effectuation of the corporate action to which
the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.
5. "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable under all the circumstances.
6. "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.
7. "Shareholder" means the record shareholder or the beneficial
shareholder.
490.1302 SHAREHOLDERS' RIGHT TO DISSENT. -- 1. A shareholder is entitled
to dissent from, and obtain payment of the fair value of the shareholder's
shares in the event of, any of the following corporate actions:
a. Consummation of a plan of merger to which the corporation is a party
if either of the following apply:
(1) Shareholder approval is required for the merger by section 490.1103 or
the articles of incorporation and the shareholder is entitled to vote on the
merger.
(2) The corporation is a subsidiary that is merged with its parent under
section 490.1104.
b. Consummation of a plan of share exchange to which the corporation is a
party as the corporation whose shares will be acquired, if the shareholder is
entitled to vote on the plan.
c. Consummation of a sale or exchange of all, or substantially all, of the
property of the corporation other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution, but not including a sale pursuant to court
order or a sale for cash pursuant to a plan by which all or substantially all
of the net proceeds of the sale will be distributed to the shareholders within
one year after the date of sale.
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d. An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it does any
or all of the following:
(1) Alters or abolishes a preferential right of the shares.
(2) Creates alters, or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption or
repurchase, of the shares.
(3) Alters or abolishes a preemptive right of the holder of the shares to
acquire shares or other securities.
(4) Excludes or limits the right of the shares to vote on any matter, or
to cumulate votes, other than a limitation by dilution through issuance of
shares or other securities with similar voting rights.
(5) Reduces the number of shares owned by the shareholder to a fraction of
a share if the fractional share so created is to be acquired for cash under
section 490.604.
(6) Extends, for the first time after being governed by this chapter, the
period of duration of a corporation organized under chapter 491 or 496A and
existing for a period of years on the day preceding the date the corporation is
first governed by this chapter.
e. Any corporate action taken pursuant to a shareholder vote to the extent
the articles of incorporation, bylaws, or a resolution of the board of
directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
2. A shareholder entitled to dissent and obtain payment for the
shareholder's shares under this chapter is not entitled to challenge the
corporate action creating the shareholder's entitlement unless the action is
unlawful or fraudulent with respect to the shareholder or the corporation.
490.1303 DISSENT BY NOMINEES AND BENEFICIAL OWNERS. -- 1. A record
shareholder may assert dissenters' rights as to fewer than all the shares
registered in that shareholder's name only if the shareholder dissents with
respect to all shares beneficially owned by any one person and notifies the
corporation in writing of the name and address of each person on whose behalf
the shareholder asserts dissenters' rights. The rights of a partial dissenter
under this subsection are determined as if the shares as to which the
shareholder dissents and the shareholder's other shares were registered in the
names of different shareholders.
2. A beneficial shareholder may assert dissenters' rights as to shares
held on the shareholder's behalf only if the shareholder does both of the
following:
a. Submits to the corporation the record shareholder's written consent to
the dissent not later than the time the beneficial shareholder asserts
dissenters' rights.
b. Does so with respect to all shares of which the shareholder is the
beneficial shareholder or over which that beneficial shareholder has power to
direct the vote.
PART B
490.1320 NOTICE OF DISSENTERS' RIGHTS. -- 1. If proposed corporate action
creating dissenters' rights under section 490.1302 is submitted to a vote at a
shareholders' meeting, the meeting notice must state that shareholders are or
may be entitled to assert dissenters' rights under this part and be accompanied
by a copy of this part.
2. If corporate action creating dissenters' rights under section 490.1302
is taken without a vote of shareholders, the corporation shall notify in
writing all shareholders entitled to assert dissenters' rights that the action
was taken and send them the dissenters' notice described in section 490.1322.
E-2
<PAGE>
490.1321 NOTICE OF INTENT TO DEMAND PAYMENT. -- 1. If proposed corporate
action creating dissenters' rights under section 490.1302 is submitted to a
vote at a shareholders' meeting, a shareholder who wishes to assert dissenters'
rights must do all of the following:
a. Deliver to the corporation before the vote is taken written notice of
the shareholder's intent to demand payment for the shareholder's shares if the
proposed action is effectuated.
b. Not vote the dissenting shareholder's shares in favor of the proposed
action.
2. A shareholder who does not satisfy the requirements of subsection 1, is
not entitled to payment for the shareholder's shares under this part.
490.1322 DISSENTERS' NOTICE. -- 1. If proposed corporate action creating
dissenters' rights under section 490.1302 is authorized at a shareholders'
meeting, the corporation shall deliver a written dissenters' notice to all
shareholders who satisfied the requirements of section 490.1321.
2. The dissenters' notice must be sent no later than ten days after the
proposed corporate action is authorized at a shareholders' meeting, or, if the
corporate action is taken without a vote of the shareholders, no later than ten
days after the corporate action is taken, and must do all of the following:
a. State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited.
b. Inform holders of uncertificated shares to what extent transfer of the
shares will be restricted after the payment demand is received.
c. Supply a form for demanding payment that includes the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action and requires that the person asserting dissenters' rights
certify whether or not the person acquired beneficial ownership of the shares
before that date.
d. Set a date by which the corporation must receive the payment demand,
which date shall not be fewer than thirty nor more than sixty days after the
date the dissenters' notice is delivered.
e. Be accompanied by a copy of this division.
490.1323 DUTY TO DEMAND PAYMENT. -- 1. A shareholder sent a dissenter's
notice described in section 490.1322 must demand payment, certify whether the
shareholder acquired beneficial ownership of the shares before the date
required to be set forth in the dissenter's notice pursuant to section
490.1322, subsection 2, paragraph "c", and deposit the shareholder's
certificates in accordance with the terms of the notice.
2. The shareholder who demands payment and deposits the shareholder's
shares under subsection 1 retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
3. A shareholder who does not demand payment or deposit the shareholder's
share certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for the shareholder's shares under this
division.
490.1324 SHARE RESTRICTIONS. -- 1. The corporation may restrict the
transfer of uncertificated shares from the date the demand for their payment is
received until the proposed corporate action is taken or the restrictions
released under section 490.1326.
2. The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
E-3
<PAGE>
490.1325 PAYMENT. -- 1. Except as provided in section 490.1327, at the
time the proposed corporate action is taken, or upon receipt of a payment
demand, whichever occurs later, the corporation shall pay each dissenter who
complied with section 490.1323 the amount the corporation estimates to be the
fair value of the dissenter's shares, plus accrued interest.
2. The payment must be accompanied by all of the following:
a. The corporation's balance sheet as of the end of a fiscal year ending
not more than sixteen months before the date of payment, an income statement
for that year, a statement of changes in shareholders' equity for that year,
and the latest available interim financial statements, if any.
b. A statement of the corporation's estimate of the fair value of the
shares.
c. An explanation of how the interest was calculated.
d. A statement of the dissenter's right to demand payment under section
490.1328.
e. A copy of this division.
490.1326 FAILURE TO TAKE ACTION. -- 1. If the corporation does not take
the proposed action within one hundred eighty days after the date set for
demanding payment and depositing share certificates, the corporation shall
return the deposited certificates and release the transfer restrictions imposed
on uncertificated shares.
2. If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under section 490.1322 as if the corporate action was taken
without a vote of the shareholders and repeat the payment demand procedure.
490.1327 AFTER-ACQUIRED SHARES. -- 1. A corporation may elect to withhold
payment required by section 490.1325 from a dissenter unless the dissenter was
the beneficial owner of the shares before the date set forth in the dissenters'
notice as the date of the first announcement to news media or to shareholders
of the terms of the proposed corporate action.
2. To the extent the corporation elects to withhold payment under
subsection 1, after taking the proposed corporate action, it shall estimate the
fair value of the shares, plus accrued interest, and shall pay this amount to
each dissenter who agrees to accept it in full satisfaction of the dissenter's
demand. The corporation shall send with its offer a statement of its estimate
of the fair value of the shares, an explanation of how the interest was
calculated, and a statement of the dissenter's right to demand payment under
section 490.1328.
490.1328 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER.
- -- 1. A dissenter may notify the corporation in writing of the dissenter's own
estimate of the fair value of the dissenter's shares and amount of interest
due, and demand payment of the dissenter's estimate, less any payment under
section 490.1325, or reject the corporation's offer under section 490.1327 and
demand payment of the fair value of the dissenter's shares and interest due, if
any of the following apply:
a. The dissenter believes that the amount paid under section 490.1325 or
offered under section 490.1327 is less than the fair value of the dissenter's
shares or that the interest due is incorrectly calculated.
b. The corporation fails to make payment under section 490.1325 within
sixty days after the date set for demanding payment.
c. The corporation, having failed to take the proposed action, does not
return the deposited certificates or release the transfer restrictions imposed
on uncertificated shares within sixty days after the date set for demanding
payment.
2. A dissenter waives the dissenter's right to demand payment under this
section unless the dissenter notifies the corporation of the dissenter's demand
in writing under subsection 1 within thirty days after the corporation made or
offered payment for the dissenter's shares.
E-4
<PAGE>
PART C
490.1330 COURT ACTION. 1. If a demand for payment under section 490.1328
remains unsettled, the corporation shall commence a proceeding within sixty
days after receiving the payment demand and petition the court to determine the
fair value of the shares and accrued interest. If the corporation does not
commence the proceeding within the sixty-day period, it shall pay each
dissenter whose demand remains unsettled the amount demanded.
2. The corporation shall commence the proceeding in the district court of
the county where a corporation's principal office or, if none in this state,
its registered office is located. If the corporation is a foreign corporation
without a registered office in this state, it shall commence the proceeding in
the county in this state where the registered office of the domestic
corporation merged with or whose shares were acquired by the foreign
corporation was located.
3. The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled parties to the proceeding as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
4. The jurisdiction of the court in which the proceeding is commenced
under subsection 2 is plenary and exclusive. The court may appoint one or more
persons as appraisers to receive evidence and recommend decision on the
question of fair value. The appraisers have the powers described in the order
appointing them, or in any amendment to it. The dissenters are entitled to the
same discovery rights as parties in other civil proceedings.
5. Each dissenter made a party to the proceeding is entitled to judgment
for either of the following:
a. The amount, if any, by which the court finds the fair value of the
dissenter's shares, plus interest, exceeds the amount paid by the
corporation.
b. The fair value, plus accrued interest, of the dissenter's
after-acquired shares for which the corporation elected to withhold
payment under section 490.1327.
490.1331 COURT COSTS AND COUNSEL FEES. -- 1. The court in an appraisal
proceeding commenced under section 490.1330 shall determine all costs of the
proceeding, including the reasonable compensation and expenses of appraisers
appointed by the court. The court shall assess the costs against the
corporation, except that the court may assess costs against all or some of the
dissenters, in amounts the court finds equitable, to the extent the court finds
the dissenters acted arbitrarily, vexatiously, or not in good faith in
demanding payment under section 490.1328.
2. The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable, for either of
the following:
a. Against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the requirements
of sections 490.1320 through 490.1328.
b. Against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses are
assessed acted arbitrarily, vexatiously, or not in good faith with respect to
the rights provided by this chapter.
3. If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation, the
court may award to these counsel reasonable fees to be paid out of the amounts
awarded the dissenters who were benefited.
E-5
<PAGE>
APPENDIX F
TRANSACTIONS INVOLVING MIDAMERICAN COMMON STOCK BY
BERKSHIRE HATHAWAY INC., WALTER SCOTT, JR., DAVID L. SOKOL,
TETON FORMATION L.L.C., TETON ACQUISITION CORP., MIDAMERICAN AND
CERTAIN EXECUTIVE OFFICERS AND DIRECTORS
Note: This Appendix F sets forth transactions involving MidAmerican common
stock other than the transactions contemplated by the merger agreement or
related agreements.
PURCHASES AND OTHER TRANSACTIONS INVOLVING MIDAMERICAN COMMON STOCK BY
MIDAMERICAN
<TABLE>
<CAPTION>
AVERAGE
QUARTER SHARES PURCHASE
ENDED PURCHASED LOW HIGH PRICE PER SHARE
- ------------ ------------- -------- -------- ----------------
<S> <C> <C> <C> <C>
3/31/97 -- -- -- --
6/30/97 57,100 32.29 32.92 32.83
9/30/97 607,200 34.54 37.17 36.05
12/31/97 957,900 32.04 33.48 33.14
3/31/98 20,949,063 22.54 34.05 33.22
6/30/98 497,200 29.69 30.50 30.05
9/30/98 497,000 26.90 29.01 27.94
12/31/98 -- -- -- --
3/31/99 785,900 26.92 28.54 28.24
6/30/99 1,253,000 33.17 34.88 33.95
9/30/99 1,337,300 28.04 34.54 30.00
</TABLE>
PURCHASES AND OTHER TRANSACTIONS INVOLVING MIDAMERICAN COMMON STOCK BY
BERKSHIRE HATHAWAY INC., TETON FORMATION L.L.C. AND TETON ACQUISITION CORP.
None.
PURCHASES AND OTHER TRANSACTIONS INVOLVING MIDAMERICAN COMMON STOCK BY WALTER
SCOTT, JR.
<TABLE>
<CAPTION>
AVERAGE
QUARTER SHARES PURCHASE
ENDED PURCHASED LOW HIGH PRICE PER SHARE
- ------------ --------------- -------- -------- ----------------
<S> <C> <C> <C> <C>
3/31/97 -- -- -- --
6/30/97 -- -- -- --
9/30/97 -- -- -- --
12/31/97 2,000,000* 37.39 37.39 37.39
3/31/98 500,000 28.00 28.00 28.00
6/30/98 -- -- -- --
9/30/98 500,000 27.63 29.00 28.62
12/31/98 -- -- -- --
3/31/99 -- -- -- --
6/30/99 -- -- -- --
9/30/99 -- -- -- --
</TABLE>
*WS Charitable Remainder Unitrust II was the purchaser.
F-1
<PAGE>
PURCHASES AND OTHER TRANSACTIONS INVOLVING MIDAMERICAN COMMON STOCK BY DAVID L.
SOKOL
<TABLE>
<CAPTION>
AVERAGE
QUARTER SHARES PURCHASE
ENDED PURCHASED LOW HIGH PRICE PER SHARE
- ------------ ----------- -------- -------- ----------------
<S> <C> <C> <C> <C>
3/31/97 -- -- -- --
6/30/97 -- -- -- --
9/30/97 743 28.58 28.58 28.58
12/31/97 -- -- -- --
3/31/98 40,000 27.56 27.63 27.61
6/30/98 -- -- -- --
9/30/98 40,869 23.58 26.82 25.18
12/31/98 -- -- -- --
3/31/99 -- -- -- --
6/30/99 -- -- -- --
9/30/99 722 29.43 29.43 29.43
------
</TABLE>
TRANSACTIONS IN MIDAMERICAN COMMON STOCK DURING THE PAST 60 DAYS BY ANY
PENSION, PROFIT SHARING OR SIMILAR PLAN OF MIDAMERICAN OR AFFILIATE OR BY ANY
ASSOCIATE OR MAJORITY OWNED SUBSIDIARY OF MIDAMERICAN OR AFFILIATE
During the 60 day period ending October 31, 1999, the latest date for
which such information is available, the plan administrator for the MidAmerican
Energy Company Retirement Savings Plans (401(k)) acquired a total of 44,458
shares of MidAmerican common stock, after giving effect to individual open
market purchase and sale transactions.
F-2
<PAGE>
APPENDIX G
INFORMATION RELATING TO BERKSHIRE HATHAWAY INC., WALTER SCOTT, JR.,
DAVID L. SOKOL, TETON FORMATION L.L.C., TETON ACQUISITION CORP. AND
CERTAIN EXECUTIVE OFFICERS AND DIRECTORS
References to "MidAmerican" in this Appendix G include the current
MidAmerican Energy Holdings Company and CalEnergy Company, Inc. (predecessor by
merger to MidAmerican). References to "Old MidAmerican" herein refer to
MidAmerican Energy Holdings Company prior to its merger with CalEnergy Company,
Inc.
I. MIDAMERICAN ENERGY HOLDINGS COMPANY
A. The name, principal business and address of the principal executive
offices of MidAmerican Energy Holdings Company are set forth below.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF
PRINCIPAL EXECUTIVE OFFICES PRINCIPAL BUSINESS
--------------------------- ------------------
<S> <C>
MidAmerican Energy Holdings MidAmerican is headquartered in Des Moines,
Company Iowa and has approximately 9,800 employees.
666 Grand Avenue Through its retail utility subsidiaries, MidAmerican
Des Moines, Iowa 50309 provides electric service to 2.2 million customers
(515) 242-4300 and natural gas service to 1.2 million customers
worldwide. MidAmerican also manages and owns
interests in approximately 8,300 megawatts of
diversified power generation facilities in operation,
construction and development.
</TABLE>
B. The name, present principal occupation or employment and five-year
employment history of each director and executive officer of MidAmerican
Energy Holdings Company are set forth below. Unless otherwise indicated,
the business address of each such person is 666 Grand Avenue, Des
Moines, Iowa 50309 and each such person is a citizen of the United
States.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION
NAME OF DIRECTOR AND FIVE YEAR EMPLOYMENT HISTORY
---------------- --------------------------------
<S> <C>
David L. Sokol Mr. Sokol is MidAmerican's Chairman of the
Board and Chief Executive Officer. He has been
Chief Executive Officer since April 19, 1993 and
served as President of MidAmerican from
April 19, 1993 until January 21, 1995. He has been
Chairman of the Board since May 1994 and has
been a MidAmerican director since March 1991.
Formerly, among other positions held in the
independent power industry, Mr. Sokol served as
President and Chief Executive Officer of Kiewit
Energy, a wholly owned subsidiary of Peter Kiewit
Sons', Inc. and Ogden Projects, Inc.
</TABLE>
G-1
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION
NAME OF DIRECTOR AND FIVE YEAR EMPLOYMENT HISTORY
---------------- --------------------------------
<S> <C>
Edgar D. Aronson Mr. Aronson has been a director since April 1983.
Mr. Aronson founded EDACO, Inc., a private
venture capital company, in 1981, and has been
President of EDACO, Inc. since that time. Prior to
that, Mr. Aronson was Chairman of Dillon, Read
International from 1979 to 1981 and a General
Partner in charge of the International Department
at Salomon Brothers from 1973 to 1979. Mr.
Aronson served from 1962 to 1968 as Vice
President consecutively in the International
Departments of First National Bank of Chicago
and Republic National Bank of New York. He
founded the International Department of Salomon
Brothers and Hutzler in 1968.
Judith E. Ayres Ms. Ayres has been a director since July 1990.
Since 1990, Ms. Ayres has been principal of The
Environmental Group, an environmental
consulting firm in San Francisco, California. From
1988 to 1989, Ms. Ayres was a Vice President of
William D. Ruckelshaus Associates, an
environmental consulting firm. From 1983 to 1988,
Ms. Ayres was the Regional Administrator of
Region 9 (Arizona, California, Hawaii, Nevada
and the Western Pacific Islands) of the United
States Environmental Protection Agency.
Terry E. Branstad The Hon. Terry E. Branstad has been a director
since April 1999. He served as the Governor of the
State of Iowa from 1983 to 1999. Prior to that,
Governor Branstad was the Lieutenant Governor
of the State of Iowa from 1979 to 1983. Prior to
that, Governor Branstad was an attorney in private
practice from 1974 to 1982. From 1973 to 1979,
Governor Brandstad was a representative in the
Iowa House of Representatives. Governor
Branstad has served as Chairman for the
Education Commission of the States, Republican
Governors' Association, Governors' Ethanol
Coalition, National Governors' Association and
the Midwest Governors' Association.
</TABLE>
G-2
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION
NAME OF DIRECTOR AND FIVE YEAR EMPLOYMENT HISTORY
---------------- --------------------------------
<S> <C>
Stanley J. Bright Mr. Bright is Vice Chairman of the Board and a
member of the executive committee. Mr. Bright
served as Chairman, President and Chief Executive
Officer of Old MidAmerican. Mr. Bright has
served as Chairman of MidAmerican Energy
Company since December 1, 1996, Chief Executive
Officer since July 1, 1998, President since 1995 and
President of the Office of the Chief Executive
Officer of Iowa-Illinois Gas and Electric Company,
a predecessor company of MidAmerican Energy
Company, from 1991 to 1995. Mr. Bright joined
Old MidAmerican in 1986 and its Board of
Directors in 1987. Prior to the merger of
CalEnergy Company, Inc. with Old MidAmerican,
Mr. Bright was Chair of the Strategy and
Executive Committees and a member of the
Finance Committee. Mr. Bright is also a director of
Norwest Bank Iowa, N.A. and Utilx Corporation.
Jack W. Eugster Mr. Eugster has been a director since 1987. Mr.
Eugster has been Chairman and Chief Executive
Officer of Musicland Stores Corp. (specialty
retailer), Minneapolis, Minnesota, since 1986 and
President since 1981. He joined the board of Old
MidAmerican in 1987 and served as Chair of the
Compensation Committee and a member of the
Executive Committee prior to the Merger.
Mr. Eugster is also a director of Damark, Inc.,
Donaldson Company, Inc., Josten's, Inc. and
ShopKo Stores, Inc.
Richard R. Jaros Mr. Jaros has been a director since March 1991.
Mr. Jaros served as President and Chief Operating
Officer from January 8, 1992 to April 19, 1993 and
as Chairman of the Board from April 19, 1993 to
May 1994. Mr. Jaros served as President of Kiewit
Diversified Group, Inc. (now Level 3
Communications) from 1996 to 1997 and as
Executive Vice President of Peter Kiewit Sons'
Inc. ("PKS") from 1993 to 1997 and as Chief
Financial Officer of PKS from 1995 to 1997. Mr.
Jaros served in various capacities at PKS between
1980 and 1993. Mr. Jaros is a director of Level 3
Communications, RCN Corporation, Commonwealth
Telephone, and DTN Corporation.
</TABLE>
G-3
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION
NAME OF DIRECTOR AND FIVE YEAR EMPLOYMENT HISTORY
---------------- --------------------------------
<S> <C>
Davis R. Morris Mr. Morris was appointed a director in February
1997. Mr. Morris was Chairman of Northern
Electric plc from 1989 to January 1997. In 1980, he
joined Delta plc becoming Managing Director of
the Switchgear and Accessories Division in 1981
and a director in 1984. Prior to that, Mr. Morris
was Managing Director of Wildt Mellor Bromley
Ltd., a subsidiary of Sears Holdings, plc, from 1975
to 1980. From 1958 to 1975, Mr. Morris was
employed by English Electric, which merged with
GEC, in production, development and general
management. Mr. Morris has served as a director
of Delta Group plc, EA Technology, Regional
Technology Centre (North) Ltd. and Northern
Arts.
Robert L. Peterson Mr. Peterson has been a director since 1990. Mr.
Peterson has been Chairman and Chief Executive
Officer of IBP, Inc. (meat processor), Dakota City,
Nebraska since 1980, President since 1977 and a
director since 1975. Mr. Peterson joined the Board
of Old MidAmerican in 1990 and served as a
member of the executive and nominating
committees prior to the merger of Old
MidAmerican with CalEnergy Company, Inc.
Bernard W. Reznicek Mr. Reznicek has been a director since May 1995.
Mr. Reznicek has been President of Premier
Enterprises and National Director--Utility
Marketing for Central States Indemnity Co. of
Omaha since January 1997. Prior to that, he was
Dean, College of Business Administration at
Creighton University. From 1987 to 1994, Mr.
Reznicek was the Chairman, President and Chief
Executive Officer of Boston Edison Company and
was the President and Chief Executive Officer of
the Omaha Public Power District from 1981 to
1987. Mr. Reznicek serves on the boards of
directors of Stone & Webster, Incorporated, State
Street Corporation, Guarantee Life Companies,
Inc. and the Nebraska Humane Society.
</TABLE>
G-4
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION
NAME OF DIRECTOR AND FIVE YEAR EMPLOYMENT HISTORY
---------------- --------------------------------
<S> <C>
Walter Scott, Jr. Mr. Scott is the Chairman of the Board of Level 3
Communications, Inc., a communications and
information services company that is building the
first international network optimized for Internet
protocol technology, a position he has held since
September 1979. Level 3 Communications was
formerly known as Peter Kiewit Sons', Inc., for
which, until the spin-off of its construction
operations in March 1998, Mr. Scott also served as
Chief Executive Officer. Mr. Scott has been a
MidAmerican director since June 1991 and served
as MidAmerican's Chairman and Chief Executive
Officer from January 8, 1992 until April 19, 1993.
Mr. Scott is also a director of Berkshire Hathaway,
Burlington Resources, Inc., ConAgra, Inc.,
Valmont Industries, Inc., Commonwealth
Telephone Enterprises, Inc. and RCN Corporation,
a publicly traded company in which Level 3
Communications holds a majority ownership
interest.
John R. Shiner Mr. Shiner has been a director since May 1995. He
joined the law firm of Morrison & Foerster in
1993, where he is a partner resident in the Los
Angeles office. Prior to that time, he was a partner
in the law firm of Baker & McKenzie. Mr. Shiner
has practiced law in Los Angeles since 1968,
specializing in litigation and consultation with the
senior management and boards of closely held and
public corporations.
</TABLE>
G-5
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION
NAME OF DIRECTOR AND FIVE YEAR EMPLOYMENT HISTORY
---------------- --------------------------------
<S> <C>
Sir Neville G. Trotter Sir Neville Trotter, JP, DL, FCA, FRAeS, has been
a director since May 1997. In June 1997 he was
appointed a Deputy Lieutenant of the County of
Tyne and Wear to assist the Lord Lieutenant as a
representative of Queen Elizabeth. He was elected
a Member of Parliament from 1974 to 1997 serving
as a Member of the Trade & Industry Select
Committee, Defence Select Committee and the
Transport Select Committee. He is a Chartered
Accountant and continued to practice as an active
Consultant with Grant Thornton after his election
to Parliament having previously been a Senior
Partner and member of the firm's National
Executive Team. He currently serves as
Non-Executive Director or Advisor with several
British corporations and trade associations. He is
Vice President of the British Marine Equipment
Council and a director of the North East Chamber
of Commerce Trade and Industry based in
Newcastle upon Tyne, Chairman of the British
American Chamber of Commerce in the North
East of England and an Honorary Colonel in the
Royal Marines Reserve.
David E. Wit Mr. Wit has been a director since April 1987. He is
Chief Executive Officer of Logicat Inc., a software
development/publishing firm. Prior to working at
Logicat Inc., Mr. Wit worked at E.M. Warburg,
Pincus & Company, where he analyzed seed-stage
financing and technology investments.
</TABLE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION
NAME OF EXECUTIVE OFFICER AND FIVE YEAR EMPLOYMENT HISTORY
------------------------- --------------------------------
<S> <C>
David L. Sokol See above.
Gregory E. Abel Mr. Abel is President and Chief Operating Officer.
Mr. Abel joined MidAmerican in 1992. Mr. Abel is
a Chartered Accountant and from 1984 to 1992, he
was employed by Price Waterhouse. As a manager
in the San Francisco office of Price Waterhouse, he
was responsible for clients in the energy industry.
Steven A. McArthur Mr. McArthur is Senior Vice President, Mergers
and Acquisitions and Corporate Secretary. Mr.
McArthur joined MidAmerican in February 1991.
From 1988 to 1991, he was an attorney in the
Corporate Finance Group at Shearman & Sterling
in San Francisco. From 1984 to 1988 he was an
attorney in the Corporate Finance Group at
Winthrop, Stimson, Putnam & Roberts in New
York.
</TABLE>
G-6
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION
NAME OF EXECUTIVE OFFICER AND FIVE YEAR EMPLOYMENT HISTORY
------------------------- --------------------------------
<S> <C>
John A. Rasmussen, Jr., Mr. Rasmussen is Senior Vice President and
General Counsel. Mr. Rasmussen has been Senior
Vice President and General Counsel of
MidAmerican Energy Company since November 1,
1996, and Group Vice President and General
Counsel from July 1, 1995 to November 1, 1996.
Prior to that, he was Vice President and General
Counsel of Midwest Power Systems, Inc., a
predecessor company, from 1993 to 1995.
Patrick J. Goodman Mr. Goodman is Senior Vice President and Chief
Financial Officer. Mr. Goodman joined
MidAmerican in June 1995, and served as
Manager of Consolidation Accounting until
September 1996 when he was promoted to
Controller. Prior to joining the company, Mr.
Goodman was a financial manager for National
Indemnity Company and a senior associate at
Coopers & Lybrand.
Robert S. Silberman Mr. Silberman is Senior Vice President and Chief
Administrative Officer. Mr. Silberman joined the
company in 1995. Prior to that, Mr. Silberman
served as Executive Assistant to the Chairman and
Chief Executive Officer of International Paper
Company, as Director of Project Finance and
Implementation for the Ogden Corporation and as
a Project Manager in Business Development for
Allied-Signal, Inc. He has also served as the
Assistant Secretary of the Army for the United
States Department of Defense.
Keith D. Hartje Mr. Hartje is Senior Vice President, Human
Resources. Mr. Hartje has been with MidAmerican
Energy Company and its predecessor companies
since 1973. During that time, he has held a number
of positions with MidAmerican, including General
Counsel and Corporate Secretary, District Vice
President for southwest Iowa operations, and Vice
President, Corporate Communications.
Ronald W. Stepien Mr. Stepien has been President, MidAmerican
Energy Company, since November 1, 1998, and
Chief Operating Officer since March 1999,
Executive Vice President from November 1, 1996
to October 31, 1998, and Group Vice President
from 1995 to November 1, 1996. He was Vice
President of Iowa-Illinois Gas and Electric
Company, a predecessor company, from 1990 to
1995.
</TABLE>
G-7
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION
NAME OF EXECUTIVE OFFICER AND FIVE YEAR EMPLOYMENT HISTORY
------------------------- --------------------------------
<S> <C>
Eric Connor Mr. Connor is Director, Northern Electric and
Managing Director, Utility Services. Mr. Connor
joined Northern Electric in 1992 as a Director.
Prior to joining Northern Electric, he was a
Director at NEI Reyrolle Ltd. and prior to that,
his appointments included: deputy group head of
engineering, National Nuclear Corporation;
manager computer systems, NEI Electronics (C&I
Systems); systems engineer, Davy-Leowy; software
engineer, Marconi Space & Defence.
</TABLE>
II. TETON FORMATION L.L.C.
A. The name, principal business and address of the principal executive
offices of Teton Formation L.L.C. are set forth below.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF
PRINCIPAL EXECUTIVE OFFICES PRINCIPAL BUSINESS
--------------------------- ------------------
<S> <C>
Teton Formation L.L.C. c/o MEHC Teton Formation was formed as an Iowa limited
666 Grand Avenue liability company on October 14, 1999 by the
Des Moines, Iowa investor group for the purpose of entering into the
Attn: Chief Executive Officer merger agreement. Teton Formation has not
(515) 242-4031 engaged in any business activity other than in
connection with the merger and the related
transactions.
</TABLE>
B. The name, business address, present principal occupation or employment
and five-year employment history of each member of Teton Formation
L.L.C. are set forth below. Unless otherwise indicated, each such person
is a citizen of the United States.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION
NAME AND ADDRESS OF MEMBERS AND FIVE YEAR EMPLOYMENT HISTORY
--------------------------- --------------------------------
<S> <C>
David L. Sokol See I. B. of this Appendix G.
MidAmerican Energy
Holdings Company
302 S. 36th Street, Suite 400
Omaha, NE 68131
(402) 341-4500
Walter Scott, Jr. See I. B. of this Appendix G.
1000 Kiewit Plaza
Omaha, NE 68131
(402) 341-2052
</TABLE>
G-8
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION
NAME AND ADDRESS OF MEMBERS AND FIVE YEAR EMPLOYMENT HISTORY
--------------------------- --------------------------------
<S> <C>
Berkshire Hathaway Inc. Berkshire Hathaway is a holding company owning
1440 Kiewit Plaza subsidiaries engaged in a number of diverse
Omaha, NE 68131 business activities, the most important of which is
(402) 346-1400 the property and casualty insurance and
reinsurance business. Other business activities
conducted by Berkshire Hathaway's subsidiaries
include publication of a daily and Sunday
newspaper in Buffalo, New York; training services
to operators of aircraft and ships; providing
fractional ownership programs for general aviation
aircraft; manufacturing and marketing of home
cleaning systems and related accessories;
manufacture and sale of boxed chocolates and
other confectionery products; licensing and
servicing of approximately 5,800 Dairy Queen
stores, which feature hamburgers, hot dogs, various
dairy desserts and beverages; retailing of home
furnishings; retailing of fine jewelry; and
manufacture, import and distribution of footwear.
Berkshire Hathaway has been engaged in various
business activities during the past five years.
Warren E. Buffett is Berkshire's Chairman and
Chief Executive Officer and has served in such
capacity for the past five years.
</TABLE>
III. TETON ACQUISITION CORP.
A. The name, principal business and address of the principal executive
offices of Teton Acquisition Corp. are set forth below.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF
PRINCIPAL EXECUTIVE OFFICES PRINCIPAL BUSINESS
--------------------------- ------------------
<S> <C>
Teton Acquisition Corp. c/o MEHC Teton Acquisition was formed as an Iowa
666 Grand Avenue corporation on October 13, 1999 for the purpose of
Des Moines, Iowa entering into the merger agreement. Teton
Attn: Chief Executive Officer Acquisition is a wholly owned subsidiary of Teton
(515) 242-4031 Formation. Teton Acquisition has not engaged in
any business activity other than in connection with
the merger and the related transactions.
Substantially all of the assets of Teton Acquisition
consist of subscription agreements with each
member of the investor group to provide a portion
of the financing required to complete the merger.
</TABLE>
G-9
<PAGE>
B. The name, business address, present principal occupation or employment
and five-year employment history of each director and executive officer
of Teton Acquisition Corp. are set forth below. Unless otherwise
indicated, each such person is a citizen of the United States.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF PRESENT PRINCIPAL OCCUPATION
EACH DIRECTOR AND EXECUTIVE OFFICER AND FIVE YEAR EMPLOYMENT HISTORY
----------------------------------- --------------------------------
<S> <C>
David L. Sokol See I. B. of this Appendix G.
MidAmerican Energy
Holdings Company Position at Teton Acquisition Corp.: Chairman,
302 S. 36th Street, Suite 400 President and Chief Executive Officer; Vice
Omaha, NE 68131 President and Treasurer, Vice President
(402) 341-4500 and Secretary
Walter Scott, Jr. See I. B. of this Appendix G.
1000 Kiewit Plaza
Omaha, NE 68131 Position at Teton Acquisition Corp.: Director
(402) 341-2052
Warren E. Buffett Warren E. Buffett has been a director of Berkshire
Berkshire Hathaway Inc. Hathaway Inc. since 1965 and has been its
1440 Kiewit Plaza Chairman and Chief Executive Officer since 1970.
Omaha, NE 68131 Mr. Buffett is a controlling person of Berkshire.
(402) 346-1400 He is also a director of The Coca-Cola Company,
The Gillette Company and The Washington Post
Company.
Position at Teton Acquisition Corp.: Director
</TABLE>
IV. BERKSHIRE HATHAWAY, INC.
A. The name, principal business and address of the principal executive
offices of Berkshire Hathaway Inc. are set forth below:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF
PRINCIPAL EXECUTIVE OFFICES PRINCIPAL BUSINESS
--------------------------- ------------------
<S> <C>
Berkshire Hathaway Inc. See II. B. of this Appendix G.
1440 Kiewit Plaza
Omaha, Nebraska 68131
(402) 346-1400
</TABLE>
B. The name, business address, present principal occupation or employment
and five-year employment history of the Warren E. Buffett, the person
who controls Berkshire Hathaway Inc., a United States citizen, are set
forth below.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION
NAME AND BUSINESS ADDRESS AND FIVE YEAR EMPLOYMENT HISTORY
------------------------- --------------------------------
<S> <C>
Warren E. Buffett See III. B. of this Appendix G.
Berkshire Hathaway Inc.
1440 Kiewit Plaza
Omaha, Nebraska 68131
(402) 346-1400
</TABLE>
G-10
<PAGE>
C. The name, business address, present principal occupation or employment,
five-year employment history and citizenship of the executive officers
and directors of Berkshire Hathaway Inc. are set forth below. Unless
otherwise indicated, each such person is a citizen of the United States.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION
NAME AND BUSINESS ADDRESS AND FIVE YEAR EMPLOYMENT HISTORY
------------------------- --------------------------------
<S> <C>
Warren E. Buffett See III. B. of this Appendix G.
Howard G. Buffett Mr. Buffett has been a director of Berkshire
1004 East Illinois Street Hathaway since 1993. Mr. Buffett is Chairman of
Assumption, Illinois 62510 Directors of The GSI Group, a company primarily
engaged in the manufacture of agricultural
equipment. From 1992 until June 5, 1995,
Mr. Buffett had been Vice President, Assistant to
the Chairman and a Director of Archer Daniels
Midland Company, a company engaged principally
in the business of processing and merchandising
agricultural commodities. He is also a director of
Coca-Cola Enterprises, Inc., Lindsay
Manufacturing Co. and Mond Industries Inc. His
business address is 1004 East Illinois Street,
Assumption, Illinois 62510.
Susan T. Buffett Mrs. Buffett has been a director of Berkshire
1440 Kiewit Plaza Hathaway since 1991. Mrs. Buffett has not been
Omaha, Nebraska 68131 employed in the past five years.
Malcolm G. Chace Mr. Chace has been a director of Berkshire
One Providence Washington Plaza Hathaway since 1992. In 1996, Mr. Chace was
Providence, Rhode Island 02903 named Chairman of the Board of Directors of
Bank RI, a community bank located in the state of
Rhode Island. Prior to 1996, Mr. Chace had been a
private investor.
Charles T. Munger Mr. Munger has been a director and Vice
355 South Grand Avenue Chairman of Berkshire Hathaway's Board of
Los Angeles, California 90071 Directors since 1978. He is Chairman of the Board
of Directors and Chief Executive Officer of Wesco
Financial Corporation, approximately 80%-owned
by Berkshire Hathaway. Mr. Munger is also
Chairman of the Board of Directors of Daily
Journal Corporation and a director of Costco
Companies, Inc.
Ronald L. Olson Mr. Olson was elected a director in 1997. For more
355 South Grand Avenue than the past five years, he has been a partner in
Los Angeles, California 90071 the law firm of Munger, Tolles & Olson LLP. He is
also a director of Edison International, Western
Asset Trust, Inc. and Pacific American Income
Shares, Inc.
Walter Scott, Jr. See I. B. of this Appendix G.
Marc D. Hamburg Mr. Hamburg has been the Chief Financial Officer
1440 Kiewit Plaza and Vice President of Berkshire Hathaway for
Omaha, Nebraska 68131 more than the past five years.
</TABLE>
G-11
<PAGE>
V. WALTER SCOTT, JR. AND DAVID L. SOKOL
A. The name, business address, present principal occupation or employment
and five-year employment history of Walter Scott Jr., a United States
citizen, are set forth below.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION
NAME AND BUSINESS ADDRESS AND FIVE YEAR EMPLOYMENT HISTORY
------------------------- --------------------------------
<S> <C>
Walter Scott, Jr. See I. B. of this Appendix G.
1000 Kiewit Plaza
Omaha, Nebraska 68131
(402) 341-2052
</TABLE>
B. The name, business address, present principal occupation or employment
and five-year employment history of David L. Sokol, a United States
citizen, are set forth below.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION
NAME AND BUSINESS ADDRESS AND FIVE YEAR EMPLOYMENT HISTORY
------------------------- --------------------------------
<S> <C>
David L. Sokol See I. B. of this Appendix G.
MidAmerican Energy Holdings
Company
302 S. 36th Street, Suite 400
Omaha, NE 68131
(402) 341-4500
</TABLE>
G-12
<PAGE>
MIDAMERICAN ENERGY HOLDINGS COMPANY
666 GRAND AVENUE
DES MOINES, IOWA 50309
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JANUARY 27, 2000
The undersigned shareholder of MidAmerican Energy Holdings Company
("MidAmerican"), revoking all previous proxies, hereby constitutes and appoints
Steven A. McArthur and John A. Rasmussen, Jr., and each of them, as proxies
with full power of substitution to attend the special meeting of shareholders
of MidAmerican at 9:00 a.m., Central time, on January 27, 2000 at , and at
any adjournment or postponement thereof (the "Special Meeting"), and to vote
the number of shares of common stock of MidAmerican the undersigned would be
entitled to vote if personally present at the Special Meeting on the matters
set forth herein. The undersigned hereby acknowledges receipt of the Notice of
Special Meeting and proxy statement relating to the Special Meeting and hereby
instructs said proxies to vote or refrain from voting such shares of
MidAmerican common stock as marked on the reverse side of this proxy card upon
the matters listed thereon.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY
WILL BE VOTED FOR THE APPROVAL OF THE AGREEMENT AND PLAN OF MERGER AND THE
MERGER (INCLUDING THE AMENDED AND RESTATED ARTICLES OF INCORPORATION) IN
ACCORDANCE WITH THE RECOMMENDATION OF THE BOARD OF DIRECTORS OF MIDAMERICAN.
THE PROXIES CANNOT VOTE YOUR SHARES UNLESS YOU SIGN AND RETURN THIS CARD.
(CONTINUED, AND TO BE SIGNED AND DATED, ON REVERSE SIDE)
<PAGE>
[X] Please mark your vote as in this example.
THE BOARD OF DIRECTORS OF MIDAMERICAN RECOMMENDS A VOTE FOR PROPOSAL 1.
1. To approve the Agreement and Plan of Merger, dated as of October 24, 1999,
among MidAmerican, Teton Formation L.L.C. and Teton Acquisition Corp., and
the merger of Teton Acquisition Corp. with and into MidAmerican, as
described in the accompanying proxy statement. In the merger, (a) each
issued and outstanding share of MidAmerican common stock (other than shares
held by MidAmerican, Teton Formation, Teton Acquisition and their
respective subsidiaries and other than shares held by shareholders who
perfect dissenters' rights under Iowa law) will be converted into the right
to receive $35.05 per share in cash and (b) the articles of incorporation
of MidAmerican will be amended and restated to be substantially in the form
attached as Appendix B to the proxy statement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. To transact such other business as may properly come before the meeting or
any adjournment or postponement thereof.
Please sign and date this proxy and return it in the enclosed return
envelope, whether or not you expect to attend the Special Meeting. You may also
vote in person if you do attend.
Date: ---------------------------
---------------------------------
---------------------------------
Signature(s)
Note: Please sign this proxy exactly as name appears hereon. If shares are held
as joint tenants, both joint tenants should sign. Attorneys-in-fact, executors,
administrators, trustees, guardians, corporate officers or other signing in a
representative capacity should indicate the capacity in which they are signing.
