<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 3, 1994
REGISTRATION NO. 33-56153
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
MIDAMERICAN ENERGY COMPANY
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
IOWA 4924 42-1425214
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
666 GRAND AVENUE
P.O. BOX 9244
DES MOINES, IOWA 50306-9244
ATTN: PAUL J. LEIGHTON, VICE PRESIDENT AND SECRETARY
(515) 242-4300
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
PAUL J. LEIGHTON
VICE PRESIDENT AND CORPORATE SECRETARY
MIDAMERICAN ENERGY COMPANY
666 GRAND AVENUE
P.O. BOX 9244
DES MOINES, IOWA 50306-9244
(515) 242-4300
(Names, Addresses, Including Zip Codes, and Telephone Numbers,
Including Area Codes, of Agents for Service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
R. Todd Vieregg, P.C. Douglas W. Hawes, Esq.
Sidley & Austin LeBoeuf, Lamb, Greene & MacRae, L.L.P.
One First National Plaza 125 West 55th Street
Chicago, Illinois 60603 New York, New York 10019
</TABLE>
------------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective and all other
conditions to the Merger of Midwest Resources Inc., Midwest Power Systems Inc.
and Iowa-Illinois Gas and Electric Company with and into the Registrant pursuant
to the Agreement and Plan of Merger described in the Joint Proxy
Statement/Prospectus forming a part of this Registration Statement, have been
satisfied or waived.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
MIDAMERICAN ENERGY COMPANY
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
FORM S-4 -- ITEM NO. AND CAPTION JOINT PROXY STATEMENT/PROSPECTUS
- ------------------------------------------------------------------------------- --------------------------------------
<C> <S> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and Outside Front Cover Page of
Prospectus......................................................... Facing Page of Registration Statement;
Cross Reference Sheet; Cover Page of
Prospectus
2. Inside Front and Outside Back Cover Pages of Prospectus............. Available Information; Incorporation
by Reference; Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed Charges, and Other
Information........................................................ Summary of Joint Proxy
Statement/Prospectus; Risk Factors;
Nuclear Operations; Selected
Historical and Pro Forma Financial
Data; Comparative Per Share Prices of
Resources and Iowa-Illinois Common
Stock; Comparative Book Values,
Dividends and Earnings Per Share of
Common Stock
4. Terms of the Transaction............................................ Summary of Joint Proxy
Statement/Prospectus; The Merger;
Regulatory Matters; The Merger
Agreement; Description of Company
Capital Stock; Comparison of
Corporate Charters and Rights of
Security Holders; The Company
Following the Merger; Annex I; Annex
III; Annex IV
5. PRO FORMA Financial Information..................................... Selected Historical and Pro Forma
Financial Data; Pro Forma Combined
Financial Information (Unaudited)
6. Material Contacts With the Company Being Acquired................... The Merger; Selected Information
Concerning Iowa-Illinois, Resources
and Midwest Power
7. Additional Information Required for Reoffering by Persons and
Parties Deemed to be Underwriters.................................. Not Applicable
8. Interest of Named Experts and Counsel............................... The Merger; Legal Matters; Experts
9. Disclosure of Commission Position on Indemnification For Securities
Act Liabilities.................................................... Not Applicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FORM S-4 -- ITEM NO. AND CAPTION JOINT PROXY STATEMENT/PROSPECTUS
- ------------------------------------------------------------------------------- --------------------------------------
<C> <S> <C>
B. INFORMATION ABOUT THE REGISTRANT
10. Information With Respect to S-3 Registrants......................... Not Applicable
11. Incorporation of Certain Information by Reference................... Not Applicable
12. Information with Respect to S-2 or S-3 Registrants.................. Not Applicable
13. Incorporation of Certain Information by Reference................... Not Applicable
14. Information with Respect to Registrants Other Than S-3 or S-2
Registrants........................................................ Incorporation by Reference; Selected
Historical and Pro Forma Financial
Data; Pro Forma Combined Financial
Information (Unaudited); Selected
Information Concerning Iowa-Illinois,
Resources and Midwest Power
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information With Respect to S-3 Companies........................... Incorporation by Reference; The
Merger; Selected Historical and Pro
Forma Financial Data; Pro Forma
Combined Financial Information
(Unaudited); Selected Information
Concerning Iowa-Illinois, Resources
and Midwest Power
16. Information With Respect to S-2 or S-3 Companies.................... Not Applicable
17. Information With Respect to Companies Other Than S-2 and S-3
Companies.......................................................... Not Applicable
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or Authorizations Are to be
Solicited.......................................................... Incorporation by Reference; Meetings,
Voting and Proxies; Summary of Joint
Proxy Statement/Prospectus; The
Merger; Shareholder Proposals
19. Information if Proxies, Consents or Authorizations Are Not to be
Solicited, or in an Exchange Offer................................. Not Applicable
</TABLE>
<PAGE>
[Letterhead of Resources]
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
Midwest Resources Inc. which will be held on Wednesday, December 21, 1994 at the
Des Moines Convention Center, 501 Grand Avenue, Des Moines, Iowa. The meeting
will start at 10:00 a.m., local time.
At this important meeting, the holders of Midwest Resources common stock
will be asked to approve a Merger Agreement pursuant to which Midwest Resources,
Midwest Power Systems Inc., a subsidiary of Midwest Resources, and Iowa-Illinois
Gas and Electric Company, will merge with and into MidAmerican Energy Company, a
newly-formed Iowa corporation. Upon the completion of the merger, you, as a
holder of Midwest Resources common stock, together with the holders of Iowa-
Illinois common stock, will become holders of MidAmerican Energy common stock.
Based upon the conversion ratios of one share of MidAmerican Energy common stock
for each share of Midwest Resources common stock and 1.47 shares of MidAmerican
Energy common stock for each share of Iowa-Illinois common stock, holders of
Midwest Resources common stock and holders of Iowa-Illinois common stock would
hold approximately 56% and 44%, respectively, of the shares of MidAmerican
Energy common stock that will be outstanding at the effective time of the
merger.
The accompanying Joint Proxy Statement/Prospectus discusses the reasons for
and the benefits of the merger, and describes conflicts of interest of certain
persons in the merger. Shareholders are urged to read the Joint Proxy
Statement/Prospectus and Annexes thereto in their entirety.
The Board of Directors believes that this merger of equals will benefit the
shareholders because (i) it will create a larger, stronger company well
positioned to grow and prosper in an increasingly competitive environment, (ii)
it will create added shareholder value through increased efficiency and reduced,
deferred or avoided costs, resulting in a financially stronger company, (iii)
MidAmerican Energy will have a diverse and growing base of industrial,
commercial, agricultural and residential customers, and (iv) MidAmerican Energy
will be well positioned to take advantage of future strategic opportunities as
the demands of a competitive market intensify.
The Board of Directors also believes that the merger will create significant
operational and strategic synergies due to the complementary strengths of
Midwest Resources, Midwest Power and Iowa-Illinois that will allow MidAmerican
Energy to be able to achieve substantial savings in operating and capital costs.
As a result, MidAmerican Energy will be able to compete more effectively than
would Midwest Resources and Midwest Power for the delivery of energy and energy
related products.
Approval of the Merger Agreement by shareholders of Midwest Resources,
Midwest Power and Iowa-Illinois entitled to vote thereon is a condition to the
consummation of the merger. If the Merger Agreement is approved by the
shareholders of Midwest Resources, Midwest Power and Iowa-Illinois, the merger
will be consummated only after certain regulatory approvals are received and
other conditions are satisfied or waived. It is anticipated that this will occur
in the second half of 1995.
Even if you plan to attend the meeting, we urge you to mark, sign and date
the enclosed proxy and return it promptly. You have the option to revoke it at
any time, or to vote your shares personally on request if you attend the
meeting.
IF YOU DO NOT RETURN THE PROXY CARD AND DO NOT VOTE AT THE MEETING, IT WILL
HAVE THE SAME EFFECT AS IF YOU VOTED AGAINST THE MERGER.
<PAGE>
Holders of record of Midwest Resources common stock at the close of business
on November 3, 1994 will be entitled to one vote for each share. There are over
50,000 holders of Midwest Resources common stock.
For the merger to be approved, the Merger Agreement must be approved by the
holders of a majority of the outstanding shares of Midwest Resources common
stock entitled to vote. Your vote is important no matter how many shares you
hold.
Holders of Midwest Resources common stock have the right to dissent from
consummation of the merger, and, upon compliance with the procedural
requirements of the Iowa Business Corporation Act, to receive the "fair value"
of their shares if the merger is effected. Reference is made to the detailed
information regarding dissenters' rights contained in the accompanying Joint
Proxy Statement/Prospectus.
Please do not send in your stock certificates with your proxy card.
Sincerely,
Russell E. Christiansen
CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
November 3, 1994
<PAGE>
MIDWEST RESOURCES INC.
666 GRAND AVENUE
P.O. BOX 9244
DES MOINES, IOWA 50306-9244
TELEPHONE NUMBERS: (515) 242-4300 OR (800) 247-5211
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 21, 1994
To the Shareholders of
Midwest Resources Inc.
A Special Meeting of holders of common stock of Midwest Resources Inc., an
Iowa corporation ("Resources"), will be held on Wednesday, December 21, 1994, at
the Des Moines Convention Center, 501 Grand Avenue, Des Moines, Iowa, commencing
at 10:00 a.m., local time, for the following purpose:
To consider and vote upon a proposal to approve an Agreement and Plan of
Merger, dated as of July 26, 1994, as amended and restated as of September
27, 1994 (the "Merger Agreement"), among Resources, Midwest Power Systems
Inc., an Iowa corporation and a subsidiary of Resources ("Midwest Power"),
Iowa-Illinois Gas and Electric Company, an Illinois corporation
("Iowa-Illinois"), and a newly-formed corporation, MidAmerican Energy
Company, an Iowa corporation (the "Company"), which provides for the merger
(the "Merger") of Resources, Midwest Power and Iowa-Illinois with and into
the Company, with the Company to be the surviving corporation of the Merger,
and whereby, with certain limitations: (i) each issued and outstanding share
of Resources common stock, no par value, will be converted into and become
one share of common stock, no par value, of the Company ("Company Common
Stock"); (ii) each issued and outstanding share of Midwest Power common
stock, no par value, will be cancelled; (iii) each issued and outstanding
share of each series of Midwest Power preferred stock, no par value, and
Iowa-Illinois Preference Stock, no par value, will be converted into and
become a share of a similarly designated series of Company Preferred Stock,
no par value; and (iv) each issued and outstanding share of Iowa-Illinois
common stock, par value $1.00 per share, will be converted into the right to
receive 1.47 shares of Company Common Stock; all as more fully described in
the accompanying Joint Proxy Statement/Prospectus.
Based upon the conversion ratios set forth in the Merger Agreement,
Resources and Iowa-Illinois shareholders would hold approximately 56% and 44%,
respectively, of the shares of Company Common Stock that would be outstanding
after the consummation of the Merger.
Shareholders of record at the close of business on November 3, 1994, will be
entitled to notice of and to vote at the Special Meeting or at any postponement
or adjournment thereof. EVEN IF YOU NOW EXPECT TO ATTEND THE SPECIAL MEETING,
YOU ARE REQUESTED TO MARK, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY IN THE
ENCLOSED ADDRESSED POSTAGE-PAID ENVELOPE. If you do attend the Special Meeting,
you may vote in person, whether or not you have sent in your proxy.
Holders of Resources common stock have the right to dissent from
consummation of the Merger and, upon compliance with the procedural requirements
of the Iowa Business Corporation Act, to receive "fair value" of their shares if
the Merger is effected. See "The Merger -- Dissenters' Rights" in the Joint
Proxy Statement/Prospectus.
By Order of the Board of Directors
Paul J. Leighton
VICE PRESIDENT AND
SECRETARY
November 3, 1994
<PAGE>
[Letterhead of Iowa-Illinois]
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
Iowa-Illinois Gas and Electric Company ("Iowa-Illinois") which will be held on
Wednesday, December 21, 1994 at the River Center, 136 East Third Street,
Davenport, Iowa. The meeting will start at 10:00 a.m., local time.
At this important meeting, the holders of Iowa-Illinois common stock, par
value $1.00 per share ("Iowa-Illinois Common Stock"), and Iowa-Illinois
preference stock, no par value ("Iowa-Illinois Preference Stock"), will be asked
to approve a merger agreement (the "Merger Agreement") pursuant to which Midwest
Resources Inc., an Iowa corporation ("Resources"), Midwest Power Systems Inc.,
an Iowa corporation and a subsidiary of Resources ("Midwest Power"), and
Iowa-Illinois will merge (the "Merger") with and into MidAmerican Energy
Company, a newly-formed Iowa corporation (the "Company"). Upon the completion of
the Merger, holders of Iowa-Illinois Common Stock, together with the holders of
Resources common stock, will become the holders of Company common stock, no par
value, and the holders of Iowa-Illinois Preference Stock and the holders of
Midwest Power Preferred Stock, no par value, will become the holders of Company
Preferred Stock, no par value. Based upon the conversion ratios set forth in the
Merger Agreement, holders of Resources common stock and holders of Iowa-Illinois
Common Stock would hold approximately 56% and 44%, respectively, of the shares
of Company common stock that will be outstanding at the effective time of the
Merger.
The accompanying Joint Proxy Statement/Prospectus discusses the reasons for
and the benefits of the Merger, and describes conflicts of interest of certain
persons in the Merger. Shareholders are urged to read the Joint Proxy
Statement/Prospectus and the Annexes thereto in their entirety.
The Board of Directors believes that this merger of equals will benefit the
shareholders because (i) it will create a larger, stronger company well
positioned to grow and prosper in an increasingly competitive environment, (ii)
it will create added shareholder value through increased efficiency and reduced
or avoided costs, resulting in a financially stronger company, (iii) the Company
will have a diverse and growing base of industrial, commercial, agricultural and
residential customers, and (iv) the Company will be well positioned to take
advantage of future strategic opportunities as the demands of a competitive
market intensify.
The Board of Directors also believes that the Merger will create significant
operational and strategic synergies due to the complementary strengths of
Iowa-Illinois, Resources and Midwest Power that will allow the Company to be
able to achieve substantial savings in operating and capital costs. As a result,
the Company will be able to compete more effectively than would Iowa-Illinois
for the delivery of energy and energy related products.
Approval of the Merger Agreement by shareholders of Iowa-Illinois, Resources
and Midwest Power entitled to vote thereon is a condition to the consummation of
the Merger. If the Merger Agreement is approved by the shareholders of
Iowa-Illinois, Resources and Midwest Power, the Merger will be consummated only
after certain regulatory approvals are received and other conditions are
satisfied or waived. It is anticipated that this will occur in the second half
of 1995.
<PAGE>
Even if you plan to attend the meeting, we urge you to mark, sign and date
the enclosed proxy and return it promptly. You have the option to revoke it at
any time, or to vote your shares personally on request if you attend the
meeting.
IF YOU DO NOT RETURN THE PROXY CARD AND DO NOT VOTE AT THE MEETING, IT WILL
HAVE THE SAME EFFECT AS IF YOU VOTED AGAINST THE MERGER.
Holders of record of Iowa-Illinois Common Stock and Iowa-Illinois Preference
Stock at the close of business on November 3, 1994 will be entitled to one vote
for each share. There are over 25,000 holders of Iowa-Illinois Common Stock.
For the Merger to be approved, the Merger Agreement must be approved by the
holders of two-thirds of the outstanding shares entitled to vote of (i)
Iowa-Illinois Common Stock voting as a single class, (ii) Iowa-Illinois
Preference Stock voting as a single class and (iii) Iowa-Illinois Common Stock
and Iowa-Illinois Preference Stock voting together as a single class. Your vote
is important no matter how many shares you hold.
Holders of Iowa-Illinois Common Stock and Iowa-Illinois Preference Stock
have the right to dissent from consummation of the Merger, and, upon compliance
with the procedural requirements of the Illinois Business Corporation Act, to
receive the "fair value" of their shares if the Merger is effected. Reference is
made to the detailed information regarding dissention contained in the
accompanying Joint Proxy Statement/Prospectus.
Please do not send in your stock certificates with your proxy card.
Sincerely,
Stanley J. Bright
CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
November 3, 1994
<PAGE>
IOWA-ILLINOIS GAS AND ELECTRIC COMPANY
P.O. BOX 4350
DAVENPORT, IOWA 52808
TELEPHONE NUMBER: (319) 326-7111
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 21, 1994
To the Shareholders of
Iowa-Illinois Gas and Electric Company
A Special Meeting of holders of common stock, par value $1.00 per share
("Iowa-Illinois Common Stock"), and preference stock, no par value
("Iowa-Illinois Preference Stock"), of Iowa-Illinois Gas and Electric Company,
an Illinois corporation ("Iowa-Illinois"), will be held on Wednesday, December
21, 1994, at the River Center, 136 East Third Street, Davenport, Iowa,
commencing at 10:00 a.m., local time, for the following purpose:
To consider and vote upon a proposal to approve an Agreement and Plan of
Merger, dated as of July 26, 1994, as amended and restated as of September
27, 1994 (the "Merger Agreement"), among Midwest Resources Inc., an Iowa
corporation ("Resources"), Midwest Power Systems Inc., an Iowa corporation
and a subsidiary of Resources ("Midwest Power"), Iowa-Illinois and a newly-
formed corporation, MidAmerican Energy Company, an Iowa corporation (the
"Company"), which provides for the merger (the "Merger") of Resources,
Midwest Power and Iowa-Illinois with and into the Company, with the Company
to be the surviving corporation of the Merger, and whereby, with certain
limitations: (i) each issued and outstanding share of Iowa-Illinois Common
Stock will be converted into the right to receive 1.47 shares of common
stock, no par value, of the Company ("Company Common Stock"); (ii) each
issued and outstanding share of each series of Iowa-Illinois Preference
Stock and Midwest Power Preferred Stock, no par value, will be converted
into and become a share of a similarly designated series of Company
Preferred Stock, no par value; (iii) each issued and outstanding share of
Resources common stock, no par value, will be converted into and become one
share of Company Common Stock; and (iv) each issued and outstanding share of
Midwest Power common stock, no par value, will be cancelled; all as more
fully described in the accompanying Joint Proxy Statement/Prospectus.
Based upon the conversion ratios set forth in the Merger Agreement,
Resources and Iowa-Illinois shareholders would hold approximately 56% and 44%,
respectively, of the shares of Company Common Stock that would be outstanding
after the consummation of the Merger.
Shareholders of record at the close of business on November 3, 1994 will be
entitled to notice of and to vote at the Special Meeting or at any postponement
or adjournment thereof. EVEN IF YOU NOW EXPECT TO ATTEND THE SPECIAL MEETING,
YOU ARE REQUESTED TO MARK, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY IN THE
ENCLOSED ADDRESSED POSTAGE-PAID ENVELOPE. If you do attend the Special Meeting,
you may vote in person, whether or not you have sent in your proxy.
Holders of Iowa-Illinois Common Stock and Iowa-Illinois Preference Stock
have the right to dissent from consummation of the Merger and, upon compliance
with the procedural requirements of the Illinois Business Corporation Act, to
receive "fair value" of their shares if the Merger is effected. See "The Merger
- -- Dissenters' Rights" in the Joint Proxy Statement/Prospectus.
By Order of the Board of Directors
Keith M. Giger
SECRETARY AND TREASURER
November 3, 1994
<PAGE>
[Letterhead of Midwest Power]
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
Midwest Power Systems Inc. which will be held on Wednesday, December 21, 1994 at
the Des Moines Convention Center, 501 Grand Avenue, Des Moines, Iowa. The
meeting will start at 8:00 a.m., local time.
At this important meeting, the holders of Midwest Power preferred and common
stock will be asked to approve a Merger Agreement pursuant to which Midwest
Power, Midwest Resources Inc., parent of Midwest Power, and Iowa-Illinois Gas
and Electric Company will merge with and into MidAmerican Energy Company, a
newly-formed Iowa corporation. Upon the completion of the merger, you, as a
holder of shares of a series of Midwest Power preferred stock, will become a
holder of shares of a similarly designated series of MidAmerican Energy
Preferred Stock.
The accompanying Joint Proxy Statement/Prospectus discusses the reasons for
and the benefits of the merger, and describes conflicts of interest of certain
persons in the merger. Shareholders are urged to read the Joint Proxy
Statement/Prospectus and Annexes in their entirety.
The Board of Directors believes that this merger of equals will benefit the
shareholders because (i) it will create a larger, stronger company well
positioned to grow and prosper in an increasingly competitive environment, (ii)
it will create added shareholder value through increased efficiency and reduced,
deferred or avoided costs, resulting in a financially stronger company, (iii)
MidAmerican Energy will have a diverse and growing base of industrial,
commercial, agricultural and residential customers, and (iv) MidAmerican Energy
will be well positioned to take advantage of future strategic opportunities as
the demands of a competitive market intensify.
The Board of Directors also believes that the merger will create significant
operational and strategic synergies due to the complementary strengths of
Midwest Power, Midwest Resources and Iowa-Illinois that will allow MidAmerican
Energy to be able to achieve substantial savings in operating and capital costs.
As a result, MidAmerican Energy will be able to compete more effectively than
would Midwest Power and Midwest Resources for the delivery of energy and energy
related products.
Approval of the Merger Agreement by shareholders of Midwest Power, Midwest
Resources and Iowa-Illinois entitled to vote thereon is a condition to the
consummation of the merger. If the Merger Agreement is approved by the
shareholders of Midwest Power, Midwest Resources and Iowa-Illinois, the merger
will be consummated only after certain regulatory approvals are received and
other conditions are satisfied or waived. It is anticipated that this will occur
in the second half of 1995.
Even if you plan to attend the meeting, we urge you to mark, sign and date
the enclosed proxy and return it promptly. You have the option to revoke it at
any time, or to vote your shares personally on request if you attend the
meeting.
IF YOU DO NOT RETURN THE PROXY CARD AND DO NOT VOTE AT THE MEETING, IT WILL
HAVE THE SAME EFFECT AS IF YOU VOTED AGAINST THE MERGER.
Holders of record of Midwest Power preferred stock at the close of business
on November 3, 1994 will be entitled to one vote for each share. There are over
1,000 holders of Midwest Power preferred stock.
<PAGE>
For the merger to be approved, the Merger Agreement must be approved by the
holders of a majority of the votes entitled to be cast by all holders of
outstanding shares of (i) Midwest Power preferred stock, voting as a single
class, (ii) Midwest Power common stock, voting as a single class, and (iii)
Midwest Power preferred stock and common stock, voting together as a single
class. Midwest Resources owns all 1,000 outstanding shares of Midwest Power
common stock. Your vote is important no matter how many shares you hold.
Holders of Midwest Power preferred stock have the right to dissent from
consummation of the merger, and upon compliance with the procedural requirements
of the Iowa Business Corporation Act, to receive the "fair value" of their
shares if the merger is effected. Reference is made to the detailed information
regarding dissenters' rights contained in the accompanying Joint Proxy
Statement/ Prospectus.
Please do not send in your stock certificates with your proxy card.
Sincerely,
Russell E. Christiansen
CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
November 3, 1994
<PAGE>
MIDWEST POWER SYSTEMS INC.
666 GRAND AVENUE
P.O. BOX 657
DES MOINES, IOWA 50306-0657
TELEPHONE NUMBERS: (515) 281-2900 OR (800) 247-5211
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 21, 1994
To the Shareholders of
Midwest Power Systems Inc.
A Special Meeting of holders of preferred stock and common stock of Midwest
Power Systems Inc., an Iowa corporation ("Midwest Power"), will be held on
Wednesday, December 21, 1994, at the Des Moines Convention Center, 501 Grand
Avenue, Des Moines, Iowa, commencing at 8:00 a.m., local time, for the following
purposes:
To consider and vote upon a proposal to approve an Agreement and Plan of
Merger, dated as of July 26, 1994, as amended and restated as of September
27, 1994 (the "Merger Agreement"), among Midwest Power, Midwest Resources
Inc., an Iowa corporation and parent of Midwest Power ("Resources"),
Iowa-Illinois Gas and Electric Company, an Illinois corporation ("Iowa-
Illinois"), and a newly-formed corporation, MidAmerican Energy Company, an
Iowa corporation (the "Company"), which provides for the merger (the
"Merger") of Midwest Power, Resources and Iowa-Illinois with and into the
Company, with the Company to be the surviving corporation of the Merger, and
whereby, with certain limitations: (i) each issued and outstanding share of
each series of Midwest Power preferred stock, no par value, and
Iowa-Illinois Preference Stock, no par value, will be converted into and
become a share of a similarly designated series of Company Preferred Stock,
no par value; (ii) each issued and outstanding share of Midwest Power common
stock, no par value, will be cancelled, (iii) each issued and outstanding
share of Resources common stock, no par value, will be converted into and
become one share of common stock, no par value, of the Company ("Company
Common Stock"); and (iv) each issued and outstanding share of Iowa-Illinois
common stock, par value $1.00 per share, will be converted into the right to
receive 1.47 shares of Company Common Stock; all as more fully described in
the accompanying Joint Proxy Statement/Prospectus.
Based upon the conversion ratios set forth in the Merger Agreement,
Resources and Iowa-Illinois shareholders would hold approximately 56% and 44%,
respectively, of the shares of Company Common Stock that would be outstanding
after the consummation of the Merger.
Shareholders of record at the close of business on November 3, 1994 will be
entitled to notice of and to vote at the Special Meeting or at any postponement
or adjournment thereof. EVEN IF YOU NOW EXPECT TO ATTEND THE SPECIAL MEETING,
YOU ARE REQUESTED TO MARK, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY IN THE
ENCLOSED ADDRESSED POSTAGE-PAID ENVELOPE. If you do attend the Special Meeting,
you may vote in person, whether or not you have sent in your proxy.
Holders of Midwest Power Preferred Stock have the right to dissent from
consummation of the Merger and, upon compliance with the procedural requirements
of the Iowa Business Corporation Act, to receive "fair value" of their shares if
the Merger is effected. See "The Merger -- Dissenters' Rights" in the Joint
Proxy Statement/Prospectus.
By Order of the Board of Directors
Paul J. Leighton
VICE PRESIDENT AND
SECRETARY
November 3, 1994
<PAGE>
[MAP -- SEE APPENDIX OF GRAPHIC DIFFERENCES AT END OF THIS DOCUMENT]
------------------------
1993 OPERATING STATISTICS AND RANKINGS
<TABLE>
<CAPTION>
RESOURCES/ MIDAMERICAN
MIDWEST ENERGY COMPANY
POWER RANK IOWA-ILLINOIS RANK PRO FORMA RANK
---------- ---- ------------- ---- -------------- ----
<S> <C> <C> <C> <C> <C> <C>
Electric Customers................................................ 420,268 51 200,097 79 620,365 42
Gas Customers..................................................... 341,864 45 240,834 61 582,698 27
Total Assets...................................................... $2,607,219 50 $ 1,793,563 64 $4,381,754 39
Operating Revenues
Electric........................................................ $ 664,377 $ 338,593 $1,002,970
Gas............................................................. 332,168 206,821 538,989
Total Operating Revenues.......................................... $ 996,545 51 $ 545,414 73 $1,541,959 42
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION DATED NOVEMBER 3, 1994
JOINT PROXY STATEMENT
FOR
MIDWEST RESOURCES INC.
MIDWEST POWER SYSTEMS INC.
AND
IOWA-ILLINOIS GAS AND ELECTRIC COMPANY
------------------------
PROSPECTUS
FOR
MIDAMERICAN ENERGY COMPANY
COMMON STOCK, NO PAR VALUE
AND
PREFERRED STOCK, NO PAR VALUE
------------------------
Special Meetings of Shareholders of Midwest Resources Inc. and Midwest Power
Systems Inc.
to be Held on December 21, 1994
Special Meeting of Shareholders of Iowa-Illinois Gas and Electric Company
to be Held on December 21, 1994
MidAmerican Energy Company, an Iowa corporation (the "Company"), has filed a
registration statement on Form S-4 (together with all amendments, schedules and
exhibits thereto, the "Registration Statement") with the Securities and Exchange
Commission (the "SEC") pursuant to the Securities Act of 1933, as amended (the
"Securities Act"), covering up to 103,784,200 shares of Common Stock, no par
value, and up to 3,217,789 shares of Preferred Stock, no par value, of the
Company to be issued in connection with the merger of Midwest Resources Inc., an
Iowa corporation ("Resources"), Midwest Power Systems Inc., an Iowa corporation
and a subsidiary of Resources ("Midwest Power"), and Iowa-Illinois Gas and
Electric Company, an Illinois corporation ("Iowa-Illinois"), with and into the
Company, with the Company to be the surviving corporation of the merger (the
"Merger"), all as more fully described below. This Joint Proxy
Statement/Prospectus is being furnished in connection with the Special Meetings
of Shareholders of Resources, Midwest Power and Iowa-Illinois. This Joint Proxy
Statement/Prospectus also constitutes the prospectus of the Company filed as a
part of the Registration Statement. See "Available Information."
MIDWEST POWER AND IOWA-ILLINOIS ARE, AND THE COMPANY WILL BE, SUBJECT TO
CERTAIN GENERIC RISKS ASSOCIATED WITH UTILITY NUCLEAR GENERATION. SEE "RISK
FACTORS" AND "NUCLEAR OPERATIONS."
All information herein with respect to Iowa-Illinois has been furnished by
Iowa-Illinois, all information herein with respect to Resources has been
furnished by Resources, all information herein with respect to Midwest Power has
been furnished by Midwest Power and all information herein with respect to the
Company has been furnished by the Company.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Joint Proxy Statement/Prospectus is November 3, 1994. This
Joint Proxy Statement/Prospectus is first being mailed to the shareholders of
Resources, Midwest Power and Iowa-Illinois on or about November 3, 1994.
<PAGE>
MERGER RELATED MATTERS
SPECIAL MEETINGS. At the Iowa-Illinois Special Meeting ("Iowa-Illinois
Meeting"), scheduled to be held on December 21, 1994, the Resources Special
Meeting ("Resources Meeting"), scheduled to be held on December 21, 1994, and
the Midwest Power Special Meeting ("Midwest Power Meeting"), scheduled to be
held on December 21, 1994, shareholders of Iowa-Illinois, Resources and Midwest
Power, respectively, will consider and vote upon a proposal to approve an
Agreement and Plan of Merger dated as of July 26, 1994, as amended and restated
as of September 27, 1994 (the "Merger Agreement"), among Iowa-Illinois,
Resources, Midwest Power and the Company, pursuant to which, among other things,
Iowa-Illinois, Resources and Midwest Power will be merged with and into the
Company in the Merger, with the Articles of Incorporation (the "Company
Articles") and By-Laws (the "Company By-Laws") of the Company, as amended
pursuant to the Merger Agreement, to be the Articles of Incorporation and
By-Laws of the surviving corporation. Copies of the Merger Agreement and the
Company Articles are attached to this Joint Proxy Statement/Prospectus as Annex
I and Annex II, respectively.
CONVERSION AND CANCELLATION OF SHARES UPON CONSUMMATION OF THE MERGER. Upon
consummation of the Merger, pursuant to the Merger Agreement:
- Each issued and outstanding share of Iowa-Illinois common stock, par value
$1.00 per share (the "Iowa-Illinois Common Stock"), (other than any shares
of Iowa-Illinois Common Stock (a) owned by Iowa-Illinois, by any
subsidiary of Iowa-Illinois or by Resources or any subsidiary of
Resources, all of which will be cancelled without consideration and will
cease to exist, or (b) held by holders of Iowa-Illinois capital stock who
dissent (the "Iowa-Illinois Dissenters") in compliance with all applicable
provisions of the Illinois Business Corporation Act (the "Illinois Act")),
will be converted into the right to receive 1.47 shares of Company common
stock, no par value (the "Company Common Stock").
- Each issued and outstanding share of Resources common stock, no par value
(the "Resources Common Stock"), (other than any shares of Resources Common
Stock (a) owned by Resources, by any subsidiary of Resources or by
Iowa-Illinois or any subsidiary of Iowa-Illinois, all of which will be
cancelled without consideration and will cease to exist, or (b) held by
holders of Resources Common Stock who dissent (the "Resources Dissenters")
in compliance with all applicable provisions of the Iowa Business
Corporation Act (the "Iowa Act")), will be converted into and become one
share of Company Common Stock.
- Each issued and outstanding share of a series of Iowa-Illinois preference
stock, no par value (the "Iowa-Illinois Preference Stock"), (other than
any shares of Iowa-Illinois Preference Stock (a) owned by Iowa-Illinois,
by any subsidiary of Iowa-Illinois or by Resources or any subsidiary of
Resources, all of which will be cancelled without consideration and will
cease to exist, or (b) held by an Iowa-Illinois Dissenter), will be
converted into and become one share of Company preferred stock, no par
value (the "Company Preferred Stock"), of the respective series specified
below:
<TABLE>
<CAPTION>
IOWA-ILLINOIS COMPANY
PREFERENCE PREFERRED
STOCK STOCK
- -------------- --------------
<C> <S>
$7.80 Series $7.80 Series
$5.25 Series $5.25 Series
</TABLE>
- Each issued and outstanding share of a series of Midwest Power preferred
stock, no par value (the "Midwest Power Preferred Stock"), (other than any
shares of Midwest Power Preferred Stock (a) owned by Resources, by any
subsidiary of Resources or by Iowa-Illinois or any subsidiary of
Iowa-Illinois, all of which will be cancelled without consideration and
will cease to exist, or (b) held by holders of Midwest Power Preferred
Stock who dissent (the "Midwest
2
<PAGE>
Power Dissenters") in compliance with all applicable provisions of the
Iowa Act), will be converted into and become one share of Company
Preferred Stock of the respective series specified below:
<TABLE>
<CAPTION>
MIDWEST POWER COMPANY
PREFERRED STOCK PREFERRED STOCK
- ----------------- -----------------
<S> <C>
$3.30 Series $3.30 Series
$3.75 Series $3.75 Series
$3.90 Series $3.90 Series
$4.20 Series $4.20 Series
$4.35 Series $4.35 Series
$4.40 Series $4.40 Series
$4.80 Series $4.80 Series
$1.7375 Series $1.7375 Series
</TABLE>
- All shares of capital stock of the Company issued and outstanding
immediately prior to the Merger will be cancelled without consideration
and will cease to exist.
- All shares of Midwest Power common stock, no par value (the "Midwest Power
Common Stock"), issued and outstanding immediately prior to the Merger
will be cancelled without consideration and will cease to exist.
Upon consummation of the Merger, each certificate representing shares of
Resources Common Stock issued and outstanding prior to the Merger, other than
any shares which will not be converted, will represent the shares of Company
Common Stock into which such issued and outstanding shares are converted.
Upon consummation of the Merger, each certificate representing shares of
Iowa-Illinois Common Stock issued and outstanding prior to the Merger, other
than any shares which will not be converted, will represent instead the right to
receive the shares of Company Common Stock into which such issued and
outstanding shares are converted. Upon such conversion, all such shares of
Iowa-Illinois Common Stock will be cancelled without consideration and cease to
exist, and each holder of a certificate representing any such shares will cease
to have any rights with respect thereto, except the right to receive the shares
of Company Common Stock upon the surrender of such certificate, without
interest.
Upon consummation of the Merger, based upon the respective Iowa-Illinois
Common Stock and Resources Common Stock conversion ratios, Iowa-Illinois and
Resources shareholders would hold approximately 44% and 56%, respectively, of
the aggregate number of shares of Company Common Stock that would be
outstanding.
Pursuant to the Merger Agreement, Iowa-Illinois will give to the holders of
all of its currently outstanding preferred shares, par value $100 per share
("Iowa-Illinois Preferred Stock"), notice of redemption of such shares, and will
deposit funds necessary for such redemption, so that (a) all of such shares will
be deemed under the Iowa-Illinois Articles of Incorporation to be no longer
outstanding at the time of the Iowa-Illinois Meeting and (b) no holders of
Iowa-Illinois Preferred Stock will be entitled to vote on the proposal to
approve the Merger Agreement. The number of shares of each series of
Iowa-Illinois Preferred Stock and the redemption prices thereof are:
<TABLE>
<CAPTION>
REDEMPTION
NUMBER OF PRICE PER
SERIES SHARES SHARE
- ------------------------- ----------- --------------
<S> <C> <C>
$4.36 Cumulative 60,000 $ 102.125
$4.22 Cumulative 40,000 $ 100.00
$7.50 Cumulative 98,288 $ 101.88
</TABLE>
No person is authorized to give any information or to make any
representation other than those contained or incorporated by reference in this
Joint Proxy Statement/Prospectus, and, if given or made, such information or
representation should not be relied upon as having been authorized. This Joint
Proxy Statement/Prospectus does not constitute an offer to sell, or a
solicitation of an offer to
3
<PAGE>
purchase, the securities offered by this Joint Proxy Statement/Prospectus, or
the solicitation of a proxy, in any jurisdiction, to or from any person to whom
or from whom it is unlawful to make such offer, solicitation of an offer or
proxy solicitation in such jurisdiction. Neither the delivery of this Joint
Proxy Statement/Prospectus nor any distribution of securities pursuant to this
Joint Proxy Statement/Prospectus shall, under any circumstances, create an
implication that there has been no change in the information set forth herein
since the date of this Joint Proxy Statement/Prospectus.
AVAILABLE INFORMATION
Each of Iowa-Illinois, Midwest Power and Resources is subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and accordingly files reports and other information with
the SEC; Iowa-Illinois and Resources also file proxy statements with the SEC.
Such reports, proxy statements and other information filed with the SEC are
available for inspection and copying at the public reference facilities
maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the SEC's Regional Offices located at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and at 7
World Trade Center, Suite 1300, New York, New York 10048. Copies of such
documents may also be obtained from the Public Reference Room of the SEC at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. In addition, any such material and other information concerning Resources
can be inspected at the New York Stock Exchange, Inc. (the "NYSE"), 20 Broad
Street, New York, New York 10005 and concerning Iowa-Illinois can be inspected
at the NYSE and the Chicago Stock Exchange, Inc., 120 S. LaSalle Street,
Chicago, Illinois 60603.
The Company has filed with the SEC under the Securities Act a Registration
Statement with respect to the shares of Company Common Stock and Company
Preferred Stock issuable in the Merger. This Joint Proxy Statement/Prospectus
does not contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and regulations
of the SEC. The Registration Statement, including any amendments, schedules and
exhibits thereto, is available for inspection and copying as set forth above.
Reference is made to the copy of each contract or other document filed as an
exhibit to the Registration Statement or such other document.
INCORPORATION BY REFERENCE
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE
AVAILABLE UPON REQUEST FROM, IN THE CASE OF DOCUMENTS RELATING TO IOWA-ILLINOIS,
KEITH M. GIGER, SECRETARY AND TREASURER, IOWA-ILLINOIS GAS AND ELECTRIC COMPANY,
P.O. BOX 4350, DAVENPORT, IOWA 52808 (TELEPHONE: 319-326-7111), AND, IN THE CASE
OF DOCUMENTS RELATING TO RESOURCES AND MIDWEST POWER, PAUL J. LEIGHTON, VICE
PRESIDENT AND SECRETARY, 666 GRAND AVENUE, P.O. BOX 9244, DES MOINES, IOWA
50306-9244 (TELEPHONE: 515-242-4300). TO ENSURE TIMELY DELIVERY OF IOWA-ILLINOIS
DOCUMENTS PRIOR TO THE IOWA-ILLINOIS MEETING, A REQUEST TO IOWA-ILLINOIS SHOULD
BE MADE BY DECEMBER 1, 1994. TO ENSURE TIMELY DELIVERY OF RESOURCES AND MIDWEST
POWER DOCUMENTS PRIOR TO THE RESOURCES MEETING AND THE MIDWEST POWER MEETING, A
REQUEST TO RESOURCES OR MIDWEST POWER SHOULD BE MADE BY DECEMBER 1, 1994.
Iowa-Illinois, Resources and Midwest Power hereby undertake to provide
without charge to each person, including any beneficial owner to whom a copy of
this Joint Proxy Statement/Prospectus has been delivered, upon the written or
oral request of such person, a copy (without exhibits, except those specifically
incorporated by reference) of any and all of the documents referred to below
which have been or may be incorporated in this Joint Proxy Statement/Prospectus
by reference. Requests for such documents should be directed to the persons
indicated above.
4
<PAGE>
The following documents, previously filed with the SEC pursuant to the
Exchange Act, are hereby incorporated by reference:
1. Iowa-Illinois Annual Report on Form 10-K for the year ended December
31, 1993 (File No. 1-3573).
2. Iowa-Illinois Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1994 and June 30, 1994 (File No. 1-3573).
3. Iowa-Illinois Current Report on Form 8-K dated July 29, 1994 (File
No. 1-3573).
4. Iowa-Illinois Proxy Statement dated March 16, 1994 for the 1994
Annual Meeting of Shareholders held on April 28, 1994.
5. Resources Annual Report on Form 10-K for the year ended December 31,
1993 (File No. 1-10654).
6. Resources Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1994 and June 30, 1994 (File No. 1-10654).
7. Resources Current Reports on Form 8-K dated July 29, 1994, October
25, 1994 and November 3, 1994 (File No. 1-10654).
8. Resources Proxy Statement dated March 16, 1994 for the 1994 Annual
Meeting of Shareholders held on April 27, 1994.
9. Midwest Power Annual Report on Form 10-K for the year ended December
31, 1993 (File No. 1-12582).
10. Midwest Power Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1994 and June 30, 1994 (File No. 1-12582).
11. Midwest Power Current Reports on Form 8-K dated July 29, 1994 and
October 25, 1994 (File No. 1-12582).
The information relating to Iowa-Illinois, Resources and Midwest Power
contained in this Joint Proxy Statement/Prospectus should be read together with
the information in the documents incorporated by reference herein.
All documents filed by Iowa-Illinois, Resources and Midwest Power pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date hereof
and prior to the date of the Iowa-Illinois Meeting on December 21, 1994, and any
adjournment thereof, the Midwest Power Meeting on December 21, 1994, and any
adjournment thereof, or the Resources Meeting on December 21, 1994, and any
adjournment thereof, shall be deemed to be incorporated by reference herein and
to be a part hereof from the date of filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Joint Proxy Statement/ Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Joint Proxy Statement/Prospectus.
5
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
AVAILABLE INFORMATION.................................................................................... 4
INCORPORATION BY REFERENCE............................................................................... 4
SUMMARY OF JOINT PROXY STATEMENT/PROSPECTUS.............................................................. 8
RISK FACTORS............................................................................................. 18
NUCLEAR OPERATIONS....................................................................................... 18
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA......................................................... 19
Selected Unaudited Pro Forma Financial Data............................................................ 23
Comparative Book Values, Dividends and Earnings per Share of Common Stock.............................. 24
Comparative Per Share Prices of Resources and Iowa-Illinois Common Stock............................... 25
Midwest Power Preferred and Iowa-Illinois Preference Stock Transactions................................ 25
Ratings................................................................................................ 26
1993 Statistics and Rankings........................................................................... 26
MEETINGS, VOTING AND PROXIES............................................................................. 26
Iowa-Illinois Meeting.................................................................................. 26
Resources Meeting...................................................................................... 27
Midwest Power Meeting.................................................................................. 28
THE MERGER............................................................................................... 29
Background of the Merger............................................................................... 29
Interests of Certain Persons in the Merger............................................................. 33
Reasons for the Merger................................................................................. 34
Recommendations of the Boards of Directors............................................................. 35
Opinion of Financial Advisor to Iowa-Illinois.......................................................... 37
Opinion of Financial Advisor to Resources.............................................................. 41
Transaction Facilitator................................................................................ 47
Employment Agreements.................................................................................. 47
The Company Severance Plan for Specified Officers...................................................... 48
Employee Plans, Severance Arrangements and Agreements.................................................. 49
Company Benefit Plans.................................................................................. 52
Company Stock Plans.................................................................................... 53
Certain Federal Income Tax Consequences................................................................ 53
Accounting Treatment................................................................................... 54
Stock Exchange Listing of Company Capital Stock........................................................ 54
Federal Securities Law Consequences.................................................................... 54
Dissenters' Rights..................................................................................... 55
REGULATORY MATTERS....................................................................................... 58
Antitrust Considerations............................................................................... 58
Federal Power Act...................................................................................... 58
Iowa Public Utility Regulation......................................................................... 58
Illinois Public Utility Regulation..................................................................... 59
Nuclear Regulatory Commission Regulation............................................................... 59
Other Regulatory Matters............................................................................... 59
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
THE MERGER AGREEMENT..................................................................................... 59
The Merger............................................................................................. 59
Representations and Warranties......................................................................... 62
Certain Covenants...................................................................................... 62
No Solicitation of Transactions........................................................................ 63
Company Board of Directors............................................................................. 64
Indemnification........................................................................................ 64
Conditions to the Merger............................................................................... 65
Benefit Plans.......................................................................................... 66
Termination............................................................................................ 66
Termination Fees....................................................................................... 67
Expenses............................................................................................... 69
Amendment and Waiver................................................................................... 69
DESCRIPTION OF COMPANY CAPITAL STOCK..................................................................... 69
Company Common Stock................................................................................... 69
Company Preferred Stock................................................................................ 70
Certain Business Combinations.......................................................................... 75
COMPARISON OF CORPORATE CHARTERS AND RIGHTS OF SECURITY HOLDERS.......................................... 75
Resources.............................................................................................. 75
Midwest Power.......................................................................................... 76
Iowa-Illinois.......................................................................................... 78
PRO FORMA COMBINED FINANCIAL INFORMATION (UNAUDITED)..................................................... 80
SELECTED INFORMATION CONCERNING IOWA-ILLINOIS, RESOURCES AND MIDWEST POWER............................... 94
Business of Iowa-Illinois.............................................................................. 94
Business of Resources and Midwest Power................................................................ 94
THE COMPANY FOLLOWING THE MERGER......................................................................... 95
Management of the Company.............................................................................. 95
Operations of the Company.............................................................................. 95
Reorganization of Nonregulated Subsidiaries............................................................ 96
EXPERTS.................................................................................................. 96
LEGAL MATTERS............................................................................................ 97
SHAREHOLDER PROPOSALS.................................................................................... 97
Annex I -- Agreement and Plan of Merger, as Amended and Restated......................................... I-1
Annex II -- Restated Articles of Incorporation of MidAmerican Energy Company............................. II-1
Annex III -- Fairness Opinion of Dillon, Read & Co. Inc.................................................. III-1
Annex IV -- Fairness Opinion of PaineWebber Incorporated................................................. IV-1
Annex V -- Illinois Business Corporation Act -- Dissenters' Rights Provisions............................ V-1
Annex VI -- Iowa Business Corporation Act -- Dissenters' Rights Provisions............................... VI-1
Annex VII -- Employment Agreement with Russell E. Christiansen........................................... VII-1
Annex VIII -- Employment Agreement with Stanley J. Bright................................................ VIII-1
Annex IX -- Company Severance Plan for Specified Officers................................................ IX-1
</TABLE>
7
<PAGE>
SUMMARY OF JOINT PROXY STATEMENT/PROSPECTUS
THE FOLLOWING IS A SUMMARY OF THE INFORMATION CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS AND THE ANNEXES. SHAREHOLDERS ARE URGED TO READ THIS JOINT
PROXY STATEMENT/PROSPECTUS AND THE ANNEXES IN THEIR ENTIRETY.
THE PARTIES
THE COMPANY. The Company is an Iowa corporation which was created to
survive the Merger and represent the combination of Iowa-Illinois, Resources and
Midwest Power as a single, publicly held entity. See "The Company Following the
Merger." The Company has, and prior to the Merger will have, no operations
except as contemplated by the Merger Agreement. See "The Merger Agreement." As
of the date of this Joint Proxy Statement/Prospectus, the outstanding capital
stock of the Company is owned jointly by Iowa-Illinois and Resources. The
principal executive offices of the Company are located at 666 Grand Avenue, P.O.
Box 9244, Des Moines, Iowa 50306, telephone number: (515) 242-4300.
IOWA-ILLINOIS. Iowa-Illinois is an Illinois corporation serving more than
200,000 electric customers and 240,000 natural gas customers in portions of Iowa
and Illinois. Through its wholly-owned subsidiary, InterCoast Energy Company
("InterCoast"), Iowa-Illinois engages in non-regulated energy-related businesses
including oil and gas, energy services and financial investments. The principal
executive offices of Iowa-Illinois are located at 206 East Second Street,
Davenport, Iowa 52801, telephone number (319) 326-7111. See "Selected
Information Concerning Iowa-Illinois, Resources and Midwest Power -- Business of
Iowa-Illinois."
RESOURCES. Resources is an Iowa corporation which is the largest utility
holding company in the State of Iowa, serving one-third of the state's electric
and natural gas customers in urban, small-town and rural areas. Through its
utility subsidiary, Midwest Power, Resources provides electric and natural gas
utility services to customers in three states. Resources operates its
nonregulated businesses and investments through a second subsidiary, Midwest
Capital Group, Inc. These businesses and investments include electric and
natural gas activities, management of rail cars, telecommunications, real estate
development, venture capital and leveraged leases. The principal executive
offices of Resources are located at 666 Grand Avenue, P.O. Box 9244, Des Moines,
Iowa 50306-9244, telephone numbers: (515) 242-4300 or (800) 247-5211. See
"Selected Information Concerning Iowa-Illinois, Resources and Midwest Power --
Business of Resources and Midwest Power."
MIDWEST POWER. Midwest Power, an Iowa corporation, has two operating
divisions: Midwest Power and Midwest Gas. Midwest Power provides electric
service to 420,000 customers in 327 communities in central, western and northern
Iowa and six communities in southeastern South Dakota. Midwest Gas provides
natural gas service to 342,000 customers in 204 Iowa, two Nebraska and 27 South
Dakota communities. The largest communities served by one or both of the
divisions are Des Moines, Sioux City, Waterloo and Council Bluffs, Iowa, and
Sioux Falls, South Dakota. The principal executive offices of Midwest Power are
located at 666 Grand Avenue, P.O. Box 657, Des Moines, Iowa 50303, telephone
numbers: (515) 281-2900 or (800) 247-5211. See "Selected Information Concerning
Iowa-Illinois, Resources and Midwest Power -- Business of Resources and Midwest
Power."
RISK FACTORS
Midwest Power and Iowa-Illinois are, and the Company will be, subject to
certain generic risks associated with utility nuclear generation. See "Risk
Factors" and "Nuclear Operations."
NUCLEAR OPERATIONS
Midwest Power purchases 50% of the output and is responsible for 50% of the
costs of the Cooper Nuclear Generating Station in Nebraska. Iowa-Illinois owns
25% of two nuclear generating units at the Quad-Cities Nuclear Generating
Station in Illinois. See "Nuclear Operations" for a discussion of Nuclear
Regulatory Commission ("NRC") concerns about the operation of the Quad-Cities
units and the Cooper unit, which is currently not in service.
8
<PAGE>
SPECIAL MEETINGS
IOWA-ILLINOIS. At the Iowa-Illinois Meeting, and any adjournment or
adjournments thereof, the holders of Iowa-Illinois Common Stock and
Iowa-Illinois Preference Stock will be asked to consider and vote upon a
proposal to approve the Merger Agreement. See "Meetings, Voting and Proxies --
Iowa-Illinois Meeting."
The Iowa-Illinois Meeting is scheduled to be held at 10:00 a.m., local time,
on December 21, 1994, at the River Center, 136 East Third Street, Davenport,
Iowa. The Board of Directors of Iowa-Illinois (the "Iowa-Illinois Board") has
fixed the close of business on November 3, 1994 as the record date (the
"Iowa-Illinois Record Date") for the determination of holders of Iowa-Illinois
Common Stock and Iowa-Illinois Preference Stock entitled to notice of and to
vote at the Iowa-Illinois Meeting.
The Iowa-Illinois Board, by the unanimous vote of the directors, has
approved the Merger Agreement and the transactions contemplated thereby, and
recommends that Iowa-Illinois' shareholders vote FOR approval of the Merger
Agreement.
RESOURCES. At the Resources Meeting, and any adjournment or adjournments
thereof, the holders of Resources Common Stock will be asked to consider and
vote upon a proposal to approve the Merger Agreement. See "Meetings, Voting and
Proxies -- Resources Meeting."
The Resources Meeting is scheduled to be held at 10:00 a.m., local time on
December 21, 1994, at the Des Moines Convention Center, 501 Grand Avenue, Des
Moines, Iowa. The Board of Directors of Resources (the "Resources Board") has
fixed the close of business on November 3, 1994 as the record date (the
"Resources Record Date") for the determination of holders of Resources Common
Stock entitled to notice of and to vote at the Resources Meeting.
The Resources Board, by the unanimous vote of the directors, has adopted the
Merger Agreement and approved the transactions contemplated thereby, and
recommends that Resources shareholders vote FOR approval of the Merger
Agreement.
MIDWEST POWER. At the Midwest Power Meeting, and any adjournment or
adjournments thereof, the holders of Midwest Power Common Stock and Midwest
Power Preferred Stock will be asked to consider and vote upon a proposal to
approve the Merger Agreement. See "Meetings, Voting and Proxies -- Midwest Power
Meeting."
The Midwest Power Meeting is scheduled to be held at 8:00 a.m., local time
on December 21, 1994, at the Des Moines Convention Center, 501 Grand Avenue, Des
Moines, Iowa. The Board of Directors of Midwest Power (the "Midwest Power
Board") has fixed the close of business on November 3, 1994 as the record date
(the "Midwest Power Record Date") for the determination of holders of Midwest
Power Common Stock and Midwest Power Preferred Stock entitled to notice of and
to vote at the Midwest Power Meeting.
The Midwest Power Board, by the unanimous vote of the directors, has adopted
the Merger Agreement and approved the transactions contemplated thereby, and
recommends that Midwest Power shareholders vote FOR approval of the Merger
Agreement.
REQUIRED VOTE
IOWA-ILLINOIS. Under the Illinois Act, the affirmative vote of the holders
of two-thirds of the votes entitled to be cast by all holders of outstanding
shares of (i) Iowa-Illinois Preference Stock, voting as a single class, (ii)
Iowa-Illinois Common Stock, voting as a single class, and (iii) Iowa-Illinois
Preference Stock and Iowa-Illinois Common Stock, voting together as a single
class (collectively, "Iowa-Illinois Shareholders' Approval"), is required for
approval of the Merger Agreement and the transactions contemplated thereby. On
the Iowa-Illinois Record Date, there were (i) 500,000 shares of Iowa-Illinois
Preference Stock (consisting of the following series: $7.80 series - 400,000
shares; and $5.25 series - 100,000 shares); and (ii) 29,629,377 shares of
Iowa-Illinois Common Stock, outstanding
9
<PAGE>
and entitled to vote. As of the Iowa-Illinois Record Date, directors, executive
officers and affiliates of Iowa-Illinois owned less than 1% of the issued and
outstanding shares of Iowa-Illinois capital stock. See "Meeting, Voting and
Proxies -- Iowa-Illinois Meeting."
RESOURCES. Under the Iowa Act, the affirmative vote of the holders of a
majority of the outstanding shares of Resources Common Stock (the "Resources
Shareholders' Approval") is required for approval of the Merger Agreement and
the transactions contemplated thereby. On the Resources Record Date, there were
55,630,485 shares of Resources Common Stock outstanding and entitled to vote. As
of the Resources Record Date, directors, executive officers and affiliates of
Resources owned less than 1% of the issued and outstanding shares of Resources
Common Stock. See "Meetings, Voting and Proxies -- Resources Meeting."
MIDWEST POWER. Under the Iowa Act, the affirmative vote of the holders of a
majority of the votes entitled to be cast by all holders of outstanding shares
of (i) Midwest Power Preferred Stock, voting as a single class, (ii) Midwest
Power Common Stock, voting as a single class, and (iii) Midwest Power Common
Stock and Midwest Power Preferred Stock, voting as a single class (collectively,
"Midwest Power Shareholders' Approval"), is required for approval of the Merger
Agreement and the transactions contemplated thereby. On the Midwest Power Record
Date, there were (i) 2,717,789 shares of Midwest Power Preferred Stock
(consisting of the following series: $3.30 Series - 49,622 shares; $3.75 Series
- - 38,320 shares; $3.90 Series - 32,630 shares; $4.20 Series - 47,369 shares;
$4.35 Series - 49,950 shares; $4.40 Series - 50,000 shares; $4.80 Series -
49,898 shares; and $1.7375 Series - 2,400,000 shares) and (ii) 1,000 shares of
Midwest Power Common Stock, outstanding and entitled to vote. As of the Midwest
Power Record Date, directors, executive officers and affiliates of Midwest Power
owned less than 1% of the issued and outstanding shares of Midwest Power
Preferred Stock. Resources owns all of the outstanding shares of Midwest Power
Common Stock. See "Meetings, Voting and Proxies -- Midwest Power Meeting."
THE MERGER
The Merger Agreement provides for: (i) the merger of Iowa-Illinois,
Resources and Midwest Power with and into the Company; (ii) the cancellation of
Iowa-Illinois Common Stock and Iowa-Illinois Preference Stock owned by
Iowa-Illinois, by any subsidiary of Iowa-Illinois or by Resources or any
subsidiary of Resources; (iii) the cancellation of Resources Common Stock and
Midwest Power Preferred Stock owned by Resources, by any subsidiary of Resources
or by Iowa-Illinois or any subsidiary of Iowa-Illinois; (iv) the cancellation of
all shares of Company Common Stock issued and outstanding immediately prior to
the Merger; (v) the conversion of all issued and outstanding shares of
Iowa-Illinois Common Stock and each series of Iowa-Illinois Preference Stock
(except shares which are cancelled and shares held by Iowa-Illinois Dissenters)
into shares of Company Common Stock and Company Preferred Stock of a similarly
designated series, respectively; (vi) the conversion of all issued and
outstanding shares of Resources Common Stock and each series of Midwest Power
Preferred Stock (except shares which are cancelled and shares held by Resources
Dissenters or Midwest Power Dissenters) into shares of Company Common Stock and
Company Preferred Stock of a similarly designated series, respectively; and
(vii) the cancellation of all shares of Midwest Power Common Stock issued and
outstanding immediately prior to the Merger. As a result, (a) the holders of
Resources Common Stock and Iowa-Illinois Common Stock will become the holders of
Company Common Stock and (b) the holders of shares of each series of
Iowa-Illinois Preference Stock and Midwest Power Preferred Stock will become the
holders of similarly designated series of Company Preferred Stock. See "The
Merger Agreement -- The Merger."
Pursuant to the Merger Agreement, articles of merger (the "Articles of
Merger") complying with the requirements of the Illinois Act and the Iowa Act
will be executed by Resources, Midwest Power, Iowa-Illinois and the Company and
will be filed with the Secretary of State of the State of Illinois and the
Secretary of State of the State of Iowa on the second business day immediately
following the satisfaction or waiver of all conditions to the Merger, or at such
other time as Resources and Iowa-
10
<PAGE>
Illinois shall agree. The Merger will become effective at the time that the
parties to the Merger Agreement specify in the Articles of Merger. As used
herein, "Effective Time" means the time and date that the Merger becomes
effective. See "The Merger Agreement -- The Merger."
CONVERSION RATIOS FOR IOWA-ILLINOIS COMMON STOCK AND RESOURCES COMMON STOCK
Each share of Resources Common Stock issued and outstanding immediately
prior to the Effective Time will, upon consummation of the Merger, be converted
into the right to receive one share of Company Common Stock. Each share of
Iowa-Illinois Common Stock outstanding immediately prior to the Effective Time
will, upon consummation of the Merger, be converted into the right to receive
1.47 shares of Company Common Stock. Fractional shares of Company Common Stock
will not be issued. Holders of Iowa-Illinois Common Stock will receive cash in
lieu of fractional shares. The ratios of converting (i) Resources Common Stock
into Company Common Stock (the "Resources Conversion Ratio") and (ii)
Iowa-Illinois Common Stock into Company Common Stock (the "Iowa-Illinois
Conversion Ratio") are together referred to herein as the "Conversion Ratios."
See "The Merger Agreement -- The Merger."
STOCK CERTIFICATES
As soon as possible after the Effective Time, a bank, trust company or other
agent selected by Iowa-Illinois and Resources (the "Exchange Agent") will mail
transmittal instructions to each holder of record of shares of Iowa-Illinois
Common Stock at the Effective Time, advising such holder of the procedure for
surrendering certificates (collectively, the "Constituent Certificates")
representing shares of Iowa-Illinois Common Stock for certificates representing
shares of Company Common Stock. Holders of Constituent Certificates will not be
entitled to receive any payment of dividends or other distributions on or
payment for any fractional share with respect to shares represented by their
Constituent Certificates until such certificates have been surrendered for
certificates representing shares of Company Common Stock. See "The Merger
Agreement -- The Merger." CONSTITUENT CERTIFICATES SHOULD NOT BE SURRENDERED
UNTIL A FORM OF LETTER OF TRANSMITTAL AND INSTRUCTIONS THEREFOR ARE RECEIVED BY
THE HOLDERS OF CONSTITUENT CERTIFICATES. DELIVERY WILL BE EFFECTED, AND RISK OF
LOSS AND TITLE TO THE CONSTITUENT CERTIFICATES WILL PASS, ONLY UPON ACTUAL
DELIVERY OF THE CONSTITUENT CERTIFICATES TO THE EXCHANGE AGENT. See "The Merger
Agreement -- The Merger."
Certificates representing outstanding shares of Resources Common Stock,
Midwest Power Preferred Stock and Iowa-Illinois Preference Stock will after the
Effective Time continue to represent the shares of Company Common Stock and
Company Preferred Stock, as the case may be, into which such shares of Resources
Common Stock and Midwest Power Preferred Stock and Iowa-Illinois Preference
Stock are converted in the Merger, and such certificates need not be exchanged
as a condition to the continued receipt of dividends or other distributions, if
any, on the shares represented by such certificates.
COMPANY BENEFIT PLANS
For a description of Company Benefit Plans, see "The Merger -- Company
Benefit Plans."
BACKGROUND
For a description of the background of the Merger, see "The Merger --
Background of the Merger."
REASONS FOR THE MERGER
Iowa-Illinois, Resources and Midwest Power believe the combination of
Iowa-Illinois, Resources and Midwest Power into the Company will result in a
strong business organization well positioned to take advantage of opportunities
in both its core utility and diversified businesses. See "The Merger -- Reasons
for the Merger."
11
<PAGE>
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
IOWA-ILLINOIS. The Iowa-Illinois Board unanimously approved the Merger
Agreement and determined to recommend that the shareholders of Iowa-Illinois
vote FOR approval of the Merger Agreement. The Iowa-Illinois Board's approval
resulted after consideration of a number of factors, which are described under
the heading "The Merger -- Recommendations of the Board of Directors -- Iowa-
Illinois."
RESOURCES. The Resources Board unanimously adopted the Merger Agreement and
determined to recommend that the shareholders of Resources vote FOR approval of
the Merger Agreement. The Resources Board's approval resulted after
consideration of a number of factors, which are described under the heading "The
Merger -- Recommendations of the Board of Directors -- Resources."
MIDWEST POWER. The Midwest Power Board unanimously adopted the Merger
Agreement and determined to recommend that the shareholders of Midwest Power
vote FOR approval of the Merger Agreement. The Midwest Power Board's approval
resulted after consideration of a number of factors, which are described under
the heading "The Merger -- Recommendations of the Board of Directors -- Midwest
Power."
CONFLICTS OF INTERESTS. In considering the recommendations of the
Iowa-Illinois Board, the Resources Board and the Midwest Power Board,
shareholders should be aware that certain members of such Boards have conflicts
of interest in the Merger; such interests were among the factors considered by
each such Board in approving or adopting the Merger Agreement. See "The Merger
- -- Interests of Certain Persons in the Merger."
INTERESTS OF CERTAIN PERSONS IN THE MERGER; MANAGEMENT OF THE COMPANY
DIRECTORSHIPS. The Merger Agreement provides that the Board of Directors of
the Company (the "Company Board") will, upon consummation of the Merger, consist
of 19 persons with eight persons designated by Iowa-Illinois, including Stanley
J. Bright, Chairman of the Board, President and Chief Executive Officer of
Iowa-Illinois, and eleven persons designated by Resources, including Russell E.
Christiansen, Chairman, President and Chief Executive Officer of Resources and
Midwest Power. See "The Merger -- Interests of Certain Persons in the Merger --
Board of Directors."
EMPLOYMENT AGREEMENTS. Each of Messrs. Stanley J. Bright and Russell E.
Christiansen has entered into an employment agreement with the Company to become
effective upon consummation of the Merger (together, the "Employment
Agreements"). Pursuant to the Employment Agreements, Mr. Christiansen will serve
as Chairman of the Company Board and/or Chairman, Office of the Chief Executive
Officer and Mr. Bright will serve as President of the Company, President, Office
of the Chief Executive Officer and/or Chief Executive Officer of the Company
until the later of May 31, 1997 or the first anniversary of the Effective Time;
thereafter Mr. Bright will serve as Chairman of the Company Board and Mr.
Christiansen will become a consultant to the Company. The Employment Agreements
provide for the annual base salary at the Effective Time to be not less than
$400,000 for Mr. Christiansen and not less than $350,000 for Mr. Bright, and
that they each will be eligible to receive appropriate bonuses and other
compensation and benefits which are accorded to senior executive employees of
the Company. For 1994, the base annual salary for Mr. Christiansen is $400,000
and for Mr. Bright is $300,800; Mr. Bright will thus receive increased base
annual salary as a result of the Merger. Copies of Mr. Christiansen's Employment
Agreement and Mr. Bright's Employment Agreement are attached to this Joint Proxy
Statement/Prospectus as Annex VII and Annex VIII, respectively. See "The Merger
- -- Interests of Certain Persons in the Merger Employment Agreements" and Annexes
VII and VIII.
THE COMPANY SEVERANCE PLAN FOR SPECIFIED OFFICERS. At the Effective Time
the Company Severance Plan for Specified Officers (the "Company Severance Plan")
will become effective. The Company Severance Plan covers five officers of
Iowa-Illinois and five officers of Resources and/or Midwest Power who at the
Effective Time will become officers of the Company and provides for payment of
cash severance payments and benefits under certain circumstances following the
consummation of the Merger. Assuming the effectiveness of, and the requirement
for payments to all persons covered under,
12
<PAGE>
the Company Severance Plan on the date of this Joint Proxy Statement/Prospectus,
the aggregate amount which would be paid to such persons would not exceed
$5,970,000. If the five officers covered by both the Iowa-Illinois severance
plan and the Company Severance Plan all elect to be covered by the Iowa-Illinois
severance plan and not the Company Severance Plan, the aggregate amount payable
under the Company Severance Plan would be reduced to an amount not in excess of
$2,970,000. Messrs. Christiansen and Bright are not covered by the Company
Severance Plan. A copy of the Company Severance Plan is attached to this Joint
Proxy Statement/Prospectus as Annex IX. See "The Merger -- The Company Severance
Plan for Specified Officers" and Annex IX.
SEVERANCE AGREEMENTS. Ten officers of Iowa-Illinois are beneficiaries under
an Iowa-Illinois severance plan pursuant to which they would be entitled to
benefits if their employment is voluntarily or involuntarily terminated within
24 months following the Effective Time. Officers of Iowa-Illinois must elect
between payment under the Iowa-Illinois severance plan or the Company Severance
Plan in the event of a termination of employment. Assuming the effectiveness of,
and the requirement for payment to all persons covered under, such plans, the
aggregate amount payable to the ten officers covered by such plans, in excess of
the amount that otherwise would have been payable in the absence of this Merger,
would not exceed $5.5 million. If the five officers eligible to receive
severance benefits under both the Company Severance Plan and the Iowa-Illinois
severance plan elect to be covered by the Company Severance Plan and not the
Iowa-Illinois severance plan, the aggregate amount payable under the
Iowa-Illinois severance plan would be reduced to an amount not in excess of $2.5
million. See "The Merger -- Employee Plans, Severance Arrangements and
Agreements and Trust Agreements."
INDEMNIFICATION. From and after the Effective Time, the Company shall, to
the fullest extent not prohibited by applicable law, indemnify, defend and hold
harmless the present and former officers and directors of each of Iowa-Illinois,
Resources and Midwest Power, against all losses, expenses (including reasonable
attorney's fees), claims, damages or liabilities or, subject to certain
restrictions, amounts paid in settlement arising out of actions or omissions
occurring at or prior to the Effective Time that are in whole or in part based
on, or arising out of, the fact that such person is or was a director or officer
of such party arising out of or pertaining to the transactions contemplated by
the Merger Agreement. See "The Merger Agreement -- Indemnification."
OPINIONS OF INVESTMENT BANKERS
IOWA-ILLINOIS. Dillon, Read & Co. Inc. ("Dillon Read") delivered to the
Iowa-Illinois Board its written opinions dated July 26, 1994 and November 3,
1994, each stating that, as of the date of such opinion and based upon the
assumptions made, matters considered and limits of the review, as set forth in
such opinions, the Iowa-Illinois Conversion Ratio and the consideration to be
received by the holders of Iowa-Illinois Common Stock are fair to the holders of
Iowa-Illinois Common Stock from a financial point of view. The written opinion
of Dillon Read dated November 3, 1994 is attached to this Joint Proxy
Statement/Prospectus as Annex III and should be read in its entirety. For a
description of matters considered and assumptions made by Dillon Read in
reaching its opinions and the fees received and to be received by Dillon Read,
see "The Merger -- Opinion of Financial Advisor to Iowa-Illinois" and Annex III.
RESOURCES. PaineWebber Incorporated ("PaineWebber") delivered to the
Resources Board its written opinions dated July 26, 1994 and November 3, 1994
each to the effect that, as of the date of each such opinion, and based upon the
procedures and subject to the assumptions described in such opinion, from a
financial point of view, the Resources Conversion Ratio and the consideration to
be received by the holders of the Resources Common Stock are fair to the holders
of Resources Common Stock. The written opinion of PaineWebber dated November 3,
1994 is attached to this Joint Proxy Statement/Prospectus as Annex IV and should
be read in its entirety. For a description of the matters considered and the
assumptions made by PaineWebber in reaching its opinions and the fees received
and to be received by PaineWebber, see "The Merger -- Opinion of Financial
Advisor to Resources" and Annex IV.
13
<PAGE>
CONDITIONS TO THE MERGER
The obligations of Resources, Midwest Power and Iowa-Illinois to consummate
the Merger are subject to the satisfaction of certain conditions, including the
approval of the Merger Agreement by the shareholders of each of Resources,
Midwest Power and Iowa-Illinois, the absence of any injunction that prevents the
consummation of the Merger, the effectiveness of the Registration Statement,
approval of the listing on the NYSE of the shares of Company Common Stock and
the shares of the $1.7375 Series of Company Preferred Stock issuable in the
Merger, upon official notice of issuance, the receipt of all material
governmental approvals, the receipt of accountants' letters stating that the
Merger will qualify as a pooling of interests transaction, the material accuracy
of the representations and warranties of the respective parties set forth in the
Merger Agreement, the material performance or waiver of all obligations required
to be performed under the Merger Agreement, the receipt by Resources and
Iowa-Illinois of officers' certificates from each other stating that the
conditions set forth in the Merger Agreement have been satisfied, receipt of
certain certificates from affiliates of Iowa-Illinois and Resources, there
having been no material adverse effect (or facts or circumstances that would
have a material adverse effect) on the respective businesses of the parties, the
receipt of tax opinions, the receipt of certain third party consents, and, with
respect to Resources and Midwest Power, the fairness opinion from PaineWebber
shall not have been withdrawn and, with respect to Iowa-Illinois, the fairness
opinion from Dillon Read shall not have been withdrawn (in each case, under
specified circumstances). See "The Merger Agreement -- Conditions to the
Merger."
RIGHTS TO TERMINATE, AMEND OR WAIVE CONDITIONS
The Merger Agreement may be terminated under certain circumstances,
including: by mutual written consent of the Boards of Directors of
Iowa-Illinois, Resources and Midwest Power; by any party if the Merger is not
consummated by December 31, 1995 (or by June 30, 1996 under certain conditions
described under "The Merger Agreement -- Right to Terminate, Amend or Waive
Conditions"); by any party if the requisite shareholder approvals are not
obtained; by any party if a law, order, rule or regulation is issued or adopted
which has the effect of prohibiting the Merger or if any final and nonappealable
action by a court of competent jurisdiction prohibits the Merger; by Resources
or Iowa-Illinois, under certain circumstances, as a result of a more favorable
third-party tender offer or business combination proposal; by a nonbreaching
party if there occurs a material breach of the Merger Agreement which is not
cured within 20 days after notice; or by either Resources or Iowa-Illinois, if
the Board of Directors of the other withdraws, modifies in an adverse manner or
does not reaffirm upon request its recommendation to its shareholders or
recommends a different business combination transaction than as contemplated by
the parties.
The Merger Agreement requires that certain fees be paid upon termination of
the Merger Agreement under certain circumstances. The aggregate termination fees
under these provisions may not exceed $51 million. See "The Merger Agreement --
Termination Fees."
The Merger Agreement may be amended by the Boards of Directors of Resources,
Midwest Power and Iowa-Illinois at any time before or after its approval by
their shareholders, but after any such approval no amendment may be made which
alters or changes (i) the amount or kind of shares, rights or any of the
proceeds of the conversion of such shares, or (ii) the terms or conditions of
the Merger Agreement if such alteration or change, alone or in the aggregate,
would materially adversely affect the rights of the holders of Iowa-Illinois
Common Stock, Iowa-Illinois Preferred Stock, Iowa-Illinois Preference Stock,
Resources Common Stock or Midwest Power Preferred Stock. See "The Merger
Agreement -- Amendment and Waiver."
At any time prior to the Effective Time, the time for performance of any
obligation or other acts may be extended or any inaccuracies in the
representations and warranties or conditions to a party's obligation to
consummate the Merger may be waived by the other parties. Any determination to
extend or waive would depend upon the facts and circumstances existing at the
time of such extension
14
<PAGE>
or waiver and would be made by the extending or waiving party's Board of
Directors, exercising its fiduciary duties to such party and its shareholders.
See "The Merger Agreement -- Amendment and Waiver."
CERTAIN TAX CONSEQUENCES OF THE MERGER
A condition precedent to consummation of the Merger is the receipt of
opinions of counsel substantially to the effect that each of the mergers which
constitute a part of the Merger will be treated as a tax-free reorganization
under Section 368(a) of the Internal Revenue Code (the "Code"). Assuming the
Merger so qualifies, then for federal income tax purposes (i) no gain or loss
will be recognized by Resources, Midwest Power, Iowa-Illinois or the Company as
a result of the Merger, (ii) holders of Resources Common Stock, Midwest Power
Preferred Stock, Iowa-Illinois Common Stock and Iowa-Illinois Preference Stock
whose shares are converted into Company Common Stock or Company Preferred Stock,
as the case may be, in the Merger will recognize no gain or loss as a result of
the conversion (except with respect to holders of Iowa-Illinois Common Stock,
who generally will recognize gain or loss to the extent they receive cash in
lieu of fractional shares, and with respect to Resources Dissenters, Midwest
Power Dissenters and Iowa-Illinois Dissenters, who generally will recognize gain
or loss if they exercise their dissenters' rights), and (iii) the holding period
and basis applicable to the shares of the Company capital stock received in the
Merger will be the same as the holding period and basis attributable to the
Resources, Midwest Power or Iowa-Illinois capital stock that was converted into
Company capital stock in the Merger (provided that the basis will be reduced by
any amount allocable to a fractional share interest in Company Common Stock for
which cash is received), assuming that such capital stock so converted was held
as a capital asset. See "The Merger -- Certain Federal Income Tax Consequences."
HOLDERS OF RESOURCES, MIDWEST POWER AND IOWA-ILLINOIS CAPITAL STOCK ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE PARTICULAR TAX
CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICATION AND EFFECT OF
STATE, LOCAL AND FOREIGN TAX LAWS.
OPERATIONS AFTER THE MERGER
Following the Effective Time, the Company will maintain its principal
corporate offices in Des Moines, Iowa, its electric division headquarters in
Davenport, Iowa, and its gas division headquarters in Sioux City, Iowa. See "The
Company -- Following the Merger."
Following the Effective Time, the Company and its subsidiaries will honor
all prior contracts, agreements, collective bargaining agreements and
commitments with current or former employees or current or former directors of
Resources, Midwest Power, Iowa-Illinois and their respective subsidiaries, in
accordance with the respective terms of such contracts, agreements and
commitments, subject to the Company's right to enforce them in accordance with
their terms (including any reserved right to amend, modify, suspend, revoke or
terminate them). The Company will replace benefit plans of Resources, Midwest
Power, Iowa-Illinois and their respective subsidiaries as required by law or
otherwise adopt new benefit plans as appropriate. At the Effective Time, the
Resources Dividend Reinvestment and Common Stock Purchase Plan, the Resources
Employee Stock Purchase Plan, the Midwest Power 401(k) Plan for Salaried
Employees, the Midwest Power 401(k) Plan for Bargaining Employees, the
Iowa-Illinois 401(k) Plan, the Iowa-Illinois Employee Stock Purchase Plan and
the Iowa-Illinois Dividend Reinvestment and Share Purchase Plan will be
terminated, replaced or amended to provide for the issuance and sale of Company
Common Stock in place of Resources Common Stock and Iowa-Illinois Common Stock,
as the case may be, under such plans.
The Employment Agreements with Messrs. Christiansen and Bright provide that
each will be eligible to receive appropriate management bonuses, long-term
incentive awards and other compensation elements through benefit plans not less
in the aggregate than those in effect at Resources, Midwest Power and
Iowa-Illinois as of the Effective Time. Consequently, although no decision has
yet been finalized, it is expected that the Company will adopt replacement plans
for deferred compensation, supplemental retirement and incentive compensation
for named officers, including Messrs. Christiansen and Bright. See "The Merger
Agreement -- Benefit Plans."
15
<PAGE>
REGULATORY MATTERS
Each of Resources and Iowa-Illinois will make a pre-merger filing pursuant
to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"). On October 28, 1994, the Company, Midwest Power and Iowa-Illinois
filed an application with the Iowa Utilities Board (the "IUB") for an order
permitting the Merger to occur, and the Company and Iowa-Illinois filed an
application with the Illinois Commerce Commission (the "ICC") for its approval
of the Merger. In addition, the Company, Resources, Midwest Power and
Iowa-Illinois will file a petition for approval with regard to the Merger with
the Federal Energy Regulatory Commission (the "FERC"). Iowa-Illinois will also
file an application for the approval of the NRC to the extent required for the
transfer of its interest in the license for the Quad-Cities Nuclear Generating
Station to the Company. See "Regulatory Matters."
ACCOUNTING TREATMENT
Resources and Iowa-Illinois believe that the Merger will be treated as a
"pooling of interests" for accounting purposes. See "The Merger -- Accounting
Treatment." The receipt by Iowa-Illinois of a letter from Deloitte & Touche LLP,
independent auditors for Iowa-Illinois, and by Resources of a letter from Arthur
Andersen LLP, independent public accountants for Resources, stating that the
Merger will qualify as a pooling of interests, is a condition precedent to
consummation of the Merger. See "The Merger Agreement -- Conditions to the
Merger."
DISSENTERS' RIGHTS
The holders of Iowa-Illinois Common Stock and Iowa-Illinois Preference Stock
at the close of business on the Iowa-Illinois Record Date have the right to
dissent from consummation of the Merger and, upon compliance with the procedural
requirements of the Illinois Act, to receive the "fair value" (as defined in the
Illinois Act) of their shares if the Merger is effected. Any such holders
electing to exercise their right to dissent must deliver to Iowa-Illinois before
the vote is taken a written demand for payment of the "fair value" of such
holder's shares if the Merger is effected, and not vote to approve the Merger
Agreement. See "The Merger -- Dissenters' Rights" and Annex V.
The holders of record of Resources Common Stock and Midwest Power Preferred
Stock at the close of business on the Resources Record Date and Midwest Power
Record Date, respectively, upon compliance with the procedural requirements of
the Iowa Act are entitled to be paid the "fair value" (as defined in the Iowa
Act) of their shares if the Merger is consummated. Any such holders electing to
exercise their rights to dissent must deliver to Resources or Midwest Power
before the vote is taken a written demand for payment of the "fair value" of
such holder's shares if the Merger is consummated, and not vote to approve the
Merger Agreement. See "The Merger -- Dissenters' Rights" and Annex VI.
DIVIDENDS
IOWA-ILLINOIS, RESOURCES AND MIDWEST POWER. Except as permitted in the
Merger Agreement, none of Iowa-Illinois, Resources and Midwest Power may, and
none may permit any of its subsidiaries to, declare or pay any dividends on or
make other distributions in respect of any of its capital stock, other than to
such party or its wholly-owned subsidiaries and other than dividends paid by
Midwest Power on its Common Stock to Resources, dividends required to be paid on
any series of Iowa-Illinois Preferred Stock, Iowa-Illinois Preference Stock and
Midwest Power Preferred Stock, and regular quarterly dividends to be paid on
Resources Common Stock and Iowa-Illinois Common Stock not to exceed 100% of the
average quarterly dividend for the prior four quarterly dividend payments with
respect thereto.
COMPANY COMMON STOCK. It is anticipated that following the Merger the
Company will initially pay dividends on Company Common Stock at the rate of
$1.20 per share per annum, subject to change from time to time by the Company
Board based on the Company's results of operations, financial condition, capital
requirements and other relevant considerations. However, no such dividend has
been declared on Company Common Stock and no assurance can be given that such
dividend rate will
16
<PAGE>
be in effect or will remain unchanged, and the Company reserves the right to
increase or decrease such dividend as may be required by law or contract or as
may be determined by the Company Board, in its discretion, to be advisable.
Dividends may be declared by the Company Board and paid in cash, shares or other
property out of the net assets of the Company in excess of its stated capital,
computed in accordance with applicable law and subject to the conditions and
limitations imposed by the Company Articles. The Company Common Stock dividend
payment dates are expected to continue to be the first days of March, June,
September and December. See "The Company -- Following the Merger" and
"Description of the Company Capital Stock -- Company Common Stock."
COMPANY PREFERRED STOCK. Cumulative dividends will be payable on each share
of Company Preferred Stock in the same amount as cumulative dividends are
payable on the share of Midwest Power Preferred Stock or the share of
Iowa-Illinois Preference Stock which is converted in the Merger into such share
of Company Preferred Stock, when and as declared by the Company Board out of
funds legally available for such dividends.
Subject to the terms and conditions of the Company Articles and except as
described below, quarterly dividends will be payable on all classes of Company
Preferred Stock on the first days of March, June, September and December (each,
a "Company Payment Date"), which are also the scheduled dividend payment dates
for the Midwest Power Preferred Stock. In contrast, dividends are payable on the
Iowa-Illinois Preference Stock on the first days of February, May, August and
November (each, an "Iowa-Illinois Payment Date"). The Company Articles provide,
subject to the terms and conditions thereof, for an initial dividend payment on
shares of Company Preferred Stock into which shares of Iowa-Illinois Preference
Stock are to be converted in the Merger (but not on shares of Company Preferred
Stock into which shares of Midwest Power Preferred Stock are to be so
converted), on the first Iowa-Illinois Payment Date to occur following the
Effective Time (instead of the first Company Payment Date so to occur) if, but
only if, such first Iowa-Illinois Power Payment Date precedes such first Company
Payment Date. Regardless of the date on which such initial payment is made, (i)
such initial dividend payment will reflect the dividends accumulated on the
Company Preferred Stock (and on the shares of Iowa-Illinois Preferred Stock from
which they were converted) from the immediately preceding Iowa-Illinois Payment
Date to but not including the date of such payment and (ii) any subsequent
dividend payments on the Company Preferred Stock will be scheduled on Company
Payment Dates. If dividends on any series of Company Preferred Stock into which
shares of Iowa-Illinois Preference Stock are converted are first paid on an
Iowa-Illinois Payment Date, the next scheduled dividend payment on such series
would reflect dividends accumulated not over a full quarter but from such date
to but not including the first Company Payment Date to occur following the
Effective Time. Scheduled dividend payments on the Company Preferred Stock into
which shares of Midwest Power Preferred Stock are converted will not be subject
to any such adjustments. See "Description of Company Capital Stock -- Company
Preferred Stock."
COMPARISON OF CORPORATE CHARTERS AND RIGHTS OF SECURITY HOLDERS
As a result of the Merger, holders of Resources Common Stock, Midwest Power
Preferred Stock, Iowa-Illinois Common Stock and Iowa-Illinois Preference Stock
who receive shares of Company capital stock will become shareholders of the
Company and will have certain different rights as the shareholders of the
Company than they had as shareholders of Resources, Midwest Power or Iowa-
Illinois. For a comparison of Iowa and Illinois law and the provisions in the
articles of incorporation and by-laws of Resources, Midwest Power, Iowa-Illinois
and the Company governing the rights of the shareholders of Resources, Midwest
Power, Iowa-Illinois and the Company, see "Comparison of Corporate Charters and
Rights of Security Holders."
RATINGS
The Iowa-Illinois Preference Stock is currently rated a1 by Moody's
Investors Service, Inc. ("Moody's"), A by Standard & Poor's Ratings Group, a
division of McGraw Hill ("S&P"), A by Duff & Phelps Credit Ratings Company
("D&P") and A+ by Fitch Investors Service, Inc. ("Fitch"). The Midwest Power
Preferred Stock is currently rated a3 by Moody's and A by S&P. It is the
expectation of management that the ratings on the Company Preferred Stock will
be at least a3 by Moody's and A by S&P.
17
<PAGE>
RISK FACTORS
Midwest Power and Iowa-Illinois are, and the Company will be, subject to
certain generic risks associated with utility nuclear generation, including
risks arising from the operation of nuclear facilities and the storage, handling
and disposal of high-level and low-level radioactive materials; limitations on
the amounts and types of insurance commercially available in respect of losses
that might arise in connection with nuclear operations; and uncertainties with
respect to the technological and financial aspects of decommissioning nuclear
plants at the end of their licensed lives. The NRC has broad authority under
federal law to impose licensing and safety-related requirements for the
operation of nuclear generating facilities and in the event of non-compliance,
has the authority to impose fines or shut down a unit, or both, depending upon
its assessment of the severity of the situation, until compliance is achieved.
Revised safety requirements promulgated by the NRC have, in the past,
necessitated substantial capital expenditures at nuclear plants, including the
Cooper and Quad-Cities units, and additional such expenditures could be required
in the future. In addition, although Midwest Power and Resources and
Iowa-Illinois have no reason to anticipate a serious nuclear incident at the
Cooper unit or Quad-Cities units, respectively, if such an incident did occur,
it could have a material but presently undeterminable adverse effect on the
financial condition of Midwest Power, Resources, Iowa-Illinois or the Company.
NUCLEAR OPERATIONS
Midwest Power purchases 50% of the output and is responsible for 50% of the
costs of the Cooper Nuclear Station ("Cooper"), a boiling-water nuclear
generating unit located in Nebraska pursuant to a long-term contract with the
owner and operator of the Cooper unit, Nebraska Public Power District ("NPPD").
The NRC operating license for the Cooper unit expires in 2014; however, the
Midwest Power contract terminates in 2004.
Iowa-Illinois owns 25% of two boiling water nuclear generating units at the
Quad-Cities Nuclear Generating Station ("Quad-Cities") in Illinois. The
remaining 75% interest in each Quad-Cities unit is owned by the operator of the
station, Commonwealth Edison Company ("ComEd"). The NRC operating licenses for
the two Quad-Cities units expire in 2012.
In January 1994, the NRC determined that the performance of the Cooper unit
and the two Quad-Cities units warranted increased NRC attention. The managements
of Iowa-Illinois and Midwest Power each have been informed that the NRC concern
about the units is, among other matters, the effectiveness of the respective
operators of the units in identifying causes of, and responding to, certain
operational problems or deficiencies.
The respective operators of the units have provided written and verbal
responses to the NRC concerns and have advised the managements of Midwest Power
and Iowa-Illinois that they will diligently work to satisfy the NRC concerns.
The managements of both Midwest Power and Iowa-Illinois have discussed the
situations with the respective operators of the units. Midwest Power, with
respect to the Cooper unit, and Iowa-Illinois, with respect to the Quad-Cities
units, are monitoring actions undertaken by the respective operators in response
to the NRC concerns. The Cooper unit has been out of service since May 25, 1994,
pending satisfaction of the concerns of the NRC, which has formed a panel of NRC
personnel to oversee the process of placing the Cooper unit back in service. The
schedule for such process has not been established, and there is currently no
estimated date by which the Cooper unit will be back in service.
In some instances, similar NRC concerns have resulted in fines or penalties
being assessed against operators of nuclear generating units. Midwest Power
cannot predict (a) whether any such fines or penalties will be imposed as a
result of NRC concerns about the Cooper unit, (b) the amount of any such fines
or penalties, or (c) what action Midwest Power might take in response to any
action by NPPD to recover from Midwest Power any portion of such fines or
penalties or any costs incurred by NPPD which are attributable to the Cooper
unit being out of service because of the NRC concerns.
Midwest Power does not expect a material adverse impact on its results of
operations or financial condition as a result of the Cooper unit being out of
service, although during the period May 25 through September 30, 1994, it
incurred $5.6 million in costs to purchase from other sources power which was
unavailable from the unit.
18
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The summary below sets forth selected historical financial data and selected
unaudited pro forma financial data. This financial data should be read in
conjunction with the historical consolidated financial statements and related
notes thereto of Iowa-Illinois, Resources and Midwest Power contained in the
respective Annual Reports on Form 10-K of Iowa-Illinois, Resources and Midwest
Power which are incorporated by reference herein, and in conjunction with the
Pro Forma Combined Financial Information (unaudited) and related notes thereto
of the Company included elsewhere in this Joint Proxy Statement/Prospectus.
SELECTED HISTORICAL FINANCIAL DATA
The selected historical financial data of Iowa-Illinois, Resources and
Midwest Power for the five years ended December 31, 1993, set forth below, have
been derived from audited financial statements. The selected historical
financial data of Iowa-Illinois, Resources and Midwest Power for the six months
ended June 30, 1994 and June 30, 1993, set forth below, have been derived from
unaudited financial statements.
Midwest Power is a subsidiary of Resources. The Resources consolidated
financial statements include Midwest Power balance sheets and statements of
income. Midwest Power selected historical financial data is shown separately and
is fully consolidated with the Resources information.
19
<PAGE>
IOWA-ILLINOIS
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
----------------------- --------------------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Operating Revenues.................... $ 299,296 $ 276,483 $ 545,414 $ 497,534 $ 512,537 $ 511,672 $ 527,284
Utility Operating Income.............. 36,396 36,921 71,383 63,501 75,310 78,692 79,932
Other Income.......................... 6,647 7,357 12,962 8,493 6,745 5,540 7,712
Net Income............................ 31,301 31,596 59,228 45,433 54,367 55,490 58,544
Preferred and Preference Dividends.... 2,406 2,500 4,995 5,029 4,347 2,000 2,045
Earnings on Common Stock.............. 28,895 29,096 54,233 40,404 50,020 53,490 56,499
Earnings per Common Share............. $ 0.98 $ 0.99 $ 1.85 $ 1.45 $ 1.86 $ 1.99 $ 2.10
Dividends Declared per Common Share... $ 0.865 $ 0.865 $ 1.73 $ 1.73 $ 1.71 $ 1.67 $ 1.63
Ratio of Earnings to Fixed Charges and
Preferred and Preference Dividend
Requirements (a)..................... 2.3(b) 2.2(c) 2.3 1.9 2.3 2.6 3.0
Balance Sheet Data:
Total Assets.......................... $1,805,719 $1,719,038 $1,793,563 $1,659,371 $1,530,912 $1,415,394 $1,361,443
Long-term Debt (d).................... 633,318 600,782 614,400 588,180 549,248 490,667 467,818
Redeemable Preference Stock (e)....... 50,000 48,050 50,000 48,625 49,200 9,775 10,350
Non-redeemable Preferred Stock........ 19,829 19,829 19,829 19,829 19,829 19,829 19,829
Common Stock Equity................... 504,099 499,561 499,412 495,582 443,608 436,855 431,100
Book Value per Common Share........... $ 17.09 $ 17.03 $ 17.01 $ 16.89 $ 16.52 $ 16.27 $ 16.06
<FN>
- ------------------------------
(a) For purposes of computing the ratios of earnings to fixed charges and
preferred and preference dividend requirements, "earnings" consist of net
income before interest charges and preferred and preference dividend
requirements, plus income taxes, plus the estimated interest component of
rentals. "Earnings" also include allowances for borrowed and other funds
used during construction. Fixed charges consist of interest charges, the
estimated interest component of rentals and the pre-tax dividend
requirements on preferred and preference stock.
(b) Based on Twelve Months Ended June 30, 1994.
(c) Based on Twelve Months Ended June 30, 1993.
(d) Excludes long-term debt due within one year.
(e) Excludes preference stock to be redeemed within one year.
(f) For a discussion of material litigation and regulatory matters relating to
Resources, Midwest Power and Iowa-Illinois, reference is made to the
documents incorporated by reference herein.
</TABLE>
For the twelve month period ended September 30, 1994, operating revenues
were $564,426,000, net income was $60,399,000, earnings per common share were
$1.89, and the ratio of earnings to fixed charges and preferred and preference
dividend requirements was 2.3, as compared with operating revenues of
$546,429,000, net income of $59,021,000, earnings per common share of $1.84, and
ratio of earnings to fixed charges and preferred and preference dividend
requirements of 2.3 for the twelve month period ended September 30, 1993.
20
<PAGE>
MIDWEST RESOURCES
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
----------------------- --------------------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Operating Revenues.................... $ 499,801 $ 508,406 $ 996,545 $ 923,180 $ 929,513 $ 876,584 $ 898,750
Utility Operating Income.............. 65,039 68,561 132,397 112,971 137,547 135,751 141,094
Other Income (a)...................... (223) (372) 10,312 (6,913) (3,147) (9,517) 12,630
Net Income............................ 39,552 37,088 84,623 43,446 73,805 67,660 96,238
Preferred Dividends................... 2,740 1,577 3,372 3,706 5,361 5,361 5,361
Earnings on Common Stock.............. 36,812 35,511 81,251 39,740 68,444 62,299 90,877
Earnings per Common Share............. $ 0.67 $ 0.65 $ 1.49 $ 0.73 $ 1.36 $ 1.25 $ 1.80
Dividends Declared per Common Share... $ 0.58 $ 0.58 $ 1.16 $ 1.36 $ 1.56 $ 1.32 $ 1.41
Ratio of Earnings to Fixed Charges and
Preferred Dividend Requirements
(b).................................. 3.0(c) 2.0(d) 2.7 1.7 2.2 2.2 2.7
Supplemental Ratio of Earnings to
Fixed Charges and Preferred Dividend
Requirements (e)..................... 2.8(c) 1.9(d) 2.6 1.6 2.1 2.1 2.6
Balance Sheet Data:
Total Assets.......................... $2,549,313 $2,445,233 $2,607,219 $2,475,688 $2,473,558 $2,337,439 $2,304,845
Long-term Debt (f).................... 740,527 786,211 726,603 780,604 802,137 734,730 747,068
Redeemable Preferred Stock............ -- -- -- -- 30,000 30,000 30,000
Non-redeemable Preferred Stock........ 89,981 54,413 90,042 54,413 54,462 54,466 54,469
Common Stock Equity................... 695,495 667,793 681,098 664,094 681,630 624,554 630,373
Power Purchase Contract............... 151,485 146,150 151,485 146,150 150,838 159,293 167,282
Book Value per Common Share........... $ 12.59 $ 12.22 $ 12.47 $ 12.16 $ 12.69 $ 12.49 $ 12.58
<FN>
- ------------------------------
(a) Resources exchanged certain gas assets and operations during 1993 and sold
certain assets and operations in 1989 as described in the Resources Annual
Report on Form 10-K for 1993 and 1989, respectively. The 1993 and 1989
earnings reflect the gains derived from these transactions.
(b) For purposes of computing the ratios of earnings to fixed charges and
preferred dividend requirements, "earnings" consist of net income before
interest charges and preferred dividend requirements, plus income taxes,
plus the estimated interest component of rentals. "Earnings" also include
allowances for borrowed and other funds used during construction. Fixed
charges consist of interest charges, the estimated interest component of
rentals and the pre-tax dividend requirements on preferred stock.
(c) Based on Twelve Months Ended June 30, 1994.
(d) Based on Twelve Months Ended June 30, 1993.
(e) The supplemental ratios have been calculated including obligations under
the long-term power purchase contract with the Nebraska Public Power
District relating to Cooper Nuclear Station.
(f) Excludes long-term debt due within one year.
(g) For a discussion of material litigation and regulatory matters relating to
Resources, Midwest Power and Iowa-Illinois, reference is made to the
documents incorporated by reference herein.
(h) Subsequent to June 1994, Resources discontinued its construction
operations. The impact of discontinuing the construction operations has not
been reflected in the financial statistics shown above but are reflected in
"-- Selected Unaudited Pro Forma Financial Data" below and in "Pro Forma
Combined Financial Information (unaudited)" herein.
</TABLE>
For the twelve month period ended September 30, 1994, operating revenues
were $1,088,799,000, net income was $65,438,000, earnings per common share were
$1.19, and the ratio and supplemental ratio of earnings to fixed charges and
preferred dividend requirements were 2.4 and 2.3, respectively, as compared with
operating revenues of $1,066,812,000, net income of $77,837,000, earnings per
common share of $1.42, and ratio and supplemental ratio of earnings to fixed
charges and preferred dividend requirements of 2.5 and 2.4, respectively, for
the twelve month period ended September 30, 1993. Net income for the 1993 period
included a $10 million ($0.18 per share) after tax gain as a result of the 1993
exchange of certain Midwest Power natural gas territories for certain other
natural gas territories. Net income for the 1994 period reflects the $3.8
million ($0.07 per share) loss from the discontinuance of the nonregulated
construction operations conducted by subsidiaries of Resources. Other factors
causing a reduction in earnings were increased operating expenses for Cooper
Nuclear Station of $2.4 million and expenses related to the Merger of $1.2
million.
21
<PAGE>
MIDWEST POWER
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT RATIOS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
----------------------- --------------------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Operating Revenues.................... $ 499,801 $ 508,406 $ 996,545 $ 923,180 $ 929,513 $ 876,584 $ 898,750
Utility Operating Income.............. 65,039 68,561 132,397 112,971 137,547 135,751 141,094
Other Income (a)...................... 161 779 12,564 291 491 3,256 4,227
Net Income............................ 39,936 38,239 86,875 50,650 77,443 80,433 87,835
Preferred Dividends................... 2,740 1,577 3,372 3,706 5,361 5,361 5,361
Earnings on Common Stock (b).......... 37,196 36,662 83,503 46,944 72,082 75,072 82,474
Ratio of Earnings to Fixed Charges and
Preferred Dividend Requirements
(c).................................. 3.2(d) 2.4(e) 3.0 2.0 2.5 2.5 2.8
Supplemental Ratio of Earnings to
Fixed Charges and Preferred Dividend
Requirements (f)..................... 3.0(d) 2.3(e) 2.9 1.9 2.4 2.4 2.6
Balance Sheet Data:
Total Assets.......................... $2,321,199 $2,224,559 $2,384,454 $2,231,585 $2,233,083 $2,130,738 $2,090,050
Long-term Debt (g).................... 677,451 731,747 677,506 726,611 740,561 665,509 676,106
Redeemable Preferred Stock............ -- -- -- -- 30,000 30,000 30,000
Non-redeemable Preferred Stock........ 89,981 54,413 90,042 54,413 54,462 54,466 54,469
Common Stock Equity................... 660,348 640,685 655,152 635,823 664,356 623,972 618,234
Power Purchase Contract............... 151,485 146,150 151,485 146,150 150,838 159,293 167,282
<FN>
- ------------------------------
(a) Midwest Power exchanged certain gas assets and operations during 1993 and
sold certain assets and operations in 1989 as described in the Midwest
Power Annual Report on Form 10-K for 1993 and 1989, respectively. The 1993
and 1989 earnings reflect the gains derived from these transactions.
(b) Earnings per common share, dividends per common share and book value per
common share are not applicable to Midwest Power as a subsidiary of
Resources.
(c) For purposes of computing the ratios of earnings to fixed charges and
preferred dividend requirements, "earnings" consist of net income before
interest charges and preferred dividend requirements, plus income taxes,
plus the estimated interest component of rentals. "Earnings" also include
allowances for borrowed and other funds used during construction. Fixed
charges consist of interest charges, the estimated interest component of
rentals and the pre-tax dividend requirements on preferred stock.
(d) Based on Twelve Months Ended June 30, 1994.
(e) Based on Twelve Months Ended June 30, 1993.
(f) The supplemental ratios have been calculated including obligations under
the long-term power purchase contract with the Nebraska Public Power
District relating to Cooper Nuclear Station.
(g) Excludes long-term debt due within one year.
(h) Midwest Power is a subsidiary of Resources. The Resources consolidated
financial statements include Midwest Power balance sheets and statements of
income. The preferred stock issued by Midwest Power will be converted into
shares of Company Preferred Stock in the Merger.
(i) For a discussion of material litigation and regulatory matters relating to
Resources, Midwest Power and Iowa-Illinois, reference is made to the
documents incorporated by reference herein.
</TABLE>
For the twelve month period ended September 30, 1994, operating revenues
were $976,503,000, earnings on common stock were $66,107,000 and the ratio and
supplemental ratio of earnings to fixed charges and preferred dividend
requirements were 2.7 and 2.6, respectively, as compared with operating revenues
of $1,005,803,000, earnings on common stock of $86,203,000 and ratio and
supplemental ratio of earnings to fixed charges and preferred dividend
requirements of 3.0 and 2.8, respectively, for the twelve month period ended
September 30, 1993. Net income for the 1993 period included a $10 million after
tax gain as a result of the 1993 exchange of certain Midwest Power natural gas
service territories. Net income for the 1994 period reflects $2.4 million of
increased operating expenses for Cooper Nuclear Station and $1.1 million of
expenses related to the Merger.
22
<PAGE>
SELECTED UNAUDITED PRO FORMA FINANCIAL DATA
The selected unaudited pro forma financial data combines the historical
consolidated balance sheets and statements of income of Resources, Midwest Power
and Iowa-Illinois after giving effect to the Merger under the
pooling-of-interests method of accounting, assuming the Merger had been
effective for all periods presented. Pro forma per share data for Company Common
Stock gives effect to the conversion of each share of Iowa-Illinois Common Stock
into 1.47 shares of Company Common Stock and the conversion of each share of
Resources Common Stock into one share of Company Common Stock. See "The Merger
Agreement -- The Merger." The selected unaudited pro forma financial data is not
necessarily indicative of the operating results or financial position that would
have occurred had the Merger been consummated on the dates for which the Merger
is being given effect, nor is it necessarily indicative of future operating
results or financial position. See "Pro Forma Combined Financial Information
(unaudited)."
MIDAMERICAN ENERGY COMPANY
PRO FORMA COMBINED SELECTED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
----------------------- --------------------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Operating Revenues.................... $ 799,097 $ 784,889 $1,541,959 $1,420,714 $1,442,050 $1,388,256 $1,426,034
Utility Operating Income.............. 101,435 105,482 203,780 176,472 212,857 214,443 221,026
Other Income (a)...................... 7,786 10,354 27,128 786 3,395 (762) 20,711
Net Income............................ 72,215 72,053 147,705 88,085 127,969 126,365 155,151
Preferred and Preference Dividends.... 5,146 4,077 8,367 8,735 9,708 7,361 7,406
Earnings on Common Stock.............. 67,069 67,976 139,338 79,350 118,261 119,004 147,745
Earnings per Common Share (b)......... $ 0.68 $ 0.70 $ 1.43 $ 0.83 $ 1.32 $ 1.33 $ 1.64
Dividends Declared per Common Share
(b).................................. $ 0.58 $ 0.58 $ 1.17 $ 1.28 $ 1.38 $ 1.24 $ 1.28
Equivalent Iowa-Illinois Pro Forma per
Share Data: (c)......................
Earnings per Common Share........... $ 1.01 $ 1.02 $ 2.10 $ 1.22 $ 1.93 $ 1.95 $ 2.42
Dividends Declared per Common
Share.............................. $ 0.86 $ 0.86 $ 1.72 $ 1.89 $ 2.03 1.83 $ 1.88
Ratio of Earnings to Fixed Charges and
Preferred and Preference Dividend
Requirements (d)..................... 2.7(e) 2.1(f) 2.6 1.8 2.3 2.4 2.8
Supplemental Ratio of Earnings to
Fixed Charges and Preferred and
Preference Dividend Requirements
(g).................................. 2.6(e) 2.1(f) 2.5 1.7 2.2 2.3 2.7
Balance Sheet Data:
Total Assets.......................... $4,340,806 $4,152,106 $4,381,754 $4,122,974 $3,991,293 $3,749,068 $3,661,500
Long-term Debt (h).................... 1,373,845 1,386,993 1,341,003 1,368,784 1,351,385 1,225,397 1,214,886
Redeemable Preferred and Preference
Stock (i)............................ 50,000 48,050 50,000 48,625 79,200 39,775 40,350
Non-redeemable Preferred Stock........ 109,810 74,242 109,871 74,242 74,291 74,295 74,298
Common Stock Equity................... 1,199,594 1,167,354 1,180,510 1,159,676 1,125,238 1,061,409 1,061,473
Power Purchase Contract............... 151,485 146,150 151,485 146,150 150,838 159,293 167,282
Book Value per Common Share........... $ 12.17 $ 11.94 $ 12.07 $ 11.86 $ 12.08 $ 11.86 $ 11.85
Equivalent Iowa-Illinois Pro Forma per
Share Data: (c):.....................
Book Value per Common Share......... $ 17.88 $ 17.55 $ 17.75 $ 17.43 $ 17.75 $ 17.44 $ 17.42
<FN>
- ------------------------------
(a) Resources exchanged certain gas assets and operations during 1993 and sold
certain assets and operations in 1989 as described in the Resources Annual
Report on Form 10-K for 1993 and 1989, respectively. The 1993 and 1989
earnings reflect the gains derived from these transactions.
(b) Pro forma per common share amounts give effect to the conversion of each
share of Resources Common Stock outstanding into one share of Company
Common Stock and each share of Iowa-Illinois Common Stock outstanding into
1.47 shares of
</TABLE>
23
<PAGE>
<TABLE>
<S> <C>
Company Common Stock. Pro forma dividends declared per common share reflect
the historical dividends declared by Resources and Iowa-Illinois, divided
by the pro forma average number of shares of Company Common Stock
outstanding. The Company anticipates paying annual dividends of $1.20 per
share subsequent to the Merger.
(c) Represents the pro forma equivalent of one share of Iowa-Illinois Common
Stock calculated by multiplying the pro forma information by the conversion
ratio of 1.47 shares of Company Common Stock for each share of
Iowa-Illinois Common Stock.
(d) For purposes of computing the ratios of earnings to fixed charges and
preferred and preference dividend requirements, "earnings" consist of net
income before interest charges and preferred and preference dividend
requirements, plus income taxes, plus the estimated interest component of
rentals. "Earnings" also include allowances for borrowed and other funds
used during construction. Fixed charges consist of interest charges, the
estimated interest component of rentals and the pre-tax dividend
requirements on preferred and preference stock.
(e) Based on Twelve Months Ended June 30, 1994.
(f) Based on Twelve Months Ended June 30, 1993.
(g) The supplemental ratios have been calculated including obligations under
the long-term power purchase contract with the Nebraska Public Power
District relating to Cooper Nuclear Station.
(h) Excludes long-term debt due within one year.
(i) Excludes preferred or preference stock, as applicable, to be redeemed
within one year.
(j) For a discussion of material litigation and regulatory matters relating to
Resources, Midwest Power and Iowa-Illinois, reference is made to the
documents incorporated by reference herein.
(k) Subsequent to June 1994, Resources discontinued its construction
operations. The impact of discontinuing construction operations has been
reflected in the pro forma combined selected financial information shown
above.
(l) Pro forma amounts do not, however, give effect to the synergies of the
Merger. For a description of the synergies, see "The Merger -- Reasons for
the Merger."
</TABLE>
COMPARATIVE BOOK VALUES, DIVIDENDS AND EARNINGS PER SHARE OF COMMON STOCK
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF DECEMBER 31,
-------------------- -----------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Book Values Per Share of Common Stock
Iowa-Illinois
Historical..................................... $ 17.09 $ 17.03 $ 17.01 $ 16.89 $ 16.52 $ 16.27 $ 16.06
Equivalent Pro Forma*.......................... $ 17.88 $ 17.55 $ 17.75 $ 17.43 $ 17.75 $ 17.44 $ 17.42
Resources
Historical..................................... $ 12.59 $ 12.22 $ 12.47 $ 12.16 $ 12.69 $ 12.49 $ 12.58
Equivalent Pro Forma*.......................... $ 12.17 $ 11.94 $ 12.07 $ 11.86 $ 12.08 $ 11.86 $ 11.85
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash Dividends Declared Per Share of Common Stock
Iowa-Illinois
Historical..................................... $ .865 $ .865 $ 1.73 $ 1.73 $ 1.71 $ 1.67 $ 1.63
Equivalent Pro Forma*.......................... $ .86 $ .86 $ 1.72 $ 1.89 $ 2.03 $ 1.83 $ 1.88
Resources
Historical..................................... $ .58 $ .58 $ 1.16 $ 1.36 $ 1.56 $ 1.32 $ 1.41
Equivalent Pro Forma*.......................... $ .58 $ .58 $ 1.17 $ 1.28 $ 1.38 $ 1.24 $ 1.28
Earnings Per Share of Common Stock
Iowa-Illinois
Historical..................................... $ .98 $ .99 $ 1.85 $ 1.45 $ 1.86 $ 1.99 $ 2.10
Equivalent Pro Forma*.......................... $ 1.01 $ 1.02 $ 2.10 $ 1.22 $ 1.93 $ 1.95 $ 2.42
Resources
Historical..................................... $ .67 $ .65 $ 1.49 $ .73 $ 1.36 $ 1.25 $ 1.80
Equivalent Pro Forma*.......................... $ .68 $ .70 $ 1.43 $ .83 $ 1.32 $ 1.33 $ 1.64
<FN>
- ------------------------------
* Equivalent pro forma information calculated by multiplying the pro forma
information by the Conversion Ratio, in the case of Iowa-Illinois, of 1.47
shares of Company Common Stock for each share of Iowa-Illinois Common Stock and,
in the case of Resources, of 1.0 share of Company Common Stock for each share of
Resources Common Stock.
</TABLE>
24
<PAGE>
COMPARATIVE PER SHARE PRICES OF RESOURCES AND IOWA-ILLINOIS COMMON STOCK
The Resources Common Stock and the Iowa-Illinois Common Stock are traded on
the NYSE and the Iowa-Illinois Common Stock is also traded on the Chicago Stock
Exchange. The following Table sets forth, for the periods indicated, the high
and low sales prices of Resources Common Stock and Iowa-Illinois Common Stock as
reported on the NYSE Consolidated Tape in each case based on published financial
sources, and dividends declared.
<TABLE>
<CAPTION>
IOWA-ILLINOIS RESOURCES
------------------------------ ------------------------------
HIGH LOW DIVIDENDS HIGH LOW DIVIDEND
------- ------- ----------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
1992
First Quarter............................................... 26 1/4 23 1/2 .4325 20 1/2 19 1/2 .39
Second Quarter.............................................. 25 23 3/4 .4325 20 5/8 19 5/8 .39
Third Quarter............................................... 24 7/8 23 1/2 .4325 20 1/8 15 7/8 .29
Fourth Quarter.............................................. 24 3/4 21 3/8 .4325 17 3/8 15 7/8 .29
1993
First Quarter............................................... 22 7/8 19 1/4 .4325 18 1/8 15 3/4 .29
Second Quarter.............................................. 23 3/4 22 3/8 .4325 18 3/4 17 1/4 .29
Third Quarter............................................... 26 5/8 23 5/8 .4325 19 5/8 18 .29
Fourth Quarter.............................................. 26 3/8 22 5/8 .4325 19 1/2 17 1/8 .29
1994
First Quarter............................................... 24 3/4 22 3/8 .4325 18 16 .29
Second Quarter.............................................. 24 1/2 19 7/8 .4325 16 3/4 13 7/8 .29
Third Quarter............................................... 22 3/8 19 1/4 .4325 15 3/8 13 1/2 .29
Fourth Quarter through November 2........................... 20 5/8 19 5/8 .4325 14 1/2 13 3/4 .29
</TABLE>
On July 26, 1994, the last full trading day before the public announcement
of the execution and delivery of the Merger Agreement, the closing price per
share on the NYSE Consolidated Tape of (i) Resources Common Stock was $14 3/4
and (ii) Iowa-Illinois Common Stock was $21 5/8.
On November 2, 1994, the closing price per share on the NYSE Consolidated
Tape of (i) Resources Common Stock was $14 1/8 and (ii) Iowa-Illinois Common
Stock was $20 1/8.
The market prices of Iowa-Illinois Common Stock and Resources Common Stock
are subject to fluctuation. As a result, Iowa-Illinois and Resources
shareholders are urged to obtain current market quotations for Iowa-Illinois
Common Stock and Resources Common Stock.
MIDWEST POWER PREFERRED AND IOWA-ILLINOIS PREFERENCE STOCK TRANSACTIONS
To the knowledge of Midwest Power and Iowa-Illinois, there is no established
public trading market for any shares of Midwest Power Preferred Stock or
Iowa-Illinois Preference Stock, except for the $1.7375 Series of Midwest Power
Preferred Stock which is traded on the NYSE. The high and low sales prices of
the $1.7375 Series of Midwest Power Preferred Stock since it was issued in
November, 1993, as reported on the NYSE Consolidated Tape based on published
financial sources, are:
<TABLE>
<CAPTION>
HIGH LOW
------- ---------
<S> <C> <C>
1993
Fourth Quarter................................................................ $26 $ 24
1994
First Quarter................................................................. 25 7/8 23
Second Quarter................................................................ 24 1/4 22
Third Quarter................................................................. 22 1/2 21
Fourth Quarter through November 2............................................. 22 201/4
</TABLE>
Shares of Midwest Power Preferred Stock and Iowa-Illinois Preference Stock
are occasionally sold in privately negotiated transactions or through securities
dealers or agents, but the prices at which
25
<PAGE>
such shares are sold are not generally disclosed to Midwest Power or
Iowa-Illinois. Midwest Power has from time to time purchased shares of Midwest
Power Preferred Stock in transactions initiated by the holders of such shares at
prices negotiated with such holders at the times of such purchases.
RATINGS
The Iowa-Illinois Preference Stock is currently rated a1 by Moody's, A by
S&P, A by D&P and A+ by Fitch. The Midwest Power Preferred Stock is currently
rated a3 by Moody's and A by S&P. It is the
expectation of management that the ratings on the Company Preferred Stock will
be at least a3 by Moody's and A by S&P.
1993 STATISTICS AND RANKINGS
The following table lists certain historical statistics for
Resources/Midwest Power and Iowa-Illinois and pro forma statistics for the
Company, and their rank as compared with the 100 largest investor owned electric
and/or gas utility companies in the United States, as of and for the year ended
December 31, 1993.
<TABLE>
<CAPTION>
RESOURCES/ COMPANY PRO
MIDWEST POWER RANK IOWA-ILLINOIS RANK FORMA RANK
------------- ---- ------------- ---- ----------- ----
<S> <C> <C> <C> <C> <C> <C>
Electric Customers (a)............. 420,268 51 200,097 79 620,365 42
Gas Customers (b).................. 341,864 45 240,834 61 582,698 27
Total Assets (c)................... $ 2,607,219 50 $ 1,793,563 64 $ 4,381,764 39
Operating Revenues
Electric......................... $ 664,377 $ 338,593 $ 1,002,970
Gas.............................. 332,168 206,821 538,989
------------- ------------- -----------
Total Operating Revenues (d)....... $ 996,545 51 $ 545,414 73 $ 1,541,959 42
<FN>
- ------------------------
Sources:
(a) 1993 Uniform Statistical Reports, page E-14, Year-End Total Sales to
Ultimate Customers. Rankings from Edison Electric Institute.
(b) 1993 Uniform Statistical Reports, page G-17, lines 1-6, Year-End Total
Customers. Rankings from Pipeline & Gas Journal, September 1994.
(c) 1993 Annual Reports, rankings from Edison Electric Institute.
(d) 1993 Annual Reports, rankings from Edison Electric Institute.
</TABLE>
MEETINGS, VOTING AND PROXIES
This Joint Proxy Statement/Prospectus is being furnished to (i) the
shareholders of Iowa-Illinois in connection with the solicitation of proxies by
the Iowa-Illinois Board from the holders of Iowa-Illinois Common Stock and
Iowa-Illinois Preference Stock for use at the Iowa-Illinois Meeting, (ii) the
shareholders of Resources in connection with the solicitation of proxies by the
Resources Board from the holders of Resources Common Stock for use at the
Resources Meeting, and (iii) the shareholders of Midwest Power in connection
with the solicitation of proxies by Midwest Power from the holders of Midwest
Power Preferred Stock for use at the Midwest Power Meeting, in each case to
consider and vote on proposals to adopt or approve the Merger Agreement.
IOWA-ILLINOIS MEETING
PURPOSE OF IOWA-ILLINOIS MEETING. The purpose of the Iowa-Illinois Meeting
is to vote upon the proposal to approve the Merger Agreement, which provides for
the merger of Iowa-Illinois, Resources and Midwest Power with and into the
Company.
The Iowa-Illinois Board, by the unanimous vote of the directors, has
approved the Merger Agreement, has authorized the execution and delivery of the
Merger Agreement and recommends that the shareholders of Iowa-Illinois approve
the Merger Agreement.
26
<PAGE>
DATE, PLACE AND TIME; RECORD DATE. The Iowa-Illinois Meeting is scheduled
to be held on Wednesday, December 21, 1994, at 10:00 a.m., local time, at River
Center, 136 East Third Street, Davenport, Iowa. Holders of record of shares of
Iowa-Illinois Common Stock and Iowa-Illinois Preference Stock at the close of
business on the Iowa-Illinois Record Date will be entitled to vote at the Iowa-
Illinois Meeting. At the close of business on the Iowa-Illinois Record Date,
there were (i) 500,000 shares of Iowa-Illinois Preference Stock (consisting of
the following series: $7.80 series - 400,000 shares; and $5.25 series - 100,000
shares); and (ii) 29,629,377 shares of Iowa-Illinois Common Stock, issued and
outstanding and entitled to vote.
VOTING RIGHTS. Each share of Iowa-Illinois Common Stock and Iowa-Illinois
Preference Stock entitles its holder to one vote. The affirmative vote of the
holders of two-thirds of the votes entitled to be cast by all holders of
outstanding shares of (i) Iowa-Illinois Preference Stock, voting as a single
class, (ii) Iowa-Illinois Common Stock, voting as a single class, and (iii)
Iowa-Illinois Preference Stock and Iowa-Illinois Common Stock, voting together
as a single class, is required to approve the Merger Agreement. Under applicable
Illinois law, in determining whether approval of the Merger Agreement 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
Agreement. The directors and executive officers of Iowa-Illinois, together with
their affiliates as a group, beneficially own less than 1% of the outstanding
shares of Iowa-Illinois capital stock.
Issued and outstanding shares of Iowa-Illinois Common Stock and
Iowa-Illinois Preference Stock the holders of which are entitled to vote at the
Iowa-Illinois Meeting and which are represented by properly executed proxies
will, unless such proxies have been revoked, be voted in accordance with the
directions indicated in the proxies. IF NO CONTRARY DIRECTIONS ARE INDICATED,
SUCH SHARES WILL BE VOTED FOR APPROVAL OF THE MERGER AGREEMENT. A holder of such
shares may revoke a proxy at any time prior to the Iowa-Illinois Meeting by
delivering to the Secretary of Iowa-Illinois a notice of revocation or a duly
executed proxy bearing a later date or by attending such meeting and voting in
person.
The Iowa-Illinois Meeting may be adjourned to another date and/or place for
any proper purpose (including, without limitation, for the purpose of soliciting
additional proxies).
In addition to soliciting proxies by mail, current and former officers and
employees of Iowa-Illinois, without receiving additional compensation therefor,
may solicit proxies by telephone, by telegram or in person. Iowa-Illinois has
retained Georgeson & Company, Inc. to aid in the solicitation of proxies. The
fee of such firm is $11,000 plus reimbursement for out-of-pocket expenses.
RESOURCES MEETING
PURPOSE OF RESOURCES MEETING. The purpose of the Resources Meeting is to
consider and vote upon the proposal to approve the Merger Agreement, which
provides for the merger of Resources, Midwest Power and Iowa-Illinois with and
into the Company.
The Resources Board, by the unanimous vote of the directors, has adopted the
Merger Agreement, has authorized the execution and delivery of the Merger
Agreement and recommends that the shareholders of Resources vote to approve the
Merger Agreement.
DATE, PLACE AND TIME; RECORD DATE. The Resources Meeting is scheduled to be
held on Wednesday, December 21, 1994, at 10:00 a.m. local time, at the Des
Moines Convention Center, 501 Grand Avenue, Des Moines, Iowa. Holders of record
of shares of Resources Common Stock at the close of business on the Resources
Record Date will be entitled to vote at the Resources Meeting. At the close of
business on the Resources Record Date, 55,630,485 shares of Resources Common
Stock were issued and outstanding and entitled to vote.
VOTING RIGHTS. Each share of Resources Common Stock entitles its holder to
one vote. The affirmative vote of the holders of a majority of the issued and
outstanding shares of Resources Common Stock entitled to vote is required to
approve the Merger Agreement. Under applicable Iowa law, in determining whether
approval of the Merger Agreement has received the requisite number of
27
<PAGE>
affirmative votes, abstentions and broker non-votes will have the same effect as
a vote against approval of the Merger Agreement. The directors and executive
officers of Resources, together with their affiliates as a group, beneficially
own less than 1% of the outstanding shares of Resources Common Stock.
Issued and outstanding shares of Resources Common Stock the holders of which
are entitled to vote at the Resources Meeting and which are represented by
properly executed proxies will, unless such proxies have been revoked, be voted
in accordance with the directions indicated in such proxies. IF NO CONTRARY
DIRECTIONS ARE INDICATED, SUCH SHARES WILL BE VOTED FOR APPROVAL OF THE MERGER
AGREEMENT. A Resources shareholder may revoke a proxy at any time prior to the
Resources Meeting by delivering to the Secretary of Resources a notice of
revocation or a duly executed proxy bearing a later date or by attending such
meeting and voting in person.
The Resources Meeting may be adjourned to another date and/or place for any
proper purpose (including, without limitation, for the purpose of soliciting
additional proxies).
In addition to soliciting proxies by mail, officers and employees of
Resources and Midwest Power, without receiving additional compensation therefor,
may solicit proxies by telephone, by telegram, by facsimile or in person.
Resources has retained Georgeson & Company, Inc. to aid in the solicitation of
proxies. The fee of such firm is $7,500 plus reimbursement for out-of-pocket
expenses.
MIDWEST POWER MEETING
PURPOSE OF MIDWEST POWER MEETING. The purpose of the Midwest Power Meeting
is to consider and vote upon the proposal to approve the Merger Agreement, which
provides for the merger of Midwest Power, Resources and Iowa-Illinois with and
into the Company.
The Midwest Power Board, by the unanimous vote of the directors, has adopted
the Merger Agreement, has authorized the execution and delivery of the Merger
Agreement and recommends that the shareholders of Midwest Power vote to approve
the Merger Agreement.
DATE, PLACE AND TIME; RECORD DATE. The Midwest Power Meeting is scheduled
to be held on Wednesday, December 21, 1994 at 8:00 a.m. local time, at the Des
Moines Convention Center, 501 Grand Avenue, Des Moines, Iowa. Holders of record
of shares of Midwest Power Common Stock (all shares of which are owned and held
by Resources) and Midwest Power Preferred Stock at the close of business on the
Midwest Power Record Date will be entitled to vote at the Midwest Power Meeting.
At the close of business on the Midwest Power Record Date, there were (i)
2,717,789 shares of Midwest Power Preferred Stock (consisting of the following
series: $3.30 Series -- 49,622 shares; $3.75 Series -- 38,320 shares; $3.90
Series -- 32,630 shares; $4.20 Series -- 47,369 shares; $4.35 Series -- 49,950
shares; $4.40 Series -- 50,000 shares; $4.80 Series -- 49,898 shares; and
$1.7375 Series -- 2,400,000 shares) and (ii) 1,000 shares of Midwest Power
Common Stock issued and outstanding and entitled to vote.
VOTING RIGHTS. Each share of Midwest Power Common Stock and Midwest Power
Preferred Stock entitles its holder to one vote, except that each share of the
$1.7375 Series of Midwest Power Preferred Stock entitles its holder to 1/4 vote.
The affirmative vote of the holders of a majority of the votes entitled to be
cast by all holders of outstanding shares of (i) Midwest Power Preferred Stock,
voting as a single class, (ii) Midwest Power Common Stock, voting together as a
single class, and (iii) Midwest Power Common Stock and Midwest Power Preferred
Stock, voting together as a single class, is required for approval of the Merger
Agreement. Under applicable Iowa law, in determining whether approval of the
Merger Agreement 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 Agreement. The directors and executive officers of
Midwest Power, together with their affiliates (other than Resources) as a group,
beneficially own less than 1% of the outstanding shares of Midwest Power
Preferred Stock. Resources owns all of the outstanding shares of Midwest Power
Common Stock.
28
<PAGE>
Issued and outstanding shares of Midwest Power Common Stock and Midwest
Power Preferred Stock the holders of which are entitled to vote at the Midwest
Power Meeting and which are represented by properly executed proxies will,
unless such proxies have been revoked, be voted in accordance with the
directions indicated in such proxies. IF NO CONTRARY DIRECTIONS ARE INDICATED,
SUCH SHARES WILL BE VOTED FOR APPROVAL OF THE MERGER AGREEMENT. A Midwest Power
shareholder may revoke a proxy at any time prior to the Midwest Power Meeting by
delivering to the Secretary of Midwest Power a notice of revocation or a duly
executed proxy bearing a later date or by attending such meeting and voting in
person.
The Midwest Power Meeting may be adjourned to another date and/or place for
any proper purpose (including, without limitation, for the purpose of soliciting
additional proxies).
In addition to soliciting proxies by mail, officers and employees of Midwest
Power and Resources, without receiving additional compensation therefor, may
solicit proxies by telephone, by telegram or in person. Midwest Power has
retained Georgeson & Company, Inc. to aid in the solicitation of proxies. The
fee for such firm's services is included in the fee charged by such firm for the
solicitation of proxies for Resources.
THE MERGER
BACKGROUND OF THE MERGER
Resources has had a strategy dating back to 1985 which has included growth
through merger and acquisition, particularly for its Iowa based utilities.
Resources was formed in 1990 as an outgrowth of this strategy through the merger
of two Iowa public utility holding companies, Midwest Energy Company and Iowa
Resources Inc., and their public utility subsidiaries, Iowa Public Service
Company and Iowa Power Inc., merged in 1992 to form Midwest Power. From time to
time, this strategy has been confirmed with the Resources Board, and Mr. Russell
E. Christiansen, Chairman and Chief Executive Officer of Resources, has
indicated to the other Iowa utilities, including Iowa-Illinois, Resources'
interest in further consolidation of the utility industry in Iowa.
On April 27, 1994, the Resources Board discussed the need for succession
planning which included the possibility of a merger as a strategy to provide
both continuity of executive leadership and gains in operating efficiencies. No
specific companies were identified.
Iowa-Illinois, in anticipation of the passage of the Energy Policy Act of
1992, began an intensive examination of its strategic options in 1992. This
examination led to preliminary discussions with several regional gas and
electric utilities concerning the feasibility of a business combination and the
synergies that could be achieved from such a transaction.
Acting on and in furtherance of the respective strategies of their
companies, Mr. Stanley J. Bright, Chairman and Chief Executive Officer of
Iowa-Illinois, and Mr. Christiansen met for the first time on May 16, 1994 to
explore the feasibility of combining the companies. Pursuant to a brief
conversation initiated by Mr. Christiansen earlier in 1994, Messrs. Bright and
Christiansen agreed to have such a meeting after their respective annual
meetings of shareholders.
During the second and third weeks of June, 1994, Messrs. Bright and
Christiansen continued to discuss aspects of a business combination of
Iowa-Illinois, Resources and Midwest Power, including the identification of
potential synergies.
On June 24, 1994, Mr. Christiansen informed the Resources Board of his
discussions with Mr. Bright and reviewed the potential synergies and benefits of
a merger with Iowa-Illinois. Also, on such date, the Vice President-General
Counsel of Iowa-Illinois and the Vice President-General Counsel of Resources met
with outside counsel for Iowa-Illinois, LeBoeuf, Lamb, Greene & MacRae, L.L.P.,
and outside counsel for Resources, Sidley & Austin. Structural and certain
related issues relating to a possible combination of Iowa-Illinois, Resources
and Midwest Power were discussed and the required regulatory approvals were
identified at the meeting.
29
<PAGE>
On June 30, 1994, Mr. Bright and Mr. Mel Foster, Jr., a member of the
Iowa-Illinois Board, met with Mr. Christiansen and Mr. Jack W. Eugster, a member
of the Resources Board. During the meeting, Messrs. Bright and Christiansen
described their previous discussions and identified potential benefits of a
merger.
On July 11, 1994, Messrs. Bright and Christiansen met again to discuss a
possible merger. The primary purpose of the meeting was to continue their
discussions regarding operational, managerial and governance-related issues.
On July 13, 1994, a special meeting of the Iowa-Illinois Board was held. The
purpose of the meeting was to inform the Iowa-Illinois Board of the status of
the discussions with Resources and to address questions of the Iowa-Illinois
Board concerning the potential merger. A presentation was made by Iowa-Illinois'
financial advisor, Dillon, Read & Co. Inc., of various possible approaches with
respect to establishing an exchange ratio in connection with the potential
merger and with respect to merger and acquisition transactions in general. The
written portions of such presentation are filed as an exhibit to the
Registration Statement of which this Joint Proxy Statement/Prospectus is a part.
Dillon Read made comparisons between Iowa-Illinois and Resources and a peer
group of utilities consisting of these two companies and CILCORP Inc., CIPSCO
Incorporated, IES Industries Inc., Illinova Corporation, Interstate Power
Company, UtiliCorp United Inc. and WPL Holdings, Inc. The following comparisons
were made (in addition to comparisons based on financial forecasts, relating to
earnings, returns on equity, dividends and other factors, provided to Dillon
Read by management): earnings per share growth over the last five years
(Resources declined 11.8%, Iowa-Illinois declined 4.6% and the peer group
declined by a median of 1.9%); dividend growth over the last five years
(Resources numbers were not meaningful to the analysis, Iowa-Illinois increased
by 1.5% and the peer group increased by a median of 1.8%); times interest earned
(Resources 3.24x, Iowa-Illinois 4.30x and the peer group median of 3.24x);
long-term debt to capitalization ratios (Resources 48.5%, Iowa-Illinois 46.8%
and the peer group median of 46.3%); price to cash flow from operations
(Resources 4.8x, Iowa-Illinois and the peer group median of 4.3x); price to book
value (Resources 1.19x, Iowa-Illinois 1.21x and the peer group median of 1.21x);
market capitalization to operating cash flow (Resources 6.5x, Iowa-Illinois 5.4x
and the peer group median of 6.5x); dividend yield (Resources 7.7%,
Iowa-Illinois 8.3% and the peer group median of 7.7%); equity market value
(Resources $831.5 million, Iowa-Illinois $612.6 million and the peer group
median of $829.3 million). The comparative data were consistent with, and
superseded by, the comparative analysis made in connection with Dillon Read's
fairness opinion. See "Opinion of Financial Advisor to Iowa-Illinois --
Comparable Company Trading Analysis." Dillon Read also furnished comparative
information about the historical stock price performance of Resources and
Iowa-Illinois relative to the Standard and Poor's Electric Companies Index based
on the daily close during the period from June 21, 1991 to July 8, 1994.
Dillon Read identified the five largest shareholders of Resources and
Iowa-Illinois. Percentages of institutional holdings (12.8% for Resources and
17.2% for Iowa-Illinois) and of ownership by the top 20 holders (11.1% for
Resources and 13.4% for Iowa-Illinois) were also presented.
Dillon Read identified for the Iowa-Illinois Board certain due diligence
issues with respect to Resources and Midwest Power, relating to the Cooper power
purchase contract, planned rate cases, environmental clean-up exposure and
nonregulated operations.
Dillon Read's presentation included a summary of certain principal terms and
effects of five recent utility merger transactions in respect of: pro forma
ownership; market premium; board composition; special voting requirements; CEO
arrangements; and location of headquarters. The transactions consisted of the
mergers or proposed mergers between Cleveland Electric Company and Toledo Edison
Company, Midwest Energy Company and Iowa Resources, Inc., IE Industries Inc. and
Iowa Southern Inc., Cincinnati Gas and Electric Company and PSI Energy and
Washington Water Power Company and Sierra Pacific Resources.
A more detailed examination was made of the proposed merger between
Washington Water Power and Sierra Pacific, which was announced shortly before
Dillon Read's presentation. The examination
30
<PAGE>
included discussion of the relative contributions of the constituent
corporations in respect of equity market value, operating income, operating cash
flow, net income and book value of equity. Dillon Read also presented
information concerning the daily closing prices of the stock of Washington Water
Power and Sierra Pacific between May 26, 1994 and July 8, 1994, which included
the date on which the proposed merger between the two companies was announced.
Dillon Read presented to the Iowa-Illinois Board the following financial
data concerning the relative contributions of Resources and Iowa-Illinois as of
or for the 12 months ended March 31, 1994: revenues (64.3% and 35.7%,
respectively); operating income, defined as earnings before interest and taxes
or "EBIT" (56.5% and 43.5%, respectively); operating cash flow, defined as
earnings before interest, taxes, depreciation and amortization or "EBITDA"
(55.9% and 44.1%, respectively); net income available to common stockholders
(54.8% and 45.2%, respectively); Cash Flow from Operations, defined as cash
provided by operating activities before changes in working capital (55.1% and
44.9%, respectively); book value of common equity (58.0% and 42.0%,
respectively); and market value of common equity (57.6% and 42.4%,
respectively). Projected results were also indicated based upon information
furnished by management.
Dillon Read also presented to the Iowa-Illinois Board the following
financial results for Resources, Iowa-Illinois and (on a pro forma basis) the
Company, respectively, as of or for the 12 months ended March 31, 1994: electric
revenues ($662.1 million, $346.9 million and $1,009.0 million, respectively);
gas revenues ($326.1 million, $221.5 million and $547.6 million, respectively);
total revenues (including $195.0 million of construction and other revenues)
($1,183.2 million, $657.7 million and $1,840.9 million, respectively); operating
cash flow ($265.1 million, $209.0 million and $474.1 million, respectively);
operating income ($167.8 million, $129.1 million and $296.9 million,
respectively); net income available to common stockholders ($61.9 million, $50.9
million and $112.8 million, respectively); equity market value ($831.5 million,
$612.6 million and $1,444.1 million, respectively); and (with respect to
Resources and Iowa-Illinois only) senior debt ratings (A2/A+ and Aa3/AA-,
respectively).
Dillon Read illustrated the impact upon relative ownership, market premium
and changes in Iowa-Illinois' dividend, considering a range of possible
conversion ratios for Iowa-Illinois Common Stock ranging from 1.35 to 1.60. In
terms of these end points, the results would have been, respectively:
Iowa-Illinois ownership of 41.9% or 46.1% of the Company; a market premium of 0%
(2.2% for Resources) or 15.9%; and a dividend change of -9.5% and 7.3%. Dillon
Read presented the market-to-market exchange ratio for the Resources Common
Stock and Iowa-Illinois Common Stock over the period beginning June 21, 1991 and
ending July 5, 1994. The impact of Iowa-Illinois Conversion Ratios of 1.40,
1.45, 1.50 and 1.55 was shown on premium to current market price, pro forma
ownership, cash flow per share, book value per share, dividend increase or
decrease and projected earnings based on information provided by management.
Dillon Read presented summary information concerning the availability and
range of termination fees, as well as the availability of cross-options, in ten
large utility mergers. It was noted that eight of these transactions included
termination fees, two included cross-options and that the percentage of
consideration reflected in the termination fees ranged from 1.1% to 5.7% of
consideration with a median (among the eight transactions that included fees) of
3.4%; the two transactions that included cross-options were noted to have
covered between 17.6% and 18% of the shares outstanding.
Dillon Read discussed certain potential benefits of a merger transaction
among Resources, Midwest Power and Iowa-Illinois, including improvement of
competitive position, retention of strong financial position, improvement of
dividend stability and opportunity for enhanced earnings growth, more efficient
capital raising and increased liquidity for shareholders.
A presentation was also made at the July 13, 1994 meeting by Iowa-Illinois'
legal advisors, LeBoeuf, Lamb, Greene & MacRae, L.L.P. In addition, management
presented an overview of Resources' operations. A draft merger agreement was
circulated to the Iowa-Illinois Board.
31
<PAGE>
On July 15, 1994, a special meeting of the Resources Board was held for the
purpose of informing the Resources Board of the status of the discussions with
Iowa-Illinois and to address questions of the Board concerning the potential
transaction. Presentations were made by Resources' financial advisor,
PaineWebber Incorporated, and legal advisors, Sidley & Austin. The written
portions of the PaineWebber presentation are filed as an exhibit to the
Registration Statement of which this Joint Proxy Statement/Prospectus is a part.
In its presentation, PaineWebber discussed the changing environment for the
electric and gas utility industry, including technological advances, significant
uncertainties which threaten the financial health of utilities in the future,
consumer demand trends and legislative and regulatory reforms such as FERC Order
636 and the National Energy Policy Act of 1992 that are resulting in a more
competitive marketplace. PaineWebber noted various opportunities and risks
within the industry as a result of the changes, including the increasing
importance of operating efficiencies for future competitiveness. PaineWebber
then discussed benefits of the trend toward consolidation in the electric and
gas utility industry, noting the enhanced operating and financial strength,
increased productivity and reduced costs, along with better customer service and
greater financing flexibility.
PaineWebber preliminarily reviewed the possible effects of a potential
merger structure between Resources and Iowa-Illinois. The preliminary merger
analysis was based on the concept of a "merger of equals," structured as a
tax-free exchange of common stock, and accounted for as a pooling of interests.
In keeping with the concept of a merger of equals, a transaction was
contemplated in this preliminary analysis to balance the relative benefits to
the shareholders of Resources and Iowa-Illinois. PaineWebber noted that since a
market-for-market transaction would result in a dividend decrease for the
Iowa-Illinois shareholders, a very slight premium would be required in order to
create dividend parity. PaineWebber further noted that if this potential
structure were to be effected, assuming no savings from the business
combination, Resources would experience modest dilution to its book value per
share, modest earnings per share ("EPS") accretion in 1994 and modest EPS
dilution in 1995 and a manageable dividend payout ratio, and that Iowa-Illinois
would experience dividend parity, a modest premium to market value, a slight
increase in book value per share, modest EPS dilution in 1994 and modest EPS
accretion in 1995. PaineWebber also noted that the achievement of synergy
savings would significantly enhance the economics of this potential transaction.
The preliminary analysis presented by PaineWebber at the July 15, 1994 meeting
concerning a potential merger was superseded by the analysis presented to the
Resources Board at the July 26, 1994 meeting regarding the PaineWebber fairness
opinion.
In addition, Resources' management presented an overview of Iowa-Illinois'
operations and a draft merger agreement was circulated to the Resources Board at
its July 15, 1994 meeting.
On July 19, 1994, Messrs. Bright and Christiansen met to continue their
discussions on operational, managerial and governance-related issues. In
addition, at this meeting Messrs. Bright and Christiansen were presented with
the preliminary assessment of potential cost savings which might result from a
combination. Such preliminary assessment was prepared jointly by managements of
Iowa-Illinois, Resources and Midwest Power with the assistance of Deloitte &
Touche LLP.
On July 20, 1994, Mr. Christiansen met with Mr. Bright and the Iowa-Illinois
Board to further discuss a possible business combination of the companies.
On July 20, 1994, a special meeting of the Iowa-Illinois Board was held. At
such meeting the Iowa-Illinois Board reviewed the status of the discussions with
Resources, preliminary results of management's investigation, and possible
merger synergies. Iowa-Illinois' financial advisors and legal advisors were
present at the meeting.
On July 21 and 22, 1994, the financial advisors to and certain senior
executives of Iowa-Illinois and Resources met to conduct a due diligence review
and to discuss the operations and financial forecasts of each company. In
addition, on July 22, Messrs. Bright and Christiansen met to review additional
operational and managerial issues.
32
<PAGE>
On July 25, 1994, the Resources Board met to review the status of the
discussions with Iowa-Illinois, preliminary results of Resources' due diligence
investigation and possible merger synergies. Resources' management and its
financial and legal advisors made presentations to the Resources Board at the
meeting and drafts of the Agreement and Plan of Merger dated as of July 26, 1994
("July 26 Merger Agreement") and related documents were circulated to the
Directors. The written portions of the presentation of the financial advisor are
filed as an exhibit to the Registration Statement of which this Joint Proxy
Statement/Prospectus is a part. Separately, on July 24 and 25, 1994, Mr. Bright
met with members of the Resources Board to discuss various aspects of the
possible business combination.
On July 26, 1994, the Resources Board unanimously approved the July 26
Merger Agreement and related documents. In addition, the Resources Board
approved the forms of the respective employment agreements of Messrs.
Christiansen and Bright and the Company Severance Plan.
On July 26, 1994, the Midwest Power Board unanimously approved the July 26
Merger Agreement and related documents. In addition, the Midwest Power Board
approved the forms of the respective employment agreements of Messrs.
Christiansen and Bright and the Company Severance Plan.
On July 26, 1994, after presentations by its management and financial and
legal advisors, the Iowa-Illinois Board unanimously approved the July 26 Merger
Agreement and related documents. The written portions of the presentation of the
financial advisor are filed as an exhibit to the Registration Statement of which
this Joint Proxy Statement/Prospectus is a part. In addition, the Iowa-Illinois
Board approved the forms of the respective employment agreements of Messrs.
Bright and Christiansen and the Company Severance Plan.
The employment agreements referred to above and approved by each of the
Iowa-Illinois Board, the Midwest Power Board and the Resources Board were
subsequently entered into and will become effective upon the consummation of the
Merger. See "Interests of Certain Persons in the Merger."
Amendments to the July 26 Merger Agreement were unanimously approved and
adopted by the Iowa-Illinois Board, the Resources Board and the Midwest Power
Board as of September 27, 1994. Such amendments provide, among other things, for
Iowa-Illinois to cause its Preferred Stock to no longer be outstanding at the
time of the Iowa-Illinois Meeting, and for the shares of Iowa-Illinois
Preference Stock to be converted in the Merger into shares of Company Preferred
Stock, instead of into a class of Company preference stock.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of the Boards of Directors of
Iowa-Illinois, Resources and Midwest Power with respect to the Merger,
shareholders should be aware that certain members of the management and Boards
of Directors of Iowa-Illinois, Resources and Midwest Power have certain
conflicts of interest in the Merger. The Board of Directors of each of
Iowa-Illinois, Resources and Midwest Power was aware of these interests and
considered them, among other matters, in approving the Merger Agreement.
EMPLOYMENT AGREEMENTS. The Employment Agreements of Messrs. Russell E.
Christiansen and Stanley J. Bright will become effective only at the Effective
Time. The Employment Agreement of Mr. Christiansen would amend his existing
employment agreement dated March 15, 1990, with Resources. The Employment
Agreements are described in greater detail under "Employment Agreements" below.
EMPLOYEE PLANS, SEVERANCE ARRANGEMENTS AND AGREEMENTS AND TRUST
AGREEMENTS. Under certain benefit plans, severance arrangements and other
employee agreements maintained, or entered into, by Iowa-Illinois, certain
benefits may become vested, and certain payments may become payable, in
connection with the Merger. By virtue of the Company Severance Plan for
Specified Officers, certain severance benefits may become payable to 10
Specified Officers if their employment is terminated
33
<PAGE>
within two years following the Merger. These benefit plans, severance
arrangements and agreements and the nature of such payments thereunder are
described in greater detail under "Employee Plans, Severance Arrangements and
Agreements" below.
BOARD OF DIRECTORS. As provided in the Merger Agreement, at the Effective
Time, the Company Board will consist of 19 directors, comprised of eight persons
designated by Iowa-Illinois, including Stanley J. Bright, and 11 persons
designated by Resources, including Russell E. Christiansen. See "The Company
Following the Merger -- Management of the Company."
INDEMNIFICATION. From and after the Effective Time, the Company shall, to
the fullest extent not prohibited by applicable law, indemnify, defend and hold
harmless the present and former officers and directors of each of Iowa-Illinois,
Resources and Midwest Power, against all losses, expenses (including reasonable
attorney's fees), claims, damages or liabilities or, subject to certain
restrictions, amounts paid in settlement arising out of actions or omissions
occurring at or prior to the Effective Time that are in whole or in part based
on, or arising out of, the fact that such person is or was a director or officer
of such party arising out of or pertaining to the transactions contemplated by
the Merger Agreement. See "The Merger Agreement -- Indemnification."
REASONS FOR THE MERGER
Resources, Midwest Power and Iowa-Illinois believe that their combination
into the Company will provide opportunities to achieve benefits for their
shareholders and customers that would not be available if they were to remain as
separate enterprises. The Company, as a result of the combination of Resources',
Midwest Power's and Iowa-Illinois' equity, management, personnel and technical
expertise, will have increased financial stability and strength and will be
better able to take advantage of opportunities in its core utility and
diversified businesses. In addition, the Merger will permit the Company to
derive benefits from the more efficient and economic utilization of the combined
facilities and personnel of Iowa-Illinois, Midwest Power and Resources. Benefits
Resources, Midwest Power and Iowa-Illinois expect to realize from the Merger
include:
- INCREASED SIZE AND STABILITY -- As a larger entity, the Company will have
more diverse generating, transmission and customer bases and enhanced
access to capital markets. As a consequence, the Company will be better
able to take advantage of future strategic opportunities as the demands of
a competitive market intensify, and to reduce exposure to changes in
economic conditions in any given segment of the business.
- MORE ECONOMICAL USE OF GENERATION CAPACITY -- Midwest Power forecasts a
need to add base load generation within the next decade, whereas
Iowa-Illinois has base load generation capacity available in excess of
that currently required to serve its customers. Accordingly, the Merger
will permit the currently available Iowa-Illinois capacity to satisfy the
expected future Midwest Power need for additional capacity, which will
defer capital expenditures to construct additional generation capacity.
- COORDINATION OF DISPATCH -- Coordination of electric dispatch should
permit more efficient utilization of the respective generating and
transmission facilities of Midwest Power and Iowa-Illinois through use of
the combined system's most economical units providing lower cost energy to
customers.
- PURCHASING SAVINGS -- The larger size of the Company should improve its
bargaining position in its purchases of fuel, gas supplies and equipment,
and thus result in lower unit costs for such items.
- COORDINATION OF DIVERSIFICATION PROGRAMS -- Resources and Iowa-Illinois
each have significant nonregulated subsidiary businesses, and the Company,
as a stronger financial entity, should be able to manage and pursue these
subsidiary businesses more efficiently and effectively as a result of
access to lower cost capital and efficiencies achievable through greater
size.
34
<PAGE>
- REDUCED ADMINISTRATIVE COSTS -- It is anticipated that, as a result of
combining staff functions, within several years the Company will have
fewer employees than the current total of Resources, Midwest Power and
Iowa-Illinois employees. These work force reductions will be accomplished,
as much as possible, through attrition, including hiring freezes which are
currently in effect at both companies. In addition, some savings in areas
such as insurance and regulatory costs and legal, audit and consulting
fees should be realizable.
- COMPLEMENTARY MANAGEMENT -- The combined management of Resources and
Iowa-Illinois should provide the Company with strong capable management
which will facilitate the merger of similar corporate cultures and achieve
cooperation and coordination in an efficient manner.
- SUCCESSION -- Continuity of executive leadership will be provided for the
Company, which will continue to have the services of an experienced Chief
Executive Officer, Mr. Bright, after the retirement of Mr. Christiansen.
Subject to the qualifications expressed below, Resources, Midwest Power and
Iowa-Illinois believe that synergies from the Merger will generate substantial
cost savings to the Company which would not be available absent the Merger.
Preliminary estimates by the managements of Iowa-Illinois, Resources and Midwest
Power indicate that the Merger may result in potential cost savings of over $400
million to the Company during the ten year period following the Merger. These
potential cost savings include avoided fuel costs, deferred generation capacity
costs and other avoided or reduced operation and maintenance costs, such as
labor and materials. Achieved fuel cost savings will be passed on to customers
through the fuel adjustment mechanisms in state and federal regulated rates.
Deferred generation capacity costs will inure to the benefit of both
shareholders and customers as the Company uses existing generation assets more
efficiently and delays or avoids the need for, and risk of, financing new
generating capacity. Achieved savings in other operation and maintenance costs
are expected to inure to the benefit of both shareholders and customers. The
treatment of the benefits and cost savings will depend on the results of
regulatory proceedings in the various jurisdictions in which the Company
operates its businesses.
The analyses employed in order to develop estimates of potential savings as
a result of the Merger were necessarily based upon various assumptions which
involve judgments with respect to, among other things, future national and
regional economic and competitive conditions, inflation rates, regulatory
treatment, weather conditions, financial market conditions, interest rates,
future business decisions, and other uncertainties, all of which are difficult
to predict and many of which are beyond the control of Iowa-Illinois, Resources
and Midwest Power. Accordingly, while Iowa-Illinois, Resources and Midwest Power
believe that such assumptions are reasonable for purposes of the development of
estimates of potential savings, there can be no assurance that such assumptions
will approximate actual experience or that all such savings will be realized.
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
IOWA-ILLINOIS. The Iowa-Illinois Board unanimously approved the Merger
Agreement and determined to recommend the Merger to shareholders. The
Iowa-Illinois Board believes the Merger is in the best interests of its
shareholders and unanimously recommends that the shareholders of Iowa-Illinois
vote FOR approval of the Merger Agreement.
In its deliberations concerning the Merger, the Iowa-Illinois Board
considered Iowa-Illinois' and Resources' respective businesses, operations,
assets, management, geographic location and prospects, particularly the relative
quality, capacity and mix of electric generating facilities and the geographic
proximity of the Iowa-Illinois and Midwest Power service territories. The
Iowa-Illinois Board also considered the financial condition and results of
operations of Iowa-Illinois and Resources, both on a historical and on a
prospective basis. Other factors considered by the Iowa-Illinois Board include
(i) the historical prices and trading information with respect to Resources
Common Stock and Iowa-Illinois Common Stock, particularly the movement of the
two stocks in relation to each other over time and the fact that the Conversion
Ratios did not appear to have been negotiated at a time when
35
<PAGE>
the relationship between the two stocks was outside of historic levels, (ii) the
presentations of Iowa-Illinois' management, including potential operating and
financial synergies anticipated from the Merger and discussed above under "--
Reasons for the Merger," (iii) the proposed treatment of the Merger as a
"pooling of interests" for accounting purposes, which avoids creation of any
goodwill on the balance sheet of the Company and thereby avoids the reductions
in earnings that would be associated with amortization of goodwill, (iv) the
fact that the Merger will be tax-free (except with respect to cash payments to
dissenters and in lieu of fractional shares) to Iowa-Illinois and its
shareholders, (v) the opinion of Iowa-Illinois' financial advisor, Dillon Read,
and (vi) the terms of the Merger Agreement, which provide for substantially
reciprocal representations and warranties, conditions to closing and rights
relating to termination. No factor was assigned a greater significance by the
Iowa-Illinois Board than any other.
RESOURCES. The Resources Board unanimously adopted the Merger Agreement and
determined to recommend the Merger to its shareholders. The Resources Board
believes the Merger is in the best interests of its shareholders and unanimously
recommends that the shareholders of Resources vote FOR approval of the Merger
Agreement.
In its deliberations concerning the Merger, the Resources Board considered
Resources' and Iowa-Illinois' respective businesses, operations, assets,
management, geographic location and prospects, particularly the relative
quality, capacity and mix of electric generating facilities and gas distribution
system and the geographic proximity of the Iowa-Illinois and Midwest Power
service territories. The Resources Board also considered the financial condition
and results of operations of Resources and Iowa-Illinois, both on a historical
and on a prospective basis. Other factors considered by the Resources Board
include (i) the historical prices and trading information with respect to
Resources Common Stock and Iowa-Illinois Common Stock, particularly the movement
of the two stocks in relation to each other over time and the fact that the
Conversion Ratios did not appear to have been negotiated at a time when the
relationship between the two stocks was outside of historic levels, (ii) the
familiarity of Resources with business combination transactions, (iii) the
importance of size and economies of scale in the increasingly competitive energy
sector, (iv) the presentations of Resources' management, including potential
operating and financial synergies anticipated from the Merger and discussed
above under "-- Reasons for the Merger," (v) the proposed treatment of the
Merger as a "pooling of interests" for accounting purposes, which avoids
creation of any goodwill on the balance sheet of the Company and thereby avoids
the reductions in earnings that would be associated with amortization of
goodwill in purchase accounting while recognizing that such accounting treatment
has no cash flow impact, (vi) the fact that the Merger will be tax-free (except
with respect to cash payments made to dissenters) to Resources and its
shareholders, (vii) the opinion of Resources' financial advisor, PaineWebber,
(viii) the Merger will provide for continuity of executive leadership, and (ix)
the terms of the Merger Agreement, which provide for substantially reciprocal
representations and warranties, conditions to closing and rights relating to
termination. No factor was assigned a greater significance by the Resources
Board than any other.
MIDWEST POWER. The Midwest Power Board unanimously adopted the Merger
Agreement and determined to recommend the Merger to its shareholders. The
Midwest Power Board believes the Merger is in the best interests of its
shareholders and unanimously recommends that the shareholders of Midwest Power
vote FOR approval of the Merger Agreement.
In its deliberations concerning the Merger, the Midwest Power Board
considered Midwest Power's, Resources' and Iowa-Illinois' respective businesses,
operations, assets, management, geographic location and prospects, particularly
the relative quality, capacity and mix of electric generating facilities and gas
distribution system and the geographic proximity of the Iowa-Illinois and
Midwest Power service territories. The Midwest Power Board also considered the
financial condition and results of operations of Midwest Power, Resources and
Iowa-Illinois, both on a historical and on a prospective basis. Other factors
considered by the Midwest Power Board include (i) the importance of size and
economies of scale in the increasingly competitive energy sector, (ii) the
familiarity of Midwest Power with business combination transactions, (iii) the
presentations of Midwest Power's
36
<PAGE>
management, including potential operating and financial synergies anticipated
from the Merger and discussed above under "-- Reasons for the Merger," (iv) the
Merger will allow Midwest Power to meet its requirements for additional base
load generation capacity with the currently available Iowa-Illinois generation
capacity, which will permit the deferral of costs to otherwise acquire or
construct such capacity, (v) the proposed treatment of the Merger as a "pooling
of interests" for accounting purposes, which avoids creation of any goodwill on
the balance sheet of the Company and thereby avoids the reductions in earnings
that would be associated with amortization of goodwill in purchase accounting
while recognizing that such accounting treatment has no cash flow impact, (vi)
the fact that the Merger will be tax-free (except with respect to cash payments
made to dissenters) to Midwest Power and its shareholders, and (vii) the terms
of the Merger Agreement, which provide for substantially reciprocal
representations and warranties, conditions to closing and rights relating to
termination. No factor was assigned a greater significance by the Midwest Power
Board than any other.
OPINION OF FINANCIAL ADVISOR TO IOWA-ILLINOIS
On July 26, 1994, the Iowa-Illinois Board received Dillon Read's oral
opinion, which was subsequently followed by written opinions dated July 26, 1994
and November 3, that, as of the dates of such opinions, the Iowa-Illinois
Conversion Ratio and the consideration to be received by the holders of
Iowa-Illinois Common Stock pursuant to the Merger Agreement were fair to such
holders from a financial point of view. A COPY OF DILLON READ'S WRITTEN OPINION
DATED NOVEMBER 3, IS SET FORTH AS ANNEX III HERETO AND SHOULD BE READ IN ITS
ENTIRETY.
In arriving at its opinions, Dillon Read (i) reviewed certain publicly
available business and financial information relating to Iowa-Illinois and
Resources, (ii) reviewed certain financial forecasts and other data provided to
Dillon Read by Iowa-Illinois and Resources relating to the business and
prospects of Iowa-Illinois and Resources, (iii) conducted discussions with
members of the senior management of Iowa-Illinois and Resources with respect to
the business and prospects of each company and its subsidiaries, (iv) reviewed
publicly available financial and stock market data with respect to certain other
companies in lines of business Dillon Read believes to be generally comparable
to those of Iowa-Illinois and Resources, (v) reviewed the historical market
prices and trading volumes of Iowa-Illinois Common Stock and Resources Common
Stock, (vi) compared the proposed financial terms of the Merger with the
financial terms of certain other mergers which Dillon Read believes to be
generally comparable to the Merger, (vii) analyzed the respective contributions
in terms of certain items including revenue, earnings, cash flow and common
equity of Iowa-Illinois and Resources to the Company, and the relative ownership
of the Company after the Merger by the current holders of Iowa-Illinois Common
Stock and Resources Common Stock, (viii) considered the pro forma effect of the
Merger on Iowa-Illinois' capitalization ratios, earnings, cash flow and book
value per share, (ix) reviewed the Merger Agreement, (x) reviewed and discussed
with the Chairman, President and Chief Executive Officer, the Vice Presidents
and the Director of Corporate Development and Strategic Planning of
Iowa-Illinois, and management's outside consultant, Deloitte & Touche LLP, the
magnitude and timing of the realization of certain anticipated operating and
financial efficiencies, (xi) considered the anticipated annual dividend per
share on the Company Common Stock and the resulting dividend payout ratio, and
(xii) conducted such other financial studies, analyses and investigations, and
considered such other information, as it deemed necessary or appropriate, but
none of which was, individually, material.
In connection with its review, Dillon Read did not independently verify any
of the publicly available information or non-public financial and other
information furnished by Iowa-Illinois and Resources and relied on its being
complete and accurate in all material respects. In addition, Dillon Read did not
make any independent evaluation or appraisal of any of the assets or liabilities
(contingent or otherwise) of Iowa-Illinois or Resources or any of their
respective subsidiaries, nor was Dillon Read furnished with any such evaluation
or appraisal. With respect to the financial forecasts and operating and
financial efficiencies referred to above, Dillon Read assumed that they have
been reasonably prepared on a basis reflecting the best currently available
estimates and judgments of
37
<PAGE>
Iowa-Illinois' and Resources' management as to the future financial performance
of each company. Further, Dillon Read's opinions are based on economic,
monetary, market and regulatory conditions existing on the dates thereof.
The Iowa-Illinois Conversion Ratio and amount of consideration to be
received by the holders of Iowa-Illinois Common Stock pursuant to the Merger
Agreement was determined through negotiations between Iowa-Illinois and
Resources.
In connection with rendering its opinions, Dillon Read considered a variety
of valuation methods which are summarized below:
STOCK TRADING HISTORY. Dillon Read reviewed the performance of the per
share market price of Iowa-Illinois Common Stock and Resources Common Stock
over the three-year period ended July 22, 1994 and compared such per share
market price movements to the Standard and Poor's Electric Companies Index.
Dillon Read also calculated the ratio of the per share market price of
Iowa-Illinois Common Stock to the per share market price of Resources Common
Stock over the period. This analysis showed that over the three year period,
Iowa-Illinois Common Stock traded at a ratio as high as 1.48 (April 21,
1994) and as low as 1.11 (July 1, 1991) compared to the price of Resources
Common Stock. This analysis was utilized to provide historical perspective
for the manner in which the public trading market had valued Iowa-Illinois
and Resources in absolute terms and relative to each other.
CONTRIBUTION ANALYSIS. Dillon Read calculated the contribution of each
of Iowa-Illinois and Resources to the Company with respect to revenues,
operating income (defined as earnings before interest and taxes or "EBIT"),
operating cash flow (defined as earnings before interest, taxes,
depreciation and amortization or "EBITDA"), net income available to common
stockholders, Cash Flow from Operations (defined as cash provided by
operating activities before changes in working capital), the aggregate book
value of common equity, and the aggregate market value of common equity for
the twelve-month period ended or as of March 31, 1994. These calculations
yielded amounts reflecting Iowa-Illinois' contribution to the Company
ranging from 35.7% to 45.2% of the total pro forma combined amount with an
average contribution of 42.8%. Excluding revenues, which Dillon Read does
not consider truly comparable due to certain non-regulated businesses of
Resources which have relatively large revenues but low margins,
Iowa-Illinois' average contribution was 43.9%. Based on the Iowa-Illinois
Conversion Ratio of 1.47, the holders of Iowa-Illinois Common Stock will own
approximately 44% of the Company Common Stock.
COMPARABLE COMPANY TRADING ANALYSIS. Using publicly available
information, Dillon Read compared, based upon market trading values at the
time, multiples of certain financial criteria, such as net income, projected
net income (as represented by the median earnings per share estimates for
1994, 1995 and 1996 reported by Institutional Brokers Estimate System or
"IBES"), EBIT, EBITDA, Cash Flow from Operations, revenues and the book
value of common equity of Iowa-Illinois and Resources to certain other
companies which, in Dillon Read's judgment, were comparable to Iowa-Illinois
and Resources for the purpose of this analysis. The factors Dillon Read
considered in selecting companies for comparison included size, particularly
equity market capitalization, geographic location, financial condition and
scope of business operations. In addition to Iowa-Illinois and Resources,
the group of companies used in the comparison consisted of CILCORP Inc.,
CIPSCO Incorporated, IES Industries Inc., Illinova Corporation, Interstate
Power Company, UtiliCorp United Inc. and WPL Holdings, Inc.
Equity market value (defined as the market price per common share
multiplied by the outstanding number of common shares) as a multiple of each
of the indicated statistics for Iowa-Illinois and Resources, respectively,
were as follows: (a) latest twelve months net income - 12.5x and 13.0x; (b)
projected 1994 net income - 11.2x and 11.3x; (c) projected 1995 net income -
10.7x and 10.9x; (d) projected 1996 net income - 10.6x and 10.2x; (e) latest
twelve month Cash Flow from Operations - 4.5x and 4.7x; and (f) book value
of common equity on March 31, 1994 - 1.26x and 1.16x. Net market
capitalization (defined as equity market value plus the book value of debt
38
<PAGE>
and preferred stock less cash and cash equivalents) as a multiple of each of
the indicated statistics for Iowa-Illinois and Resources, respectively, were
as follows: (a) latest twelve months revenues - 1.8x and 1.4x; (b) latest
twelve months EBITDA - 5.5x and 6.4x and (c) latest twelve months EBIT -
9.0x and 10.1x. This comparison was used to provide a perspective on the
present market valuation of each of Iowa-Illinois and Resources.
The range, median and mean for equity market value as a multiple of each
of the indicated statistics for the group of comparable companies were as
follows: (a) latest twelve months net income - 11.1x to 13.0x, with a median
of 12.0x and a mean of 12.0x; (b) projected 1994 net income - 10.1x to
14.0x, with a median of 11.2x and a mean of 11.3x; (c) projected 1995 net
income - 9.4x to 13.4x, with a median of 10.7x and a mean of 10.9x; (d)
projected 1996 net income - 9.1x to 12.5x, with a median of 10.5x and a mean
of 10.6x; (e) latest twelve months Cash Flow from Operations - 4.0x to 5.5x,
with a median of 4.5x and a mean of 4.7x; (f) book value of common equity on
March 31, 1994 - 1.10x to 1.46x, with a median of 1.26x and a mean of 1.27x.
The range, median and mean for net market capitalization as a multiple of
each of the indicated statistics for the group of comparable companies were
as follows: (a) latest twelve months revenues - 1.3x to 2.5x, with a median
of 1.7x and a mean of 1.7x; (b) latest twelve months EBITDA - 5.5x to 7.5x,
with a median of 6.4x and a mean of 6.4x; (c) latest twelve months EBIT -
8.8x to 12.4x, with a median of 10.1x and a mean of 10.0x. The comparable
company trading analysis is a valuation method used by Dillon Read to
determine whether Iowa-Illinois and Resources were reasonably valued at
existing market prices in relation to similar companies, and in relation to
each other. Dillon Read concluded that both Iowa-Illinois and Resources were
reasonably valued at existing market prices, in relation to similar
companies and in relation to each other.
COMPARABLE UTILITY MERGERS AND ACQUISITIONS. Using publicly available
information, Dillon Read compared, based upon the purchase prices of the
common equity of acquired or merged companies and total transaction values
(purchase price of the common equity plus the book value of debt and
preferred stock assumed less cash and cash equivalents), multiples of
certain financial criteria such as net income to common stockholders, Cash
Flow from Operations, book value of common equity, EBIT, EBITDA, and
revenues, that would result from the Merger to those resulting from certain
completed, proposed and withdrawn mergers and acquisitions in the electric
utility industry which, in Dillon Read's judgment, were comparable to the
Merger for the purpose of this analysis. The mergers and acquisitions which
were analyzed included eight completed transactions, two announced
transactions and five withdrawn transactions. In addition to completed
transactions, Dillon Read included two announced (but not completed)
transactions and five withdrawn transactions because, in Dillon Read's
judgment, they were also representative of the value acquirors were willing
to pay for the target companies, and were therefore appropriate to include
in its analysis. This analysis was utilized to compare the valuation
multiples for Iowa-Illinois implied by the 1.47 Iowa-Illinois Conversion
Ratio to historical valuation multiples of electric utilities involved in
past or pending mergers and acquisitions.
The range and mean for the purchase price of equity as a multiple of
each of the indicated statistics for the group of comparable transactions
were as follows: (a) latest twelve months net income to common shareholders
-- 5.2x to 39.2x, with a mean of 15.6x; (b) book value of common equity --
0.83x to 2.64x, with a mean of 1.74x; and (c) latest twelve months cash flow
from operations -- 4.7x to 10.2x, with a mean of 7.2x. The range and mean
for the total transaction value as a multiple of each of the indicated
statistics for the group of comparable transactions were as follows: (a)
latest twelve months revenues -- 2.2x to 4.1x, with a mean of 2.8x; (b)
latest twelve months EBITDA -- 5.2x to 9.2x, with a mean of 7.0x; and (c)
latest twelve months EBIT -- 5.2x to 9.2x, with a mean of 7.0x.
Iowa-Illinois' valuation multiples, based upon the 1.47 Iowa-Illinois
Conversion Ratio contemplated by the Merger, were as follows: (a) latest
twelve months net income to common shareholders -- 12.5x; (b) book value of
common equity -- 1.26x; (c) latest twelve months Cash Flow from
39
<PAGE>
Operations -- 4.5x; (d) latest twelve months revenues -- 1.8x; (e) latest
twelve months EBITDA -- 5.5x; and (f) latest twelve months EBIT -- 9.0x. The
Iowa-Illinois valuation multiples for latest twelve months Cash Flow from
Operations and latest twelve months revenues were slightly below the ranges
of comparable transaction multiples for such statistics, and thus do not,
individually, support the Dillon Read opinions. However, Dillon Read
believes that the amounts by which such Iowa-Illinois valuation multiples
were out of such ranges are not of a magnitude which is inconsistent with
their opinion of fairness. Such multiples were just two of the many factors
considered by Dillon Read in arriving at its opinions.
DISCOUNTED CASH FLOW ANALYSIS. Dillon Read performed a discounted cash
flow valuation of Iowa-Illinois and Resources based upon projections
furnished by the managements of Iowa-Illinois and Resources. With respect to
projections for Iowa-Illinois and Resources, Dillon Read assumed that such
projections were reasonably prepared upon bases reflecting the best
available estimates and judgments of the managements of Iowa-Illinois and
Resources, respectively. Utilizing these projections, Dillon Read discounted
to a present value, under varying assumed discount rates, (i) the free
unlevered cash flows through fiscal 1998 and (ii) the projected terminal
value at the end of fiscal year 1998, utilizing various assumed multiples of
operating cash flow. Such analysis indicated that assuming terminal value
multiples ranging from 6.0x to 7.0x (as indicated by the comparable company
trading and comparable mergers analyses) and discount rates ranging from
9.0% to 11.0%, the net after-tax present value of Iowa-Illinois and
Resources' future cash flows (less net debt of approximately $523 million
and $951 million, respectively) ranged from $19.51 to $28.30 per share of
Iowa-Illinois and $13.14 to $19.95 per share of Resources. Conversion ratios
which would result from these values range from 1.42 to 1.48 for each share
of Iowa-Illinois Common Stock.
PRO FORMA ANALYSIS. Dillon Read reviewed certain financial information
for the pro forma combined entity resulting from the Merger based on
Iowa-Illinois' and Resources' managements' projections for Iowa-Illinois and
Resources covering the 1994 to 1998 period. With respect to projections for
Iowa-Illinois and Resources, Dillon Read assumed that such projections were
reasonably prepared upon bases reflecting the best available estimates and
judgments of the managements of Iowa-Illinois and Resources, respectively.
Such analysis indicated that earnings per share (resulting from a Merger at
the 1.47 Iowa-Illinois Conversion Ratio) would be accretive to Iowa-Illinois
shareholders after 1995, the year in which the Merger was expected to be
completed.
Dillon Read also reviewed certain sensitivity cases for the pro forma
combined entity resulting from the Merger based upon adjusted projections
for Iowa-Illinois and Resources. These sensitivity cases resulted in lower
earnings for Resources stand-alone, Iowa-Illinois stand-alone, and on a pro
forma combined basis. Such analysis also indicated that earnings per share
(resulting from a Merger at the 1.47 Iowa-Illinois Conversion Ratio) would
be accretive to Iowa-Illinois shareholders after 1995, the year in which the
Merger was expected to be completed.
Dillon Read noted that upon completion of the Merger, the anticipated annual
dividend per share of Company Common Stock will be $1.20. Using the internal
projections of both Iowa-Illinois and Resources, Dillon Read calculated an
estimated pro forma dividend payout ratio for the Company, which appeared to
Dillon Read to be acceptable and within the range of the dividend payout ratios
of comparable utilities, which ranged from 48.5% to 113.6% with a median of
89.4%. Based on the Iowa-Illinois Conversion Ratio of 1.47, holders of
Iowa-Illinois Common Stock would receive an effective increase in their annual
dividends per share from $1.73 to $1.76, or 2.0%.
Preliminary estimates of Merger-related savings as identified by the
managements of Resources and Iowa-Illinois, with the assistance of their outside
consultant, Deloitte & Touche LLP, were developed to quantify efficiencies
resulting from operating synergies, plant construction deferrals and greater
economies of scale in the purchasing of fuel and other resources used by the
companies. If realized, these potential pretax savings, which total a net (after
certain costs) of over $400 million over
40
<PAGE>
ten years, will benefit the Company's shareholders either through increased
earnings or improved competitive position (due to lower rates) or both. Dillon
Read did not independently attempt to verify the estimated savings levels, nor
did Dillon Read attempt its own estimation of potential cost savings resulting
from the Merger. In its analysis, Dillon Read assumed that some portion of the
total cost savings would be retained by common shareholders, resulting in
increased earnings. If the Company were prevented from retaining any of the cost
savings by one or more regulatory authorities, the resulting projected earnings
would be correspondingly lower.
Dillon Read believes that its analyses must be considered as a whole and
that selecting portions of its analyses and other factors considered by it,
without considering all factors and analyses, could create a misleading view of
the processes underlying its opinions. Dillon Read did not quantify the effect
of each factor upon its opinions. Dillon Read made numerous assumptions with
respect to industry performance, regulatory treatment, general business and
economic conditions and the other matters discussed herein, many of which are
beyond Iowa-Illinois' and Dillon Read's control; of these assumptions, those
which are material are described herein. Any estimates contained in Dillon
Read's analyses are not necessarily indicative of actual values, which may be
significantly more or less favorable than as set forth therein. Estimates of the
financial value of companies do not purport to be appraisals or necessarily
reflect the prices at which companies actually may be sold. In rendering its
opinion, Dillon Read expresses no view as to the range of values at which the
Company Common Stock may trade following consummation of the Merger, nor does
Dillon Read make any recommendations to the holders of Iowa-Illinois Common
Stock with respect to how such holder should vote on the Merger, or to the
advisability of disposing of or retaining such Company Common Stock following
the Merger.
Dillon Read is an internationally recognized investment banking firm which,
as part of its investment banking business, regularly is 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 estate, corporate and other purposes. The Iowa-Illinois Board of
Directors selected Dillon Read on the basis of the firm's expertise and
reputation.
Pursuant to the engagement letter between Iowa-Illinois and Dillon Read,
Iowa-Illinois has paid Dillon Read the following amounts: $100,000 upon the
execution of the engagement letter and $400,000 upon Iowa-Illinois' request for
a fairness opinion. In addition, Iowa-Illinois has agreed to pay Dillon Read
$100,000 on December 1, 1994, $100,000 on June 1, 1995, and $100,000 every six
months thereafter until the Merger is consummated or Dillon Read's engagement
has been terminated. Iowa-Illinois has also agreed to pay Dillon Read a fee upon
consummation of the Merger equal to .275% of the aggregate amount of
consideration received by Iowa-Illinois' common shareholders ($1,758,481, based
on the closing price of the Resources Common Stock on the NYSE on July 26,
1994), less the $400,000 payment and one-half of any of the $100,000 semi-annual
payments mentioned above which have been previously paid.
Dillon Read has not performed investment banking services for Iowa-Illinois
in the past two years for which it has received a fee. In the ordinary course of
its business, Dillon Read trades the debt and equity securities of
Iowa-Illinois, Midwest Power and Resources 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 FINANCIAL ADVISOR TO RESOURCES
Resources retained PaineWebber to render an opinion as to the fairness from
a financial point of view, to the holders of Resources Common Stock, of the
Conversion Ratios provided for in the Merger Agreement. PaineWebber was selected
by the Resources Board to serve as Resources' financial advisor based on
PaineWebber's qualifications, expertise and reputation. PaineWebber was not
requested to and did not make any recommendation to the Resources Board as to
the Conversion Ratios to be
41
<PAGE>
provided for the Resources Common Stock or the Iowa-Illinois Common Stock in the
Merger, which Conversion Ratios were determined through arm's length
negotiations between Resources and Iowa-Illinois.
On July 26, 1994, Resources' Board of Directors received PaineWebber's oral
opinion which was subsequently followed by written opinions dated July 26, 1994,
and November 3, 1994, to the effect that, on and as of such dates, and based
upon procedures and subject to the assumptions described in the respective
opinions, the Conversion Ratios, taken together, are fair to the holders of
Resources Common Stock.
THE COMPLETE TEXT OF THE PAINEWEBBER OPINION DATED NOVEMBER 3, 1994 IS
ATTACHED TO THIS PROXY AS ANNEX IV. RESOURCES SHAREHOLDERS ARE URGED TO READ THE
PAINEWEBBER OPINION CAREFULLY AND IN ITS ENTIRETY.
In rendering its opinions, PaineWebber has not been engaged to act as an
agent or fiduciary of, and the Resources Board has expressly waived any duties
or liabilities PaineWebber may otherwise be deemed to have had to, Resources'
equity holders or any other third party.
The PaineWebber opinions do not constitute a recommendation to any holder of
Resources Common Stock as to how any such holder should vote on the Merger. The
PaineWebber opinions do not address the relative merits of the Merger or any
other transactions or business strategies discussed by the Resources' Board as
alternatives to the Merger or the decision of the Resources' Board to proceed
with the Merger. No opinion is expressed by PaineWebber as to the price at which
the securities to be issued in the Merger to the shareholders of Resources and
Iowa-Illinois may trade at any time. PaineWebber did not assign a specific range
of values to the consideration paid to the holders of Resources Common Stock or
Iowa-Illinois Common Stock in the Merger, but PaineWebber noted that the
Resources Conversion Ratio was 1.00 share of Company Common Stock, assuming the
Merger occurred, for each share of Resources Common Stock held and the
Iowa-Illinois Conversion Ratio was 1.47 shares of Company Common Stock for each
share of Iowa-Illinois Common Stock held.
In preparing the July 26, 1994 PaineWebber opinion, PaineWebber: (i)
reviewed Resources' and Iowa-Illinois' respective Annual Reports to
shareholders, Form 10-Ks and related financial information for the five fiscal
years ended December 31, 1993, and Resources' and Iowa-Illinois' respective Form
10-Qs and the related unaudited financial information for the three months ended
March 31, 1994; (ii) reviewed certain information, including financial
forecasts, relating to the business, earnings, cash flow, assets, and prospects
of Resources and Iowa-Illinois, furnished to PaineWebber by their respective
managements; (iii) discussed the past and current operations and financial
condition and the prospects of Resources and of Iowa-Illinois with senior
executives of Resources and Iowa-Illinois; (iv) discussed with senior executives
of Resources their rationale with respect to the strategic aspects of the
Merger; (v) reviewed the reported historical market prices and trading activity
for both the Resources Common Stock and the Iowa-Illinois Common Stock and
compared them with those of certain publicly-traded companies which PaineWebber
deemed to be reasonably similar to Resources and Iowa-Illinois, respectively;
(vi) compared the results of operations of Resources and Iowa-Illinois with
those of certain companies which PaineWebber deemed to be reasonably similar to
Resources and Iowa-Illinois, respectively; (vii) compared the proposed financial
terms of the transactions contemplated by the Merger Agreement with the
financial terms of certain other mergers and acquisitions which PaineWebber
deemed to be relevant; (viii) reviewed and discussed with the Chairman,
President and Chief Executive Officer and certain senior vice presidents of
Resources as well as the Chairman and Chief Executive Officer and the Vice
President and Chief Financial Officer of Iowa-Illinois, preliminary estimates
regarding the amounts and timing of the operating synergies available as a
result of the Merger, which estimates were provided to PaineWebber by Resources;
(ix) considered the pro forma impact of the Merger on Resources' capitalization
ratios, earnings, common dividends, and book value per share; (x) reviewed the
Merger Agreement; (xi) performed such other financial studies and analyses and
performed such other investigations and took into account such other matters as
PaineWebber deemed necessary, none of which was, individually, material; and
(xii) took into account PaineWebber's assessment of general economic, market,
and monetary conditions.
42
<PAGE>
In preparing its opinions, PaineWebber assumed and relied on the accuracy
and completeness of all information supplied or otherwise made available to it
by Resources and Iowa-Illinois, including the outcomes of legal, regulatory and
other contingencies, and did not independently verify such information or any
underlying assumptions. PaineWebber has, with the permission of Resources'
management, relied on the preliminary estimates with respect to the amount and
timing of operating synergies achievable as a result of the Merger. PaineWebber
did not undertake an independent appraisal or physical inspection of the assets
and liabilities (contingent or otherwise) of Resources or Iowa-Illinois.
PaineWebber also assumed that the financial forecasts furnished to it by
Resources and Iowa-Illinois were reasonably prepared and reflected the best
currently available estimates and judgments of the future financial performance
of Resources and Iowa-Illinois, as the case may be. The PaineWebber opinions are
based on economic, market, monetary and other conditions as in effect on, and
the information made available to it as of, the dates of the respective
opinions.
The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant quantitative and qualitative methods of
financial analyses and the application of those methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
partial analysis or summary description. Furthermore, in arriving at its
opinions, PaineWebber 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, PaineWebber
believes that its analyses must be considered as a whole and that considering
any portion of such analyses and of the factors considered, without considering
all such analyses and factors, could create a misleading or incomplete view of
the process underlying its opinions. In its analyses, PaineWebber made numerous
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond the control of Resources
and Iowa-Illinois. Of these assumptions, those which are material are described
below. Any estimates of future operating performance contained in these analyses
were provided to PaineWebber by Resources and Iowa-Illinois and PaineWebber
assumes no responsibility for their accuracy.
The following paragraphs summarize the material financial and comparative
analyses performed by PaineWebber in arriving at its opinions. The following
does not purport to be a complete description of the analyses performed, or the
matters considered by PaineWebber in arriving at its opinions.
HISTORICAL MARKET VALUATION ANALYSIS. PaineWebber reviewed the
performance of the daily closing market price per share and trading volumes
of the Resources Common Stock and Iowa-Illinois Common Stock from September
1, 1993 to July 22, 1994, and compared such market price movements to the
Standard & Poor's Utilities Index. PaineWebber reviewed the historical price
to latest twelve months ("LTM") earnings ("P/E") ratios, price to book value
per share ("Price/ Book") ratios and dividend yield for the LTM period
ending July 22, 1994, for Resources and Iowa-Illinois. PaineWebber also
calculated the ratio of the daily closing market price per share of
Iowa-Illinois Common Stock to the daily closing market price per share of
Resources Common Stock from September 1, 1993 to July 22, 1994. This
analysis showed that over this period, the daily closing market price of
Iowa-Illinois Common Stock as compared to the daily closing market price of
Resources Common Stock indicated a ratio as high as 1.48x and as low as
1.28x. This analysis was utilized to provide historical background for the
manner in which the public trading market had valued Resources and
Iowa-Illinois during the indicated period both in absolute terms and
relative to each other.
DIVIDEND ANALYSIS. PaineWebber analyzed the effect the Merger would
have upon the cash dividend to holders of the Resources Common Stock. The
indicated annual dividend per share of Resources Common Stock as of July 26,
1994 was $1.16 and is projected to increase to $1.20 following the
consummation of the Merger. This increase of $0.04 per share in the annual
indicated dividend of Resources Common Stock provides holders of the
Resources Common Stock a 3.4% increase in the indicated cash income per
share.
43
<PAGE>
COMPARABLE PUBLIC COMPANIES ANALYSIS. PaineWebber compared selected
historical stock, earnings and dividend data and financial ratios for
Resources and Iowa-Illinois to the corresponding data and ratios of certain
publicly-traded companies which PaineWebber deemed to be comparable to
Resources and Iowa-Illinois, respectively, on the basis of percentage of
revenues generated by electric sales, profitability, dividend payout ratio,
service territory characteristics, regulatory environment and general
operational outlook. For the purposes of the PaineWebber Opinion, the set of
companies which PaineWebber deemed comparable to Resources and Iowa-Illinois
was comprised of CIPSCO, Inc., IES Industries, Inc., Rochester Gas &
Electric Corporation, WPL Holdings, Inc. and Wisconsin Public Service
Corporation (the "Comparable Group").
In order to determine an implied exchange ratio range based on the
Comparable Group, PaineWebber multiplied certain financial statistics of
Resources and Iowa-Illinois by a relevant range of market multiples for the
Comparable Group. Such market multiples were the market value of common
stock as a multiple of (i) the net income available to common stock for the
LTM period for which financial reports had been filed with the SEC (the "LTM
P/E Ratio"), (ii) the mean estimated 1994 earnings per share as reported by
IBES (the "1994 P/E Ratio"), (iii) the mean IBES estimated 1995 earnings per
share (the "1995 P/E Ratio"), (iv) the book value of common equity for the
most recently available fiscal quarter (the "Price/Book Ratio") and (v) the
indicated annual dividend (the "Dividend Ratio") for each company in the
Comparable Group. In considering each of the foregoing multiples,
PaineWebber noted that (i) the LTM P/E Ratio resulted in a range of implied
conversion ratios of 1.12x to 1.75x, (ii) the 1994 P/E Ratio resulted in a
range of implied conversion ratios of 1.27x to 1.82x, (iii) the 1995 P/E
Ratio resulted in a range of implied conversion ratios of 1.03x to 1.51x,
(iv) the Price/Book Ratio resulted in a range of implied conversion ratios
of 1.04x to 1.77x, and (v) the Dividend Ratio resulted in a range of implied
conversion ratios of 1.31x to 1.70x. PaineWebber noted that the
Iowa-Illinois Conversion Ratio fell within the indicated ranges in all
cases.
Because of the inherent differences between the operations of Resources,
Iowa-Illinois and the Comparable Group, PaineWebber believes that a purely
quantitative comparable public company analysis would not be particularly
meaningful in the context of the Merger. PaineWebber believes that an
appropriate use of a comparable company analysis in this instance would
involve qualitative judgments concerning differences between the financial
and operating characteristics of Resources and Iowa-Illinois and the
Comparable Group which would affect the public trading values of Resources
and Iowa-Illinois and the selected group of publicly-traded comparable
companies.
DISCOUNTED CASH FLOW ANALYSIS. PaineWebber prepared and reviewed the
results of an unlevered discounted cash flow analysis of Resources and
Iowa-Illinois based on certain operating and financial assumptions relating
to the respective companies. The assumptions were based on five-year
financial projections provided to PaineWebber by the managements of
Resources and Iowa-Illinois (the "Management Case"). PaineWebber also
performed a sensitivity analysis which adjusted the earnings assumptions for
InterCoast (the "Adjusted Case").
The purpose of the discounted cash flow analysis was to determine the
present value of each of Resources' and Iowa-Illinois' unlevered after-tax
free cash flows over the projected time frame. To calculate the value of a
business using a discounted cash flow analysis, the projected cash flows for
each year together with the estimated value of the business in the final
year of the projected period ("Terminal Value") are discounted to the
present using various assumed discount rates. PaineWebber estimated the
Terminal Value using two methodologies. The Exit Multiple Methodology
assumes that the Terminal Value would be derived by, in each case, applying
a multiple of the final year's net income and adjusting such value by adding
to it the indebtedness and preferred stock projected to be outstanding in
the terminal year. For the purposes of the Exit Multiple Methodology,
PaineWebber considered exit P/E multiples ranging from 10.0x to 12.0x for
each of Resources and Iowa-Illinois in the Adjusted Case, and from 12.0x to
14.0x for Iowa-Illinois in the Management Case. The Perpetual Growth
Methodology assumes that the terminal value
44
<PAGE>
would be derived by assuming that, in each case, the terminal year's
after-tax free cash flow would be grown to perpetuity at an implied growth
rate. PaineWebber considered a range of perpetual growth rates from 2.0% to
4.0% for each of Resources and Iowa-Illinois in the Management Case and the
Adjusted Case. For the purposes of determining the appropriate discount rate
to be applied in the discounted cash flow analyses, PaineWebber considered
weighted average costs of capital ranging from 6.70% to 8.30% for Resources
and from 7.50% to 9.50% for Iowa-Illinois.
This analysis resulted in a range of equity values per share for
Resources Common Stock and Iowa-Illinois Common Stock. The implied
conversion ratios in the Perpetual Growth Methodology ranged from 2.04x to
3.42x for the Management Case and from 1.61x to 2.27x for the Adjusted Case.
The implied conversion ratios in the Exit Multiple Methodology ranged from
1.60x to 1.64x for the Management Case and 1.08x to 1.10x for the Adjusted
Case. PaineWebber noted that the Iowa-Illinois Conversion Ratio was 1.47x
and that in three of the four cases such conversion ratio fell below the
conversion ratio ranges derived using the discounted cash flow analysis.
Thus PaineWebber concluded that the discounted cash flow analysis, taken as
a whole, supports its view that the Conversion Ratios were in the range of
fairness.
REVIEW OF ESTIMATED SYNERGY SAVINGS. In arriving at its opinions,
PaineWebber reviewed and discussed with senior executives of Resources and
Iowa-Illinois preliminary estimates regarding the amounts and timing of the
operating synergies available as a result of the Merger (the "Cost
Savings"), which estimates were provided to PaineWebber by Resources.
PaineWebber calculated the present value of the Cost Savings on a pro
forma basis for the Company using various assumptions relating to the
percent of the Cost Savings estimated to accrue to the benefit of the
Company's shareholders. PaineWebber calculated that if between 25% and 75%
of the Cost Savings were passed on to the holders of the Company's Common
Stock, the Cost Savings would have a present value on a pro forma basis of
between $98 million and $292 million.
COMPARABLE TRANSACTIONS ANALYSIS. PaineWebber reviewed comparable
transactions involving proposed or completed mergers and acquisitions of
regulated electric and gas utilities or holding companies for regulated
electric and gas utilities (the "Transaction Comparables"). PaineWebber
included proposed mergers and acquisitions in this analysis because
PaineWebber believed that such transactions represented the most recent
market multiples for transactions of the type contemplated by the Merger.
PaineWebber studied certain publicly available information for each of the
Transaction Comparables including the market value of the consideration to
be received, book value and projected net income. For each transaction,
PaineWebber studied the ratio of the market value of the common equity to
the relevant company's book value and projected net income. PaineWebber also
calculated the premium of the price offered to the relevant company's share
price one week prior to the public announcement of the transaction.
PaineWebber divided the Transaction Comparables into two groups: the
Mergers of Equals comparable group and the Acquisitions comparable group.
The differentiation between the two comparable groups was based upon
corporate governance, board composition, other provisions contained in the
transaction agreements, as well as the relative market values of the merged
companies for each Transaction Comparable. The Mergers of Equals comparable
group included the mergers between Sierra Pacific Resources and Washington
Water Power Company (pending); Iowa Southern Inc. and IE Industries Inc.;
Iowa Resources Inc. and Midwest Energy Company; and the initial terms agreed
to for the merger of PSI Resources, Inc. and Cincinnati Gas and Electric
Company (pending). PaineWebber included the terms initially proposed for the
later transaction because this transaction evolved from a friendly merger of
equals transaction to a heavily contested transaction with an unsolicited
bid from IPALCO Enterprises. As a result, the comparability of the terms of
the final offer were not entirely relevant. The Acquisitions comparable
group included the acquisition of Southwestern Electric Service Co. by Texas
Utilities Company; the final terms of the acquisition of PSI Resources, Inc.
by Cincinnati Gas and Electric
45
<PAGE>
Company; the acquisition of Gulf States Utilities Company by Entergy
Corporation; the acquisition of Kansas Gas and Electric Co. by Kansas Power
and Light Co.; the acquisition of Diversified Energies by Arkla, Inc.; and
the acquisition of Louisiana General Services, Inc. by Citizens Utilities
Company.
For each of the Merger of Equals comparable transactions, PaineWebber
calculated the relative ownership of the merged companies to be represented
by each of the merging companies' shareholders based upon each merging
company's shares outstanding at the filing of the proxy statement for the
transaction. PaineWebber noted that, for each Merger of Equals, the relative
ownership of the merged companies approximated the relative contribution of
the merged companies to their combined (i) EBIT, (ii) equity book values,
(iii) net income available to common shareholders, and (iv) equity market
values (which were calculated to be the sum of the merging companies'
combined equity market values as disclosed in the proxy statement). Based on
the fiscal 1993 operating information and the latest market price and shares
outstanding prior to the first announcement of the Merger on July 26, 1994,
Resources is contributing 57.8%, 55.9%, 57.7% and 56.3% of LTM EBIT, LTM Net
Income, book value and market values, respectively. The pro forma ownership
of Resources' shareholders of the Company Common Stock is expected to be
approximately 56%, which PaineWebber deemed to be in the range of fairness.
For each of the Mergers of Equals and the Acquisitions comparable
groups, PaineWebber also calculated the offer value (i) as a multiple of
such companies' respective equity book values, (ii) as a multiple of
projected net income available to common shareholders for the one-year
period following the merger ("Forward Net Income Multiple"), and (iii) as a
premium to the relevant companies' common share prices one week prior to the
first public announcement of the respective mergers.
PaineWebber noted that the premium offered over the price of
Iowa-Illinois Common Stock one week prior to the first public announcement
of the Merger, the book value multiples and the Forward Net Income Multiples
were all below the respective measures pertaining to every other merger or
acquisition in the Merger of Equals and the Acquisitions comparable groups
(except for the Gulf States Utilities' acquisition by Entergy Corp, which
represented a book value multiple of 1.19x compared to the implied Merger's
book value multiple of 1.27x).
Because the reasons for, and circumstances surrounding, each of the
transactions analyzed were diverse and because of the inherent differences
between the operations of Resources and Iowa-Illinois and the Transaction
Comparables, PaineWebber believes that a purely quantitative comparable
transaction analysis would not be particularly meaningful in the context of
the Merger, and that an appropriate use of a comparable transactions
analysis in this instance would involve qualitative judgments concerning
differences between the characteristics of these transactions and the
Merger.
PRO FORMA MERGER ANALYSIS. PaineWebber analyzed certain pro forma
financial effects of the Merger for fiscal 1994 and the following four
fiscal years, based on the Iowa-Illinois Conversion Ratio of 1.47x
contemplated in the Merger. The objective of the pro forma merger analysis
is to compare the projected results of the Company to Resources' projected
stand-alone results. The analysis was based on financial forecasts prepared
by Resources' management for Resources and, in Iowa-Illinois' case, both the
Management Case and Adjusted Case, as previously described. These forecasts
were adjusted to reflect the retention by the Company of various percentages
of the Cost Savings. PaineWebber noted that the Merger is likely to be
consummated in fiscal 1995 and that the Cost Savings would not result in
meaningful financial and operating savings before fiscal 1996 and fiscal
1997. In order to gain a clear understanding of the long-term yearly impact
of the estimated Cost Savings on the Company's annual results of operations,
PaineWebber averaged the estimated annual Cost Savings, and implied a
running rate for such Cost Savings. PaineWebber's analysis indicated that,
absent the realization of the Cost Savings, the Merger's effect on the
earnings per share to Resources' shareholders would be slightly accretive in
fiscal
46
<PAGE>
1994 and between 1% to 6% dilutive in years 1995-1998 in the Management
Case, and slightly accretive in fiscal 1994 and between 7% to 8% dilutive in
years 1995-1998 in the Adjusted Case. When, for illustration purposes, 50%
of the running rate synergy Cost Savings were taken into account,
PaineWebber's analysis indicated that the Merger would result in projected
earnings per share accretion to Resources of between 4% and 13% in the
Management Case and between 0% and 13% in the Adjusted Case.
Pursuant to the terms of an engagement letter between Resources and
PaineWebber dated July 18, 1994, Resources paid PaineWebber $800,000 for acting
as financial advisor in connection with the Merger, including the rendering of
the PaineWebber opinions. Pursuant to the terms of the engagement letter,
PaineWebber will be paid an additional fee of $1.5 million upon the consummation
of the Merger. Resources has also agreed to reimburse PaineWebber for all
reasonable out-of-pocket expenses incurred in connection with its engagement.
Resources also agreed, in a separate letter agreement, to indemnify PaineWebber,
its affiliates and each of its directors, officers, agents and employees and
each person, if any, controlling PaineWebber or any of its affiliates against
certain liabilities, including liabilities under federal securities laws.
PaineWebber has provided certain investment banking services to Resources
and Midwest Power from time to time, including acting as managing underwriter of
certain public offerings of debt and equity securities of Midwest Power, for
which it has received customary compensation. PaineWebber may also provide
investment banking services to Resources and Midwest Power in the future.
In the ordinary course of its business, PaineWebber actively trades the debt
and equity securities of Resources, Midwest Power and Iowa-Illinois for its own
account and for the accounts of customers and, accordingly, may at any time hold
a long or short position in such securities.
TRANSACTION FACILITATOR
Iowa-Illinois and Resources have jointly retained Santa Fe Center
Enterprises ("Santa Fe") to provide non-financial consultation services relating
to the Merger. Santa Fe will receive $300,000, payable at the Effective Time,
for its services.
EMPLOYMENT AGREEMENTS
Copies of the Employment Agreements are attached as Annexes VII and VIII.
Messrs. Christiansen and Bright are sometimes hereinafter individually referred
to as the "Executive." The Employment Agreements have been entered into and will
become effective only at the Effective Time and will terminate, in the case of
Mr. Christiansen, at the later of May 31, 2000 and the fourth anniversary of the
Effective Time and, in the case of Mr. Bright, on the fifth anniversary of the
Effective Time; PROVIDED, HOWEVER, that with respect to Mr. Christiansen, the
Employment Agreement contemplates that he will serve as a consultant to the
Company during the final three years of his employment period (the "Consulting
Period"). The terms of the Employment Agreements may not be modified prior to
December 31, 1999 unless such modification is approved by the Executive who is a
party to that Employment Agreement, and by a vote of two-thirds of the members
of the Company Board.
Pursuant to the Employment Agreements, if the Effective Time occurs (i) on
or before May 31, 1995, then during the periods commencing on (x) the Effective
Time and ending on May 31, 1996, Mr. Christiansen will serve as Chairman of the
Company Board ("Chairman") and Chairman, Office of the Chief Executive Officer
of the Company, and Mr. Bright will serve as President of the Company
("President") and President, Office of the Chief Executive Officer, (y) June 1,
1996 and ending on May 31, 1997, Mr. Christiansen will serve as Chairman and Mr.
Bright will serve as President and Chief Executive Officer of the Company, and
(z) June 1, 1997 and ending on the fifth anniversary of the Effective Time, Mr.
Bright will serve as Chairman and Chief Executive Officer; (ii) between June 1,
1995 and May 31, 1996, then during the period commencing on (x) the Effective
Time and ending on the first anniversary of the Effective Time, Mr. Christiansen
will serve as Chairman and Chairman, Office of the Chief Executive Officer of
the Company, and Mr. Bright will serve as the President and President, Office of
the Chief Executive Officer, (y) the first anniversary of the Effective Time and
47
<PAGE>
ending on May 31, 1997, Mr. Christiansen will serve as Chairman and Mr. Bright
will serve as President and Chief Executive Officer, and (z) June 1, 1997 and
ending on the fifth anniversary of the Effective Time, Mr. Bright will serve as
Chairman and Chief Executive Officer of the Company; or (iii) after May 31,
1996, then commencing on (x) the Effective Time and ending on the first
anniversary of the Effective Time, Mr. Christiansen will serve as Chairman and
Chairman, Office of the Chief Executive Officer of the Company, and Mr. Bright
will serve as President and President, Office of the Chief Executive Officer of
the Company and (y) the first anniversary of the Effective Time and ending on
the fifth anniversary of the Effective Time, Mr. Bright will serve as Chairman
and Chief Executive Officer of the Company.
MR. CHRISTIANSEN. During his term of employment (other than as a consultant
during the Consulting Period), Mr. Christiansen will receive an annual base
salary of not less than $400,000 and such salary shall never be less than the
base salary of the President and Chief Executive Officer of the Company. Mr.
Christiansen will be eligible to receive, as additional compensation,
appropriate management bonuses, long-term incentive awards, and such other
compensation elements as are applicable in amounts not less than those paid or
accrued for the President and Chief Executive Officer of the Company, in
relation to the achievements by the Company and its subsidiaries of corporate
goals and objectives and the Company will provide all other benefits accorded to
full-time senior executive employees of the Company from time to time, provided
that such benefits shall be not less in the aggregate than those in effect at
Resources, Midwest Power and Iowa-Illinois as of the Effective Time. For 1994,
the annual base salary for Mr. Christiansen is $400,000. During the Consulting
Period, Mr. Christiansen will receive an annual consulting fee of $50,000 and
will be eligible to receive benefits described above in this paragraph (other
than the base salary, bonus, long-term incentive and other cash compensation
elements referred to above).
MR. BRIGHT. During his term of employment, Mr. Bright will receive an
annual base salary of not less than $350,000 and such salary will be subject to
adjustment during the term of the Employment Agreement in accordance with the
Company's policy for executives and at such time as Mr. Bright becomes President
and Chief Executive Officer of the Company, he will be paid a base salary not
less than the base salary paid to the Chairman. Mr. Bright will be eligible to
receive, as additional compensation, appropriate management bonuses, long-term
incentive awards and such other compensation elements as are applicable, in
amounts not less than those paid or accrued for the Chairman, in relation to the
achievements by the Company and its subsidiaries of corporate goals and
objectives, and the Company will provide to Mr. Bright all other benefits
accorded to full-time senior executive employees of the Company from time to
time, provided that such benefits shall be not less in the aggregate than those
in effect at Resources, Midwest Power and Iowa-Illinois as of the Effective
Time. For 1994, the annual base salary for Mr. Bright is $300,800; Mr. Bright
will thus receive increased annual base salary as a result of the Merger.
CERTAIN OBLIGATIONS OF THE COMPANY UPON TERMINATION OF EMPLOYMENT
AGREEMENTS. If the Company terminates the employment of Mr. Christiansen or Mr.
Bright without cause (as defined in the Employment Agreements) upon the
affirmative vote of two-thirds of the members of the Company Board, the Company
will be obligated to make the salary payments and provide the other benefits
provided for above through the remainder of the period of employment of Mr.
Christiansen or Mr. Bright, as the case may be.
If the employment of either Mr. Christiansen or Mr. Bright is terminated by
the Company for breach of such Executive's Employment Agreement or for cause,
such Executive will receive earned and unpaid annual base salary accrued through
the end of the calendar month in which such termination date occurs.
THE COMPANY SEVERANCE PLAN FOR SPECIFIED OFFICERS
Under the Company Severance Plan, which will become effective at the
Effective Time, five specified officers who are currently officers of
Iowa-Illinois and five specified officers who are currently officers of
Resources and/or Midwest Power (collectively, the "Specified Officers") will be
entitled to
48
<PAGE>
receive Severance Benefits (as hereinafter defined), if during the period
beginning at the Effective Time and ending on the second anniversary of the
Effective Time (the "Term"), such Specified Officer incurs a Qualifying
Termination. A Qualifying Termination means a termination of employment of a
Specified Officer occurring within the Term either (i) involuntarily for any
reason (except in the instance of a felony) or (ii) voluntarily if the Specified
Officer has furnished the President of the Company with six months prior written
notice of the intent to voluntarily terminate employment. Termination of
employment due, in whole or in part, to the commission of a felony by a
Specified Officer will not constitute a Qualifying Termination under the Company
Severance Plan. All Severance Benefits (as hereinafter defined) for a Specified
Officer charged with a felony will be suspended until such time as a felony
charge is finally disposed. Conviction of a felony or a plea of no contest to a
felony will be sufficient to disqualify the Specified Officer for Severance
Benefits.
"Severance Benefits" under the Company Severance Plan include: (i) an amount
equal to two times the Specified Officer's highest Total Cash Compensation
(defined as annual salary plus bonus) payable in a lump sum on the effective
date of the Qualifying Termination; (ii) the Specified Officer's accrued
vacation pay through the effective date of the Qualifying Termination, payable
in a lump sum on such date; (iii) continuation of the welfare benefits of health
insurance, disability insurance and group term life insurance for a period of 24
full calendar months after the effective date of the Qualifying Termination, and
(iv) standard out placement services for a period of 24 months after the
effective date of the Qualifying Termination. In addition, Specified Officers
are eligible to receive cash "gross-up" payments equal to the federal excise
tax, if any, due on the total severance package.
A Specified Officer eligible for severance benefits under both the Company
Severance Plan and the Iowa-Illinois severance plan must elect coverage under
one of the two plans in the event of a Qualifying Termination. Messrs.
Christiansen and Bright are not covered by the Company Severance Plan.
Assuming the effectiveness of, and the requirement for payments to all
persons covered under, the Company Severance Plan on the date of this Joint
Proxy Statement/Prospectus, the aggregate amount which would be paid to such
persons would not exceed $5,970,000. If the five officers covered by both the
Iowa-Illinois severance plan and the Company Severance Plan all elect to be
covered by the Iowa-Illinois severance plan and not the Company Severance Plan,
the aggregate amount payable under the Company Severance Plan would be reduced
to an amount not in excess of $2,970,000.
EMPLOYEE PLANS, SEVERANCE ARRANGEMENTS AND AGREEMENTS
IOWA-ILLINOIS SEVERANCE PLAN IN THE EVENT OF A CHANGE IN CONTROL. Under the
Iowa-Illinois severance plan, ten named officers ("Designated Officers") are
entitled to receive Severance Benefits (as hereinafter defined), if a Qualifying
Termination (as hereinafter defined) occurs within 24 full calendar months after
a Change in Control (as hereinafter defined).
A "Change in Control" means either (i) the closing date of the restructuring
of Iowa-Illinois as a result of a merger, consolidation, takeover or
reorganization unless at least 60% of the members of the board of directors of
the corporation resulting from such merger, consolidation, takeover or
reorganization were members of the incumbent Iowa-Illinois Board; or (ii) the
occurrence of any other event that is designated as being a "Change in Control"
by a majority vote of the incumbent Iowa-Illinois Board who are not also
employees of Iowa-Illinois. The Merger will constitute a Change in Control
within the meaning of the Iowa-Illinois severance plan.
A "Qualifying Termination" occurs when a Designated Officer's employment
with Iowa-Illinois, or any of its subsidiaries, or the corporation which results
from such Change in Control, is terminated either (a) involuntarily for any
reason; or (b) voluntarily, provided that the Designated Officer shall have
furnished six full months prior written notice of the intent to voluntarily
terminate employment to the President of such corporation.
"Severance Benefits" include (i) an amount equal to two times the Designated
Officer's highest Total Cash Compensation (defined as annual salary and bonus),
to be paid in a lump sum on the
49
<PAGE>
effective date of the his/her Qualifying Termination; and (ii) the Designated
Officer's accrued vacation pay through the effective date of Qualifying
Termination of such Designated Officer, to be paid in a lump sum on the
effective date of such Qualifying Termination; and (iii) a continuation of the
welfare benefits of health insurance, disability insurance, and group term life
insurance for 24 full calendar months after the effective date of the Designated
Officer's Qualifying Termination, at the same premium cost and at the same
coverage level as in effect on such effective date; and (iv) standard
outplacement services from a nationally recognized firm of the Designated
Officer's selection for a period up to 24 full calendar months after the
effective date of the Designated Officer's Qualifying Termination or until such
Designated Officer obtains subsequent employment, whichever period is less. The
cost of such services shall not exceed 20% of the Designated Officer's Total
Cash Compensation.
In addition, Designated Officers are eligible to receive a cash "gross-up"
payment equal to any federal excise tax, if any, due on the total severance
package.
Officers of Iowa-Illinois must elect between payment under the Iowa-Illinois
severance plan or the Company Severance Plan in the event of a termination of
employment. Assuming the effectiveness of and the requirements for payments to
all persons covered under the Iowa-Illinois severance plan on the date of this
Joint Proxy Statement/Prospectus, the aggregate amount which would be paid to
such persons would not exceed $5,500,000. If the five officers eligible to
receive severance benefits under both the Company Severance Plan and the
Iowa-Illinois severance plan elect to be covered by the Company Severance Plan
and not the Iowa-Illinois severance plan, the aggregate amount payable under the
Iowa-Illinois severance plan would be reduced to an amount not in excess of
$2,500,000.
IOWA-ILLINOIS SUPPLEMENTAL RETIREMENT PLAN FOR DESIGNATED OFFICERS. Under
the Iowa-Illinois Supplemental Retirement Plan (the "SRP"), currently eleven
Iowa-Illinois officers designated by the Iowa-Illinois Board (the "Designated
Officers") are eligible to receive a Normal Retirement Supplemental Benefit or
an Early Retirement Supplemental Benefit upon retiring from Iowa-Illinois. A
Normal Retirement Total Benefit means the annual benefit provided under the SRP
upon a termination of services on or following a participant's normal retirement
date, in the amount of 65% of such participant's highest rate of annual total
cash compensation in effect at any time during the three years immediately prior
to such Termination of Services. A Normal Retirement Supplemental Benefit means
the Normal Retirement Total Benefit reduced by the sum of (i) the annual
benefits provided to such participant under the Iowa-Illinois (tax qualified)
pension plan; and (ii) tax qualified and non tax-qualified pension type
retirement plan benefits payable to such participant by other employers of such
participant, after converting such benefits to an actuarially equivalent amount
as provided in the Iowa-Illinois (tax qualified) pension plan.
An Early Retirement Supplemental Benefit means (i) for each participant who
has made an effective transitional election, a Normal Retirement Supplemental
Benefit reduced at the rate of 4% for each full year that, on the effective date
of termination of services, such participant's age is less than 65 years, with
such rate of reduction extending down to age 55, (with no benefit available to
any participant whose termination of services occurs prior to attaining age 55
years); (ii) for a participant who has not made an effective transitional
election, a pro rata portion of a Normal Retirement Supplemental Benefit, based
on the ratio of (a) the participant's years of service (to the full day) as a
Designated Officer on the effective day of the termination of services (but
excluding all years of service as a Designated Officer prior to the participant
reaching the age of 45) to (b) the number of years (to the full day) from the
day the participant became a Designated Officer (but excluding all years of
service as a Designated Officer prior to the participant reaching the age of 45)
to the day the participant would have otherwise reached his or her normal
retirement.
Upon a Qualifying Termination following a Change in Control (as defined
above under " -- Iowa-Illinois Severance Plan In The Event Of A Change In
Control") the Early Retirement Supplemental Benefit is enhanced under part (i)
by lowering the 65 years to 63 years and under parts (i) and (ii) by
establishing a minimum benefit of 30% of a Normal Retirement Supplemental
Benefit. The Merger will constitute a Change in Control within the meaning of
the SRP.
50
<PAGE>
Assuming the effectiveness of and the requirements for payments to all
persons covered under the SRP on the date of this Joint Proxy
Statement/Prospectus, the aggregate amount which would be paid to such persons
less the amount which would be paid absent the Merger would not exceed
$2,000,000.
IOWA-ILLINOIS KEY EMPLOYEE SUSTAINED PERFORMANCE PLAN (THE "SPP"). Under
the SPP, participants designated by the Iowa-Illinois Board are eligible to
receive long term incentive awards in the form of cash and stock based on the
achievement of certain long term goals established by the Iowa-Illinois Board on
an annual basis. Upon a Qualifying Termination following a Change in Control (as
defined above under "-- Iowa-Illinois Severance Plan In The Event Of A Change In
Control"), the then dollar value of a participant's SPP account will become
immediately vested and will then be paid out in cash to such participant. SPP
accounts are amounts awarded in prior years plus any value change determined by
the Iowa-Illinois Board between the award and the payout. The Merger will
constitute a Change in Control within the meaning of the SPP. There are
currently seven participants in the SPP with an aggregate account balance of
$265,230.
Assuming the effectiveness of, and the requirements for payments to all
persons covered under the SPP on the date of this Joint Proxy
Statement/Prospectus, the aggregate increase in costs due to the acceleration of
payments described above taking into account the time value of money, would not
exceed $50,000.
IOWA-ILLINOIS COMPENSATION DEFERRAL PLAN FOR DESIGNATED OFFICERS. Under the
Iowa-Illinois Deferral Plan for Designated Officers (the "Deferral Plan"),
participants designated by the Iowa-Illinois Board are eligible to receive a
Normal Retirement Benefit in an amount determined by the Iowa-Illinois Board
prior to the beginning of each plan year, payable as described herein upon a
participant's normal retirement date, based upon: (i) the amount of total cash
compensation deferred by such participant in such plan year; (ii) the age of
such participant at the time of making each deferral; and (iii) the rate of
return pertaining to each deferral as established by the Iowa-Illinois Board for
each plan year in which a deferral is made.
A participant is also eligible to receive an "Early Retirement Benefit"
which is either: (i) for deferrals made by such participant prior to January 1,
1994, the Normal Retirement Benefit of such participant reduced by a cumulative
percentage, based upon the actual age of such participant on the effective date
of termination of services with Iowa-Illinois, as follows:
<TABLE>
<CAPTION>
PERCENTAGE
AGE OF PARTICIPANT REDUCTION
UPON FOR EACH YEAR
TERMINATION OF PRIOR TO NORMAL
SERVICES RETIREMENT AGE 65
- ---------------------- -------------------
<S> <C>
65 or more 0%
55 to 65 4%
</TABLE>
The cumulative percentage reduction is such that a termination of services at
age 55 would result in a 40% reduction in the Normal Retirement Benefit (i.e.,
10 years at 4%); or (ii) for deferrals made by a participant after December 31,
1993, the Normal Retirement Benefit of such participant reduced by a cumulative
percentage, based upon the actual age of such participant on the effective date
of termination of services with Iowa-Illinois, as follows:
<TABLE>
<CAPTION>
PERCENTAGE
AGE OF PARTICIPANT REDUCTION
UPON FOR EACH YEAR
TERMINATION OF PRIOR TO NORMAL
SERVICES RETIREMENT AGE 65
- ---------------------- -------------------
<S> <C>
65 or more 0%
62 to 65 4%
50 to 62 6%
</TABLE>
51
<PAGE>
The reduction is cumulative such that a termination of services at age 55 would
result in a 54% reduction in the Normal Retirement Benefit (i.e., three years at
4%, plus seven years at 6%).
Upon a Qualifying Termination following a Change in Control (as defined
above under " -- Iowa-Illinois Severance Plan In The Event Of A Change In
Control"), a participant's Early Retirement Benefit will be computed as of the
effective date of his or her Qualifying Termination as though such participant
were age 55 at such time, or his or her actual age if greater. There are
currently 11 participants in the Deferral Plan with deferrals totalling
$674,758.
Assuming the effectiveness of, and the requirements for payments to all
persons covered under the Deferral Plan on the date each participant reaches age
55, the aggregate amount which would be paid to such persons less the amount
which would be paid absent the Merger would not exceed $2,000,000.
IOWA-ILLINOIS COMPENSATION DEFERRAL PLAN FOR KEY EMPLOYEES. This plan
requires the establishment of a Rabbi Trust which becomes irrevocable upon a
Change in Control (as defined above under "-- Iowa-Illinois Severance Plan in
The Event Of A Change In Control").
IOWA-ILLINOIS BOARD OF DIRECTORS' COMPENSATION DEFERRAL PLAN. This plan
requires the establishment of a Rabbi Trust which becomes irrevocable upon a
Change in Control (as defined above under "-- Iowa-Illinois Severance Plan in
The Event Of A Change In Control").
RABBI TRUST ESTABLISHMENT REQUIRED BY IOWA-ILLINOIS PLANS. Iowa-Illinois
has established a revocable Rabbi Trust for the benefit of the participants,
both active and retired, of the SRP, the Deferral Plan, the Board of Directors'
Compensation Deferral Plan and the Compensation Deferral Plan For Key Employees.
The Rabbi Trust has an independent trustee, selected by the Iowa-Illinois Board,
and it contains restrictions on Iowa-Illinois' ability to amend or terminate any
of the terms thereof after the Rabbi Trust becomes irrevocable as provided
below.
All assets held in the Rabbi Trust (while revocable or irrevocable) are at
all times specifically subject to the claims of Iowa-Illinois' general creditors
in the event of bankruptcy or insolvency; such terms are specifically defined
within the provisions of the Rabbi Trust, along with a required procedure for
notifying the trustee of any such bankruptcy or insolvency.
The instrument establishing the Rabbi Trust provides that the Rabbi Trust is
revocable until the occurrence of either (i) a Change in Control (as defined
above under "-- Iowa-Illinois Severance Plan In The Event Of A Change In
Control") or (ii) a majority vote by the Iowa-Illinois Board to make the Rabbi
Trust irrevocable.
Iowa-Illinois is primarily obligated to pay all benefits of participants
under the plans, whether the Rabbi Trust is revocable or irrevocable at the
time. In the event Iowa-Illinois fails to fulfill any such obligation thereunder
in a timely manner, the trustee shall be empowered, under the terms of the Rabbi
Trust, to pay past due benefits directly from the Trust.
RESOURCES PLANS, ARRANGEMENTS AND AGREEMENTS. The consummation of the
Merger will not create or accelerate any benefits under any of Resources' plans,
arrangements or agreements.
COMPANY BENEFIT PLANS
Following the Effective Time, the Company and its subsidiaries will honor
all prior contracts, agreements, collective bargaining agreements and
commitments with current or former employees or current or former directors of
Resources, Midwest Power, Iowa-Illinois and their respective subsidiaries, in
accordance with the respective terms of such contracts, agreements and
commitments, subject to the Company's ability to exercise any reserved right to
amend, modify, suspend, revoke or terminate which is contained therein. The
Company will replace benefit plans of Resources, Midwest Power, Iowa-Illinois
and their respective subsidiaries as required by law or otherwise adopt new
benefit plans as appropriate.
The Employment Agreements with Messrs. Christiansen and Bright provide that
each will be eligible to receive appropriate management bonuses, long-term
incentive awards and other compensation elements through benefit plans not less
in the aggregate than those in effect at Resources,
52
<PAGE>
Midwest Power and Iowa-Illinois as of the Effective Time. Although no decision
has yet been finalized, it is expected that the Company will adopt replacement
plans, as applicable, for deferred compensation, supplemental retirement, and
incentive compensation for certain officers, including Messrs. Christiansen and
Bright.
COMPANY STOCK PLANS
At the Effective Time the Resources Dividend Reinvestment and Common Stock
Purchase Plan, the Resources Employee Stock Purchase Plan, the Midwest Power
401(k) Plan for Salaried Employees, the Midwest Power 401(k) Plan for Bargaining
Employees, the Iowa-Illinois 401(k) Plan, the Iowa-Illinois Employee Stock
Purchase Plan and the Iowa-Illinois Dividend Reinvestment and Share Purchase
will be terminated, replaced or amended to provide for the issuance and sale of
Company Common Stock in place of Resources Common Stock and Iowa-Illinois Common
Stock, as the case may be, under such plans.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Each of the mergers which constitute a part of the Merger is structured to
qualify as a tax-free reorganization under the Code. A condition precedent to
consummation of the Merger is the receipt of opinions of counsel by Resources
and Iowa-Illinois substantially to the effect that the Merger will be treated as
a reorganization under Section 368(a) of the Code. Such opinions will be based
on certain assumptions regarding future events and subject to certain
qualifications. Assuming the Merger so qualifies, then for federal income tax
purposes (i) no gain or loss will be recognized by Resources, Midwest Power,
Iowa-Illinois or the Company as a result of the Merger, (ii) holders of
Resources Common Stock and Iowa-Illinois Common Stock whose shares are converted
into Company Common Stock and the holders of shares of a series of Midwest Power
Preferred Stock and Iowa-Illinois Preference Stock whose shares are converted
into a similarly designated series of Company Preferred Stock in the Merger will
recognize no gain or loss as a result of the conversion (except, with respect to
holders of Iowa-Illinois Common Stock, who will recognize gain or loss to the
extent that they receive cash in lieu of fractional shares and, with respect to
Resources Dissenters, Midwest Power Dissenters and Iowa-Illinois Dissenters, who
will recognize gain or loss based on the deemed "fair value" and the basis of
their shares), (iii) the holding period and basis applicable to the shares of
Company capital stock received in the Merger will be the same as the holding
period and basis attributable to the shares of Resources, Midwest Power or
Iowa-Illinois capital stock, as the case may be, that were converted into
Company capital stock in the Merger (reduced by any amount allocable to a
fractional share interest in Company Common Stock for which cash is received),
assuming that such capital stock so converted was held as a capital asset. A
holder of shares of Iowa-Illinois Common Stock who receives cash in lieu of a
fractional share interest in Company Common Stock will recognize gain or loss
measured by the difference between the amount of cash received and the amount of
such holder's basis allocated to the fractional share interest. To the extent
that a Resources Dissenter, Midwest Power Dissenter or Iowa-Illinois Dissenter,
or a holder of Iowa-Illinois Common Stock who receives cash in lieu of a
fractional share, recognizes a gain, such gain will be taxed either as a
dividend or as a capital gain. The Internal Revenue Service has published a
ruling holding that, in the case of a minority shareholder whose relative stock
interest in the surviving corporation is minimal, who exercises no control over
the surviving corporation's affairs, and whose relative ownership interest in
the surviving corporation has been reduced by a minimal amount as a result of
the receipt of cash in lieu of fractional shares, any gain or loss such
shareholder recognizes will be a capital gain or loss. If a Resources Dissenter,
Midwest Power Dissenter or Iowa-Illinois Dissenter, or a holder of Iowa-Illinois
Common Stock who receives cash in lieu of a fractional share, has held his or
her shares of Resources Common Stock, Midwest Power Preferred Stock or
Iowa-Illinois capital stock, as the case may be, as a capital asset, any capital
gain or loss recognized will be long-term if such shares were held for more than
one year at the Effective Time.
THE DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY. IT
DOES NOT ADDRESS THE STATE, LOCAL OR FOREIGN TAX ASPECTS OF THE MERGER. THE
DISCUSSION IS BASED ON CURRENTLY EXISTING PROVISIONS OF THE
53
<PAGE>
CODE, EXISTING AND PROPOSED TREASURY REGULATIONS THEREUNDER AND CURRENT
ADMINISTRATIVE RULINGS AND COURT DECISIONS. ALL OF THE FOREGOING ARE SUBJECT TO
CHANGE AND ANY SUCH CHANGE COULD AFFECT THE CONTINUING VALIDITY OF THE
DISCUSSION. EACH RESOURCES, MIDWEST POWER AND IOWA-ILLINOIS SHAREHOLDER SHOULD
CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF THE
MERGER TO HIM OR HER, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE,
LOCAL AND FOREIGN TAX LAWS.
ACCOUNTING TREATMENT
The Merger is designed to qualify as a "pooling of interests" for accounting
and financial reporting purposes. Under this method of accounting, the recorded
assets and liabilities of Resources, Midwest Power and Iowa-Illinois will be
carried forward to the consolidated financial statements of the Company at their
recorded amounts; income of the Company will include income of Resources,
Midwest Power and Iowa-Illinois for the entire fiscal year in which the Merger
occurs; and the reported income of the separate corporations for prior periods
will be combined and restated as income of the Company. The receipt by Resources
of a letter from Arthur Andersen LLP, independent public accountants for
Resources, and by Iowa-Illinois of a letter from Deloitte & Touche LLP,
independent auditors for Iowa-Illinois, in each case stating that the Merger
will qualify as a pooling of interests transaction under GAAP and applicable SEC
regulations, is a condition precedent to consummation of the Merger.
Representatives of Arthur Andersen LLP are expected to be present at the
Resources Meeting and the Midwest Power Meeting and representatives of Deloitte
& Touche LLP are expected to be present at the Iowa-Illinois Meeting, and will
be available to respond to questions. See "The Merger Agreement -- Conditions to
the Merger" and "Pro Forma Consolidated Financial Information (unaudited)."
STOCK EXCHANGE LISTING OF COMPANY CAPITAL STOCK
The Company will apply for the listing of Company Common Stock and Company
Preferred Stock, $1.7375 Series, on the NYSE. Approval of the listing on the
NYSE of the shares of Company Common Stock and Company Preferred Stock, $1.7375
Series, issuable in the Merger, upon official notice of issuance, is a condition
precedent to the consummation of the Merger. So long as Resources, Midwest Power
and Iowa-Illinois continue to meet the requirements of the NYSE, Resources
Common Stock, Midwest Power Preferred Stock, $1.7375 Series and Iowa-Illinois
Common Stock, respectively, will continue to be listed on the NYSE until the
Effective Time. Also, so long as Iowa-Illinois continues to meet the
requirements of the Chicago Stock Exchange, which lists Iowa-Illinois Common
Stock, Iowa-Illinois Common Stock will continue to be listed on the Chicago
Stock Exchange until the Effective Time.
FEDERAL SECURITIES LAW CONSEQUENCES
All shares of Company Common Stock and Company Preferred Stock received by
Resources, Midwest Power and Iowa-Illinois shareholders in the Merger will be
freely transferable, except that shares of Company capital stock received by
persons who are deemed to be "affiliates" (as such term is defined under the
Securities Act) of Resources or Iowa-Illinois prior to the Merger may be resold
by them only in transactions permitted by the resale provisions of Rule 145
promulgated under the Securities Act (or Rule 144 in the case of such persons
who become affiliates of the Company upon consummation of the Merger) or as
otherwise permitted under the Securities Act. Persons who may be deemed to be
affiliates of Resources, Iowa-Illinois or the Company generally include
individuals or entities that control, are controlled by, or are under common
control with, such party and may include certain officers and directors of such
party as well as principal shareholders of such party. The Merger Agreement
requires each of Resources and Iowa-Illinois to use its best efforts to cause
each of its affiliates to execute a written agreement to the effect that such
affiliate will not offer or sell or otherwise dispose of any of the shares of
Company Common Stock issued to such affiliate in or pursuant to the Merger in
violation of the Securities Act or the rules and regulations promulgated by the
SEC thereunder.
54
<PAGE>
DISSENTERS' RIGHTS
IOWA-ILLINOIS SHAREHOLDERS. Sections 11.65 and 11.70 of the Illinois Act
are set forth in Annex V and provide that the holders of Iowa-Illinois Common
Stock and Iowa-Illinois Preference Stock entitled to vote at the Iowa-Illinois
Meeting have the right to dissent from consummation of the Merger and obtain the
"fair value" of their shares if the Merger is effected.
In order to perfect such dissenters' rights, a shareholder must: (i) deliver
to Keith M. Giger, Secretary and Treasurer of Iowa-Illinois, P.O. Box 4350,
Davenport, Iowa 52808, prior to the taking of the vote of the shareholders upon
the approval of the Merger Agreement, a written demand for payment for his or
her shares if the Merger is consummated; and (ii) not vote his or her shares in
favor of the approval of the Merger Agreement.
Within 10 days after the Merger becomes effective or 30 days after delivery
of the written demand for payment, whichever is later, the Company will advise
each shareholder who perfects his or her right to dissent of the opinion of the
Company as to the estimated fair value of the shareholder's shares. "Fair value"
with respect to a dissenter's shares means the value of such shares immediately
before the consummation of the Merger, excluding any appreciation or
depreciation in anticipation of the Merger, unless such exclusion would be
inequitable. At such time, the Company must elect to (i) make a commitment to
purchase such shares at such estimated fair value or (ii) instruct such
dissenting shareholder to sell his or her shares within 10 days thereafter. The
Company may instruct the shareholder to sell shares only if there is a public
market on which such shares may be readily sold. Such a market may or may not
exist for Iowa-Illinois Common Stock (which will have been converted into the
right to receive 1.47 shares of Company Common Stock at the Effective Time)
because, although Company Common Stock will be listed on the NYSE immediately
following the Merger, the number of shares of Company Common Stock receivable
upon conversion will, in all likelihood, include a fractional interest in
Company Common Stock, for which no public market will exist. Such a public
market may or may not then exist for Company Preferred Stock into which
Iowa-Illinois Preference Stock will have been converted. See "Midwest Power and
Iowa-Illinois Preference Stock Transactions." If the Company elects to direct
the dissenting shareholder to sell his or her shares and the shareholder does
not sell them within such 10-day period, the shareholder shall be deemed to have
sold such shares which are listed on a national exchange, at the average closing
price of such stock on such exchange during such 10-day period, or to have sold
his or her shares at the average of the bid and asked price for such shares
quoted by a principal market maker, if any, during such 10-day period, as the
case may be.
A shareholder who perfects his or her right to dissent retains all rights of
a shareholder until the Merger is consummated, at which time the Company will
pay to each dissenter, if the Company has not instructed the dissenting
shareholders to sell their shares in a public market, the amount the Company
estimates to be the fair value of such dissenter's shares, plus interest from
the date the Merger was consummated until the date of payment, upon receipt by
the Company of the certificates representing such shares. The Company will
include with such payment a written explanation of the manner by which the
interest was calculated.
If the shareholder does not agree with the Company estimated fair value or
amount of interest, the shareholder must notify the Company in writing, within
30 days after delivery of the Company statement of fair value, of the
shareholder's estimated fair value of such shares and amount of interest, and
demand payment of the difference between the shareholder's estimate and (i) the
amount paid by the Company or (ii) the proceeds (or the amount deemed to be
proceeds) of the sale by the shareholder, whichever is applicable because of the
option selected by the Company, as described above. If, within 60 days after
delivery to the Company of the shareholder's notification of estimated fair
value and amount of interest, the Company and the shareholder have not agreed in
writing on the fair value of the shares or amount of interest, the Company will
either pay to the shareholder the difference between the respective estimated
values or file a petition in the Circuit Court of Rock Island County, Illinois,
requesting the Court to determine the fair value of the shares and amount of
interest. If the Court determines that the fair value of the shares plus
interest exceeds the amount paid by the
55
<PAGE>
Company or the proceeds of the sale of shares, as the case may be, the
dissenting shareholder shall be entitled to judgment for the amount of the
excess. The Court may also assess the cost of the proceeding against either the
Company or one or more dissenting shareholders, upon making certain findings.
In connection with the Merger, the Company intends to reserve the right to
elect, with respect to Common Stock and any Company Preferred Stock for which
there is a public market, (i) to offer to pay to dissenting shareholders the
original Company estimate of the fair value of such shares and to pay any
additional amount agreed upon by the Company and the shareholder or ordered by
the Court to be paid by the Company to the shareholder as provided in the
Illinois Act, or (ii) to direct a dissenting shareholder to sell his or her
shares for which there is a public market and to pay only that amount, if any,
in excess of the proceeds of such sale (or the amount or proceeds deemed to have
been received) as may be agreed upon by the Company and the shareholder or
ordered by the Court to be paid by the Company to the shareholder as provided in
the Illinois Act. With respect to any shares of Iowa-Illinois Common Stock which
have been converted into the right to receive 1.47 shares of Company Common
Stock or Iowa-Illinois Preference Stock which has been converted into Company
Preferred Stock for which there is no public market, the Company does not have
the option described in clause (ii) of the preceding sentence and it will pay to
dissenting holders of such shares the fair value of such shares determined as
described herein.
In perfecting a shareholder's right to dissent, neither a vote against
approval of the Merger Agreement nor a proxy directing such a vote will be
deemed to satisfy the requirement that a written demand for payment be delivered
to Iowa-Illinois prior to the taking of the vote thereon. However, a shareholder
who has delivered such written demand before the taking of the vote thereon will
not be deemed to have waived his or her right to dissent either by failing to
vote against approval of the Merger Agreement or by failing to furnish a proxy
directing such vote. In the absence of specific direction, the shares
represented by signed proxies will be voted for approval of the Merger
Agreement.
RESOURCES AND MIDWEST POWER SHAREHOLDERS. The Iowa Act provides dissenters'
rights for shareholders who object to the Merger and meet the requisite
statutory requirements contained in Sections 1301 through 1331 of the Iowa Act.
Under the Iowa Act, if the Merger Agreement is approved by the shareholders of
Resources and Midwest Power at their respective Meetings and the Merger is
consummated, any shareholder of either company who wishes to assert dissenters'
rights must do all of the following: (i) deliver to the respective company
before the vote is taken written notice of the shareholder's intent to demand
payment for the shareholder's shares of stock, (ii) not vote such shares of
stock in favor of the approval of the Merger Agreement, and (iii) upon the
receipt of a dissenters' notice from Resources or Midwest Power, demand payment,
certify whether the shareholder acquired beneficial ownership of such shares of
stock before the date set forth in the dissenters' notice and deposit the
certificate or certificates representing such shares of stock in accordance with
the terms of the notice. Upon receipt of a payment demand as set forth above, or
at the Effective Time, the Company will pay to such shareholder the amount the
Company estimates to be the "fair value" of such shares of capital stock as of
the time immediately prior to the consummation of the Merger, excluding any
appreciation or depreciation in anticipation of the Merger, unless exclusion
would be inequitable, plus accrued interest. A shareholder who does not satisfy
each of the aforementioned requirements is not entitled to payment for such
shareholder's shares of capital stock under the dissenters' rights provisions of
the Iowa Act and will be bound by the terms of the Merger.
A shareholder may dissent as to less than all of the shares of capital stock
registered in the name of such shareholder only if such shareholder dissents
with respect to all shares beneficially owned by any one person and notifies
Resources or Midwest Power, as the case may be, in writing of the name and
address of each person on whose behalf such shareholder asserts dissenters'
rights. The rights of a partial dissenter are determined as if the shares of
capital stock as to which the shareholder dissents and such shareholder's other
shares of capital stock were registered in the names of different shareholders.
A beneficial shareholder may assert dissenters' rights as to shares held on such
shareholder's behalf only if such shareholder (i) submits to Resources or
Midwest Power, as the case may be, the
56
<PAGE>
record shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights and (ii) asserts dissenters'
rights with respect to all shares of capital stock of which the shareholder is
the beneficial shareholder or over which such beneficial shareholder has the
power to direct the vote.
Set forth below is a summary of the procedures relating to the exercise of
dissenters' rights under the Iowa Act. The following summary does not purport to
be a complete statement of the provisions of Sections 1301 through 1331 of the
Iowa Act and is qualified in its entirety by reference to Annex VI hereto and to
any amendments to such sections as may be adopted after the date of this Joint
Proxy Statement/Prospectus.
The Iowa Act requires that a shareholder who wishes to assert dissenters'
rights (i) deliver to Resources or Midwest Power, as the case may be, before the
vote is taken, written notice of the shareholder's intent to demand payment for
shares of common stock if the Merger is consummated and (ii) not vote such
shares of capital stock in favor of the Merger. Any such notice by shareholders
of Resources must be received by Resources at 666 Grand Avenue, P.O. Box 9244,
Des Moines, Iowa 50306-9244, Attention: Vice President and Secretary, and any
such notice by shareholders of Midwest Power must be received by Midwest Power
at 666 Grand Avenue, P.O. Box 9244, Des Moines, Iowa 50306-9244, Attention: Vice
President and Secretary, prior to such vote. The submission by a shareholder of
a blank proxy card or one voted in favor of the Merger (if not revoked) will
count as a vote in favor of the Merger and will serve to waive dissenters'
rights. However, failure to return a proxy or to vote against or abstain from
voting will not serve to waive such rights.
Within ten days after the date on which the Merger Agreement is approved by
their shareholders, Resources and Midwest Power must deliver a written
dissenters' notice to all of their respective shareholders that have given a
written notice and not voted in favor of the Merger in accordance with the
preceding paragraph. The dissenters' notice will (i) state where the payment
demand must be sent and where and when certificates for shares of capital stock
must be deposited, (ii) supply a form for demanding payment that includes the
date of the first announcement to the news media or to shareholders of the terms
of the proposed Merger and which requires that the shareholder asserting
dissenters' rights certify whether or not such shareholder acquired beneficial
ownership of the shares before such date, (iii) set a date by which Resources or
Midwest Power, must receive the payment demand, which date will be not less than
30 nor more than 60 days from the date such dissenters' notice is delivered, and
(iv) be accompanied by the relevant sections of the Iowa Act. A shareholder sent
a dissenters' notice as described above and wishing to assert dissenters' rights
must demand payment, certify whether the shareholder acquired beneficial
ownership of the shares before the date set forth in the dissenters' notice and
deposit the certificate representing the shares in accordance with the terms of
the notice.
Upon receipt of the payment demand, or at the Effective Time, the Company
must pay each dissenting shareholder that has complied with the provisions of
the Iowa Act the amount estimated to be the fair value of the dissenter's
shares, plus accrued interest from the Effective Time to the date of payment at
the average rate paid by the Company on its bank loans or, if none, at a rate
that is fair and equitable under all the circumstances, such payment must be
accompanied by certain financial data relating to the Company and other
specified information as required by the Iowa Act. If the proposed Merger is not
effected within 60 days after the date set for demanding payment and depositing
capital share certificates, Resources or Midwest Power, as the case may be, will
return the deposited certificates and, if the Merger is subsequently effected,
the Company will deliver a new dissenters' notice and repeat the payment demand
procedure. The Company may elect to withhold payment from a dissenting
shareholder unless the dissenting shareholder was the beneficial owner of the
shares before the date set forth in the dissenters' notice as the date of the
first announcement of the terms of the proposed Merger. If the Company so elects
to withhold payment, it must, after the Effective Time, estimate the fair value
of the shares, plus accrued interest at the rate described above, and pay such
amount and provide certain other specified information as set forth in the Iowa
Act, to each such dissenting shareholder who agrees to accept it in full
satisfaction of the dissenter's demand.
57
<PAGE>
If (i) the dissenter believes that the amount offered or paid is less than
the fair value of the dissenter's shares or that the interest due is incorrectly
calculated, (ii) the Company fails to make payment within 60 days after the date
set for demanding payment, or (iii) Resources or Midwest Power, as the case may
be, having failed to effect the Merger, does not return the deposited
certificates within 60 days after the date set for demanding payment, dissenters
may, within 30 days after the payment was made or offered, notify the Company,
Resources or Midwest Power, as the case may be, in writing of the dissenting
shareholder's own estimate of the fair value of the shares and the amount of
interest due, and demand payment of the fair value of such shares and interest
so calculated less payments received by such dissenting shareholder, if any. A
dissenter waives the right to demand payment as described in this paragraph
unless the dissenter notifies the Company of the dissenter's demand within 30
days after the Company made or offered payment for the dissenter's shares. If
the demand of a Resources Dissenter or Midwest Power Dissenter for payment
remains unsettled, the Company must (i) commence a proceeding in the Iowa
District Court for Polk County in Des Moines, Iowa, within 60 days after
receiving the payment demand to determine the fair value of the shares and
accrued interest or (ii) pay to each such dissenter the amount demanded. The
costs of a proceeding, including the reasonable compensation and expenses of
appraisers appointed by the Court, will generally be assessed against the
Company. The court may, however, assess such court costs, including the fees and
expenses of counsel and experts, against a dissenter that is found by the court
to have acted arbitrarily, vexatiously or not in good faith in demanding
payment.
REGULATORY MATTERS
Set forth below is a summary of the regulatory requirements affecting the
Merger.
ANTITRUST CONSIDERATIONS
The HSR Act and the rules and regulations thereunder provide that certain
transactions (including the Merger) may not be consummated until certain
information has been submitted to the Antitrust Division of the Department of
Justice (the "Antitrust Division") and the Federal Trade Commission (the "FTC")
and specified HSR Act waiting period requirements have been satisfied. Resources
and Iowa-Illinois will provide their respective Premerger Notifications pursuant
to the HSR Act. The expiration or earlier termination of the HSR Act waiting
period would not preclude the Antitrust Division or the FTC from challenging the
Merger on antitrust grounds. Neither Iowa-Illinois nor Resources believes that
the Merger will violate Federal antitrust laws. If the Merger is not consummated
within 12 months after the expiration or earlier termination of the initial HSR
Act waiting period, Resources and Iowa-Illinois would be required to submit new
information to the Antitrust Division and the FTC, and a new HSR Act waiting
period would have to expire or be earlier terminated before the Merger could be
consummated.
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 having
obtained authorization from the FERC. The approval of the FERC is required in
order to consummate the Merger. Under Section 203 of the Federal Power Act, the
FERC will approve a merger if it finds the merger to be "consistent with the
public interest." As promptly as practicable, the Company,
Resources, Midwest Power and Iowa-Illinois will file a combined application with
the FERC requesting that the FERC 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 IUB
disapproves. On October 28, 1994, the Company, Iowa-Illinois, and Midwest Power
filed an application with the IUB for its order permitting the Merger to
58
<PAGE>
occur. Iowa law provides that the application will be deemed to have been
approved unless the IUB disapproves the Merger within 90 days after the filing
of the application, and that the IUB cannot disapprove the Merger without
providing for a notice and opportunity for hearing.
ILLINOIS PUBLIC UTILITY REGULATION
Illinois law requires approval by the ICC of the Merger and certain
associated transactions such as the location of business records outside the
State of Illinois, the issuance of securities, and the existence or creation of
affiliated interests, all subject to certain rules and exceptions. On October
28, 1994, the Company and Iowa-Illinois filed an application with the ICC
seeking its approval that the Merger is in the public interest. Illinois law
does not set forth a specific time period within which the ICC must act on the
application.
NUCLEAR REGULATORY COMMISSION REGULATION
Iowa-Illinois is a 25% owner of Quad-Cities Nuclear Generating Station Units
1 and 2. The remaining interests in the two units are owned by the operator of
the Station, Commonwealth Edison Company. As an owner, Iowa-Illinois has a
license from the NRC for the two generating units. The Merger may constitute a
transfer of control of Iowa-Illinois' ownership interest, which would require
approval by the NRC as an amendment to the facility operating license.
Iowa-Illinois will, as promptly as practicable, file an application for NRC
approval to the full extent required for the transfer of its interest in the
license to the Company.
OTHER REGULATORY MATTERS
Resources, Midwest Power and Iowa-Illinois do not believe that any other
regulatory approvals are required in connection with the Merger.
Resources, Midwest Power, Iowa-Illinois and the Company have agreed in the
Merger Agreement to use all commercially reasonable efforts to obtain all
regulatory approvals required for the Merger, but there can be no assurance as
to when or if such approvals will be obtained or that such approvals will be
obtained on terms or conditions that will not have a material adverse effect on
the business, operations, properties, assets, condition, prospects or results of
the Company following the Merger.
THE MERGER AGREEMENT
The following is a brief summary of the material provisions of the Merger
Agreement, which is attached as Annex I and is incorporated herein by reference.
Such summary is qualified in its entirety by reference to the Merger Agreement.
THE MERGER
The Merger Agreement provides that, following the approval of the Merger
Agreement by the shareholders of Resources, Midwest Power and Iowa-Illinois, and
the satisfaction or waiver of the other conditions to the Merger, including
obtaining the requisite statutory approvals, Resources, Midwest Power and
Iowa-Illinois will be merged with and into the Company.
If the Merger Agreement is approved by the shareholders of Resources,
Midwest Power and Iowa-Illinois, and the other conditions to the Merger are
satisfied or waived, the Merger will become effective after the filing of
Articles of Merger with the Secretary of State of the States of Iowa and
Illinois at such time as is specified in the Articles of Merger.
CONSUMMATION OF THE MERGER. At the Effective Time, pursuant to the Merger
Agreement:
- Each issued and outstanding share of Iowa-Illinois Common Stock (other
than any shares of Iowa-Illinois Common Stock (i) owned by Iowa-Illinois,
by any subsidiary of Iowa-Illinois or by Resources or any subsidiary of
Resources, all of which will be cancelled without consideration and will
cease to exist, or (ii) held by an Iowa-Illinois Dissenter) will be
converted into the right to receive 1.47 shares of Company Common Stock.
59
<PAGE>
- Each issued and outstanding share of Resources Common Stock (other than
any shares of Resources Common Stock (i) owned by Resources, by any
subsidiary of Resources or by Iowa-Illinois or any subsidiary of
Iowa-Illinois, all of which will be cancelled without consideration and
will cease to exist, or (ii) held by a Resources Dissenter), will be
converted into and become one share of Company Common Stock.
- Each issued and outstanding share of a series of Iowa-Illinois Preference
Stock (other than any shares of Iowa-Illinois Preference Stock (i) owned
by Iowa-Illinois, by any subsidiary of Iowa-Illinois or by Resources or
any subsidiary of Resources, all of which will be cancelled without
consideration and will cease to exist, or (ii) held by an Iowa-Illinois
Dissenter) will be converted into and become one share of Company
Preferred Stock of the respective series specified below:
<TABLE>
<CAPTION>
IOWA-ILLINOIS COMPANY
PREFERENCE PREFERRED
STOCK STOCK
- --------------- --------------
<S> <C>
$7.80 Series $7.80 Series
$5.25 Series $5.25 Series
</TABLE>
- Each issued and outstanding share of a series of Midwest Power Preferred
Stock (other than any shares of Midwest Power Preferred Stock (i) owned by
Resources, by any subsidiary of Resources or by Iowa-Illinois or any
subsidiary of Iowa-Illinois, all of which will be cancelled without
consideration and will cease to exist, or (ii) held by a Midwest Power
Dissenter) will be converted into and become one share of Company
Preferred Stock of the respective series specified below:
<TABLE>
<CAPTION>
MIDWEST POWER COMPANY
PREFERRED STOCK PREFERRED STOCK
- ----------------- -----------------
<S> <C>
$3.30 Series $3.30 Series
$3.75 Series $3.75 Series
$3.90 Series $3.90 Series
$4.20 Series $4.20 Series
$4.35 Series $4.35 Series
$4.40 Series $4.40 Series
$4.80 Series $4.80 Series
$1.7375 Series $1.7375 Series
</TABLE>
- All shares of capital stock of the Company issued and outstanding
immediately prior to the Merger will be cancelled without consideration
and will cease to exist.
- All shares of Midwest Power Common Stock issued and outstanding
immediately prior to the Merger will be cancelled without consideration
and will cease to exist.
IOWA-ILLINOIS COMMON STOCK CERTIFICATES. At the Effective Time, each
certificate representing shares of Iowa-Illinois Common Stock issued and
outstanding prior to the Merger, other than any shares which will not be
converted, will represent instead the right to receive the shares of Company
Common Stock into which such issued and outstanding shares may be converted.
Upon such conversion, all such shares of Iowa-Illinois Common Stock will be
cancelled 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 thereto,
except the right to receive certificates representing shares of Company Common
Stock upon the surrender of such certificate, without interest. Fractional
shares of Company Common Stock will not be issuable in connection with the
Merger. Holders of Iowa-Illinois Common Stock otherwise entitled to a fractional
share of Company Common Stock will be paid the value of such fractional share in
cash, without interest.
Upon consummation of the Merger, based upon the Iowa-Illinois Conversion
Ratio and the Resources Conversion Ratio, the holders of Iowa-Illinois Common
Stock and Resources Common Stock would hold approximately 44% and 56%,
respectively, of the aggregate number of shares of Company Common Stock that
would be outstanding.
60
<PAGE>
No certificates or scrip representing fractional shares of Company Common
Stock will be issued upon the delivery for exchange of certificates of
Iowa-Illinois Common Stock, and such fractional share interests will not entitle
the owner thereof to vote or to any rights of a holder of Company Common Stock.
As promptly as practicable following the Effective Time, the Exchange Agent will
determine the excess of (x) the number of full shares of Company Common Stock
delivered to the Exchange Agent by the Company for conversion of the
Iowa-Illinois Common Stock into Company Common Stock based on the Iowa-Illinois
Conversion Ratio over (y) the aggregate number of full shares of Company Common
Stock to be distributed to holders of Iowa-Illinois Common Stock (such excess
being herein called the "Excess Shares"). As soon after the Effective Time as
practicable, the Exchange Agent, as agent for the holders of Iowa-Illinois
Common Stock, will execute the sale of the Excess Shares at then prevailing
prices on the NYSE through one or more member firms of the NYSE in round lots to
the extent practicable. The Company will pay all commissions, transfer taxes and
other out-of-pocket transaction costs, including the expenses and compensation
of the Exchange Agent, incurred in connection with such sale of the Excess
Shares. The Exchange Agent will determine the portion of such net proceeds to
which each holder of Iowa-Illinois Common Stock shall be entitled, if any, by
multiplying the amount of such aggregate net proceeds by a fraction the
numerator of which is the amount of the fractional share interest to which such
holder of Iowa-Illinois Common Stock is entitled and the denominator of which is
the aggregate amount of fractional share interests to which all holders of
Iowa-Illinois Common Stock are entitled.
As soon as possible after the Effective Time, the Exchange Agent will mail
transmittal instructions to each holder of record of shares of Iowa-Illinois
Common Stock at the Effective Time, advising the shareholder of the procedure
for surrendering the Constituent Certificates for certificates representing
shares of Company Common Stock. Holders of Constituent Certificates will not be
entitled to receive any payment of dividends or other distributions on or
payment for any fractional share with respect to their Constituent Certificates
until such certificates have been surrendered for certificates representing
shares of Company Common Stock. Cash will be paid to holders of Iowa-Illinois
Common Stock in lieu of fractional shares of Company Common Stock. Delivery will
be effected, and risk of loss and title to the Constituent Certificates will
pass, only upon actual delivery of the Constituent Certificates to the Exchange
Agent. SHAREHOLDERS OF RESOURCES AND IOWA-ILLINOIS SHOULD NOT SEND IN THEIR
RESOURCES OR IOWA-ILLINOIS COMMON STOCK CERTIFICATES UNTIL THEY RECEIVE A
TRANSMITTAL FORM.
After the Effective Time, each certificate evidencing Iowa-Illinois Common
Stock (other than those held by Iowa-Illinois Dissenters), until so surrendered
and exchanged will, for all purposes, evidence only the right to receive the
number of shares of Company Common Stock which the holder of such certificate is
entitled to receive and, if applicable, the right to receive any cash payment in
lieu of a fractional share of Company Common Stock without interest. The holder
of such unexchanged certificate will not be entitled to vote or to receive any
dividends or other distributions payable by the Company until the certificate is
surrendered at which time such holder shall be entitled to receive all dividends
or other distributions accrued and unpaid from the Effective Time until the time
of such surrender. Subject to applicable law, such dividends and distributions,
together with any cash payment in lieu of a fractional share of Company Common
Stock, from the Effective Time, will be paid, without interest.
RESOURCES COMMON STOCK, MIDWEST POWER PREFERRED STOCK AND IOWA-ILLINOIS
PREFERENCE STOCK CERTIFICATES. Holders of Resources Common Stock, Midwest Power
Preferred Stock and Iowa-Illinois Preference Stock (other than, in each case,
dissenting holders thereof) will automatically become holders of Company Common
Stock or Company Preferred Stock, respectively, and their certificates which
represent shares of Resources Common Stock, Midwest Power Preferred Stock or
Iowa-Illinois Preference Stock, as the case may be, will automatically represent
the shares of Company Common Stock or Company Preferred Stock into which such
shares were converted in the Merger. After the
61
<PAGE>
Merger, as presently outstanding certificates representing shares of Resources
Common Stock, Midwest Power Preferred Stock and Iowa-Illinois Preference Stock
are presented for transfer, new stock certificates bearing the name of the
Company and representing the appropriate number of shares of Company Common
Stock or Company Preferred Stock will be issued.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains customary representations and warranties by
each of Resources, Midwest Power and Iowa-Illinois relating to, among other
things: (i) their respective organization and qualification, the organization
and qualification of their respective subsidiaries and similar corporate
matters; (ii) their respective capital structures; (iii) authorization,
execution, delivery, performance and enforceability of the Merger Agreement and
related matters; (iv) regulatory and statutory approvals; (v) compliance with
applicable laws and agreements; (vi) reports and financial statements filed with
governmental authorities and the accuracy of information contained therein;
(vii) absence of material adverse changes and undisclosed liabilities; (viii)
litigation; (ix) the accuracy of information supplied by each of Resources,
Midwest Power and Iowa-Illinois for use in the Registration Statement, filed by
the Company in connection with the issuance of Company Common Stock and Company
Preferred Stock; (x) certain tax matters; (xi) employee matters; (xii)
environmental matters; (xiii) the utility regulatory status of Resources and
Iowa-Illinois and their respective subsidiaries; (xiv) the Resources, Midwest
Power and Iowa-Illinois shareholder vote required to approve the Merger
Agreement; (xv) certain accounting matters; (xvi) fairness opinions of Dillon
Read and PaineWebber; and (xvii) insurance.
CERTAIN COVENANTS
Pursuant to the Merger Agreement, Resources and Iowa-Illinois have each
agreed that, during the period from the date of the Merger Agreement until the
Effective Time or earlier termination of the Merger Agreement, except (i) as
permitted under the Merger Agreement, or (ii) as otherwise consented to in
writing by the other parties, each will (and each of its subsidiaries will)
among other things: (a) carry on its business in the ordinary course
substantially as previously conducted and use commercially reasonable efforts to
preserve certain arrangements to the end that goodwill and ongoing businesses
are not materially impaired at the Effective Time; (b) not declare or pay any
dividends on or make other distributions in respect of any of its capital stock,
other than to such party or its wholly-owned subsidiaries, dividends on Midwest
Power Common Stock held by Resources, dividends required to be paid on any
series of Midwest Power Preferred Stock, Iowa-Illinois Preferred Stock and
Iowa-Illinois Preference Stock in accordance with the respective terms thereof,
and regular quarterly dividends to be paid on Resources Common Stock and
Iowa-Illinois Common Stock not to exceed 100% of the average quarterly dividend
for the prior four quarterly dividend payments with respect thereto; (c) not
effect certain other changes in its capitalization or repurchase or otherwise
acquire capital stock, other than in the ordinary course of business, in
connection with employee plans or in accordance with the terms of securities
outstanding on the date of the Merger Agreement or which are thereafter issued
in accordance with the Merger Agreement; (d) not issue capital stock, warrants,
rights, options or convertible or similar securities other than (i) the issuance
of common stock or stock appreciation or similar rights, as the case may be,
pursuant to (x) the Iowa-Illinois Dividend Reinvestment and Share Purchase Plan,
Iowa-Illinois Key Employee Sustained Performance Plan or Iowa-Illinois
Shareholders Rights Plan, and (y) the Resources Dividend Reinvestment and Stock
Purchase Plan, Resources Employee Stock Purchase Plan, Midwest Power 401(k) Plan
for Salaried Employees or Midwest Power 401(k) Plan for Bargaining Employees, in
each case consistent in kind and amount with past practice and in the ordinary
course of business under such plans in accordance with their present terms, (ii)
issuances by a wholly-owned subsidiary of its capital stock to its parent, (iii)
issuance and reservation of the Iowa-Illinois Common Stock pursuant to the Iowa-
Illinois Shareholders Rights Plan, and (iv) issuance and reservation of
Resources Common Stock pursuant to any rights plan adopted pursuant to and in
accordance with the Merger Agreement; (e) not amend its Articles of
Incorporation or By-Laws in any way adverse to the other parties, except as
contemplated by the Merger Agreement; (f) not engage in material acquisitions,
subject to certain
62
<PAGE>
exceptions; (g) not engage in any material dispositions, subject to certain
exceptions; (h) not incur or guarantee any indebtedness, other than (I)
short-term and long-term indebtedness and guarantees incurred in the ordinary
course of business consistent with past practice (such as refinancings,
issuances of commercial paper and use of existing credit facilities) and (II)
the issuance of long-term indebtedness, not aggregating more than $60 million in
the case of Resources and its subsidiaries, and $60 million in the case of
Iowa-Illinois and its subsidiaries, (j) not enter into, adopt or amend (except
as required by law), 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 or policy maintained by,
contributed to or entered into by such party or any of its subsidiaries, 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 such party or any of its
subsidiaries, except pursuant to binding legal commitments and except for normal
or promotional 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 to such party or any of its subsidiaries; (k)
not enter into or amend any employment, severance or other similar contract with
any director or officer, other than in the ordinary course of business
consistent with past practice; (l) not engage in any activity which would cause
a change in its status under the Public Utility Holding Company Act of 1935 (the
"1935 Act"), or impair the ability of Resources and Iowa-Illinois, respectively,
to claim an exemption as of right under Rule 2 of the 1935 Act; (m) not make any
changes in their accounting methods other than required by law or in accordance
with GAAP; (n) not take any action to prevent the Company from accounting for
the Merger as a pooling of interests under GAAP and applicable SEC regulations;
(o) not take any action that would adversely affect the status of the Merger as
a reorganization under Section 368 of the Code; (p) cooperate with the other
parties and notify the other parties of any significant changes, including by
providing copies of any filings with governmental authorities; (q) discuss with
the other parties any proposed changes in its rates or charges (other than
pass-through fuel and gas rates or charges) or standards of service or
accounting; (r) use all commercially reasonable efforts to obtain certain
third-party consents to the Merger; (s) not take any action that is likely to
result in a material breach of any provision of the Merger Agreement or result
in any of its representations and warranties becoming untrue; (t) not take any
action that is likely to jeopardize the qualification of the outstanding revenue
bonds issued for the benefit of Midwest Power or Iowa-Illinois as tax-exempt
industrial revenue bonds; (u) maintain with financially responsible insurance
companies insurance in such amounts and against such risks and losses as are
customary for companies engaged in the electric and gas utility industry; (v)
maintain in effect all existing permits pursuant to which such party or its
subsidiaries operate; and (w) not use any non-public materials relating to the
provision of electric or gas utility service by Iowa-Illinois or any of its
subsidiaries, on the one hand, or Resources and any of its subsidiaries, on the
other hand, in the service territory of the other. In addition, Iowa-Illinois
has agreed to purchase or redeem all shares of Iowa-Illinois Preferred Stock
such that no such shares will be outstanding at the time of the Iowa-Illinois
Meeting.
The parties will create two special transition management task forces to
examine the alternatives regarding the manner in which to best organize and
manage the business of the Company after the Effective Time. Nothing contained
in the Merger Agreement will prohibit Resources from adopting a rights plan
which is not "triggered" by the transactions contemplated by the Merger
Agreement, which does not otherwise have a material adverse effect on
Iowa-Illinois or Resources and which meets certain other conditions.
NO SOLICITATION OF TRANSACTIONS
The Merger Agreement provides that the parties thereto and their respective
subsidiaries will not, directly or indirectly, authorize or permit any of their
respective officers, directors, employees, investment bankers, financial
advisors, representatives and agents to (and will use their best efforts to
cause such persons not to), initiate, solicit or encourage, or take any other
action to facilitate the
63
<PAGE>
making of any offer or proposal which constitutes or is reasonably likely to
lead to any Takeover Proposal (as defined below), or, in the event of any
unsolicited Takeover Proposal, engage in negotiations or provide confidential
information or data relating to a Takeover Proposal. Each party will notify the
other party orally and in writing of any such inquiries, offers or proposals
(including, without limitation, the terms and conditions of any such proposal
and the identity of the person making it), within 24 hours of the receipt
thereof and will give the other party five days' advance notice of any agreement
to be entered into with or any information to be supplied to any person making
such inquiry, offer or proposal in accordance with the last sentence of this
paragraph. The Merger Agreement requires each party immediately to cease and
cause to be terminated all existing discussions and negotiations, if any, with
any parties conducted prior to the date of the Merger Agreement with respect to
any Takeover Proposal. As used in the Merger Agreement, "Takeover Proposal"
means any tender or exchange offer, proposal for a merger, consolidation or
other business combination involving a party thereto or any proposal or offer to
acquire in any manner a substantial equity interest in, or a substantial portion
of the assets of Resources, Midwest Power or Iowa-Illinois, other than pursuant
to transactions contemplated by the Merger Agreement. The Merger Agreement
further provides that, notwithstanding anything in the provisions described
above to the contrary, unless the Resources Shareholders' Approval, the Midwest
Power Shareholders' Approval and the Iowa-Illinois Shareholders' Approval have
all been obtained, any party may, to the extent required by the fiduciary duties
of the Board of Directors of such party under applicable law (as determined in
good faith by the Board of Directors of such party based on the advice of
outside counsel), participate in discussions or negotiations with, furnish
information to, and afford access to the properties, books and records of such
party and its subsidiaries to any person in connection with a possible Takeover
Proposal with respect to such party by such person.
COMPANY BOARD OF DIRECTORS
The Merger Agreement provides that Resources and Iowa-Illinois will take
action to cause the number of directors comprising the full Board of Directors
of the Company at the Effective Time to be 19 persons, eight of whom will be
designated by Iowa-Illinois ("Iowa-Illinois Designees") and 11 of whom will be
designated by Resources ("Resources Designees"), prior to the Effective Time.
Furthermore, the Merger Agreement provides that if, prior to the Effective Time,
any of such designees declines or is unable to serve, the party that designated
such person will designate another person to serve in such person's stead. The
Board of Directors, after the Effective Time, will implement a plan to reduce
the number of outside directors to no more than 14 by June 1, 1997. The
Nominating Committee of the Board with certain guidelines set forth in the
Merger Agreement will be responsible for the initial preparation of the plan.
All committees of the Board of Directors of the Company at the Effective Time
will consist of an equal number of Resources Designees and Iowa-Illinois
Designees.
INDEMNIFICATION
The Merger Agreement provides that from and after the Effective Time, the
Company shall, to the fullest extent not prohibited by applicable law,
indemnify, defend and hold harmless the present and former officers and
directors of Iowa-Illinois, Resources and Midwest Power (each an "Indemnified
Party" and collectively, the "Indemnified Parties") against all losses, expenses
(including reasonable attorney's fees), 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 are in whole or in part based on, or arising out of, the
fact that such person is or was a director or officer of Iowa-Illinois, Midwest
Power or Resources and arising out of or pertaining to the transactions
contemplated by the Merger Agreement. In the event of any such loss, expense,
claim, damage or liability (whether or not arising before the Effective Time),
(i) the Company shall pay the reasonable fees and expenses of counsel selected
by the Indemnified Parties, which counsel shall be reasonably satisfactory to
the Company (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 or the Illinois Act, (ii) the
Company will cooperate in the defense
64
<PAGE>
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 or the Illinois Act and the Company Articles or Company
By-Laws shall be made by independent counsel mutually acceptable to the Company
and the Indemnified Party; PROVIDED, HOWEVER, that the Company 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 sole opinion of counsel to an Indemnified Party, under
applicable standards of professional conduct, a conflict on any significant
issue between positions of any two or more Indemnified Parties.
To the fullest extent not prohibited by law, from and after the Effective
Time, all rights to indemnification existing as of the date of the Merger
Agreement in favor of the employees, agents, directors or officers of Resources,
Iowa-Illinois and their respective subsidiaries with respect to their activities
as such prior to the Effective Time, as provided in their respective Articles of
Incorporation or By-Laws as in effect on the date thereof or as otherwise in
effect on July 26, 1994, 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.
The Merger Agreement provides that for a period of six years after the
Effective Time, the Company shall cause to be maintained in effect the policies
of directors' and officers' liability insurance maintained by Iowa-Illinois,
Resources and Midwest Power; PROVIDED that the Company 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
Company not greater than 150% of the respective current annual premiums for
their directors' and officers' liability insurance; PROVIDED, FURTHER, that if
such insurance cannot be so maintained or obtained at such cost, the Company
shall maintain or obtain as much of such insurance for each of Iowa-Illinois,
Resources and Midwest Power as can be so maintained or obtained at a cost equal
to 150% of the respective current annual premiums of each of Iowa-Illinois,
Midwest Power and Resources for their directors' and officers' liability
insurance.
The Merger Agreement also provides that in the event that the Company or any
of its successors or assigns (i) consolidates with or merges into any other
person 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, then and in either such case, proper
provision shall be made so that the successors and assigns of the Company shall
assume the obligations set forth above.
CONDITIONS TO THE MERGER
The respective obligations of Resources, Midwest Power and Iowa-Illinois to
effect the Merger are subject to the following conditions, among others: (i) the
Resources Shareholders' Approval, the Midwest Power Shareholders' Approval and
the Iowa-Illinois Shareholders' Approval shall have been obtained; (ii) no
temporary restraining order, preliminary or permanent injunction or other order
shall be in effect that prevents the consummation of the Merger, and the Merger
and the transactions contemplated thereby shall not have been prohibited under
any applicable federal or state law or regulation; (iii) the Registration
Statement shall have become effective and shall not be the subject of a stop
order suspending such effectiveness; (iv) the shares of Company Common Stock and
the shares of the $1.7375 Series of the Company Preferred Stock issuable and
required to be reserved for issuance in connection with the Merger shall have
been approved for listing on the NYSE, upon official notice of issuance; (v) all
material governmental authorizations, consents, orders or approvals shall have
been obtained and shall not impose terms that, in the aggregate, create a
material adverse effect on either Iowa-Illinois or Resources as if each were
organized as a separate division of the Company; (vi) Resources and
Iowa-Illinois shall have received letters from their independent public
accountants that the Merger will qualify as a pooling of interests transaction
under GAAP and applicable SEC regulations; (vii) the applicable waiting periods
under the HSR Act shall have expired or been
65
<PAGE>
terminated; (viii) the agreements and covenants required to be performed under
the Merger Agreement shall have been performed in all material respects; (ix)
the representations and warranties set forth in the Merger Agreement shall be
accurate in all material respects; (x) there shall not have been any material
adverse effect on the business, operations, properties, assets, or conditions,
or the results of operations or prospects of the parties and their subsidiaries;
(xi) certain third party consents shall have been received; (xii) Resources,
Midwest Power and Iowa-Illinois shall have received officers' certificates from
each other stating that the conditions set forth in the Merger Agreement have
been satisfied; (xiii) Resources and Iowa-Illinois shall have received from
their respective special tax counsel opinions to the effect that Resources,
Midwest Power and Iowa-Illinois, and their respective shareholders (except to
the extent any Resources, Midwest Power or Iowa-Illinois shareholder receives
cash in the Merger) will recognize no gain or loss as a result of the Merger;
(xiv) certain certificates of certain affiliates of Iowa-Illinois and Resources
shall have been received; and (xv) with respect to Resources, the fairness
opinion from PaineWebber shall not have been withdrawn, and, with respect to
Iowa-Illinois, the fairness opinion from Dillon Read shall not have been
withdrawn, in each case, under specified circumstances.
BENEFIT PLANS
Following the Effective Time, the Company and its subsidiaries will honor
all prior contracts, agreements, collective bargaining agreements and
commitments with current or former employees and current or former directors of
Resources, Midwest Power, Iowa-Illinois and their respective subsidiaries, in
accordance with the respective terms of such contracts, agreements and
commitments, subject to the Company's right to enforce them in accordance with
their terms (including any reserved right to amend, modify, suspend, revoke or
terminate them).
TERMINATION
The Merger Agreement may be terminated at any time prior to the Closing
Date, whether before or after approval by the shareholders of Resources, Midwest
Power or Iowa-Illinois: (a) by mutual written consent of the Boards of Directors
of Midwest Power, Resources and Iowa-Illinois; (b) by any party thereto, by
written notice to the other, if the Effective Time shall not have occurred on or
before December 31, 1995; PROVIDED that such date shall automatically be changed
to June 30, 1996 if on December 31, 1995 the condition of obtaining the required
statutory approvals has not been satisfied or waived and the other conditions to
the consummation of the transactions contemplated by the Merger Agreement are
then capable of being satisfied, and the required statutory approvals which have
not yet been obtained are being pursued with diligence; and PROVIDED, FURTHER,
that the right to terminate the Merger Agreement under this termination clause
shall not be available to any party whose failure to fulfill any obligation
under the Merger 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 thereto, by
written notice to the other party, if any required shareholder approval shall
not have been obtained by reason of the failure to obtain the required vote upon
a vote held at a duly held meeting of shareholders or at any adjournment
thereof; (d) by any party thereto, if any state or federal law, order, rule or
regulation is adopted or issued, which has the effect, as supported by the
written opinion of outside counsel for such party, of prohibiting the Merger, or
by any party thereto, 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; (e) by
Iowa-Illinois or Resources, upon two days' prior notice to the other if, as a
result of a tender offer by a party other than Iowa-Illinois or Resources or any
of their affiliates or any written offer or proposal with respect to a merger,
sale of a material portion of its assets or other business combination (each, a
"Business Combination") by a party other than Iowa-Illinois or Resources or any
of their affiliates, the Board of Directors of Iowa-Illinois or Resources, as
the case may be, determines in good faith that its fiduciary obligations under
applicable law require that such tender offer or other written offer or proposal
be accepted; PROVIDED, HOWEVER, that (i) the Board of Directors of Iowa-Illinois
or Resources, as the case may be, shall have been advised in writing by outside
counsel that, notwithstanding a binding commitment to consummate an agreement of
the
66
<PAGE>
nature of the Merger Agreement entered into in the proper exercise of its
applicable fiduciary duties, such fiduciary duties would also require the
directors to reconsider such commitment as a result of such tender offer or
other written offer or proposal and (ii) prior to any such termination,
Iowa-Illinois or Resources, as the case may be, shall, and shall cause its
respective financial and legal advisors to, negotiate with the other to make
such adjustments in the terms and conditions of the Merger Agreement as would
enable Iowa-Illinois and Resources to proceed with the transactions contemplated
therein; and (f) by Iowa-Illinois or Resources (the "Terminating Party"), by
written notice to the other (the "Other Party"), if (i) there shall have been
any material breach of any representation or warranty, or any material breach of
any covenant or agreement of the Other Party (including in this instance Midwest
Power in the case of Resources) under the Merger Agreement, and such breach
shall not have been remedied within 20 days after receipt by the Other Party of
notice in writing from the Terminating Party specifying the nature of such
breach and requesting that it be remedied; or (ii) the Board of Directors of the
Other Party (A) shall withdraw or modify in any manner adverse to the
Terminating Party its approval of the Merger Agreement and the transactions
contemplated thereby or its recommendation to its shareholders regarding the
approval of the Merger Agreement, (B) shall fail to reaffirm such approval or
recommendation upon the request of the Terminating Party, (C) shall approve or
recommend any acquisition by a third party of the Other Party or a material
portion of its assets or any tender offer for the common stock of the Other
Party, or (D) shall resolve to take any of the actions specified in clauses (A),
(B) or (C) immediately preceding; PROVIDED, HOWEVER, that with regard to
termination clauses (e) and (f) above, Iowa-Illinois and Resources acknowledge
and affirm that notwithstanding anything in such termination clauses to the
contrary, the parties thereto intend the Merger Agreement to be an exclusive
agreement and, accordingly, nothing in the Merger Agreement is intended to
constitute a solicitation of an offer or proposal for a Business Combination, it
being acknowledged and agreed that any such offer or proposal would interfere
with the strategic advantages and benefits which the parties expect to derive
from the Merger. The failure to obtain the necessary shareholder approval will
not result in an obligation to pay a termination fee unless the Merger Agreement
is terminated following such failure and the events described in clauses (ii)
and (iii) of the second paragraph under "Termination Fees" below shall also have
occurred.
In the event of termination of the Merger Agreement by either Resources or
Iowa-Illinois as provided above, there shall be no liability on the part of
either Iowa-Illinois, Resources or Midwest Power or their respective officers or
directors thereunder (other than (i) certain specified provisions of the Merger
Agreement described below under "Termination Fees" and "Expenses" (ii) to hold
in strict confidence all documents furnished in connection with the transactions
contemplated by the Merger Agreement and in accordance with the Confidentiality
Agreement and Standstill Agreement dated June 5, 1994 between Iowa-Illinois and
Resources, and (iii) certain provisions regarding post-Merger governance of the
Company).
TERMINATION FEES
If the Merger Agreement is terminated (i) at such time that the Merger
Agreement is terminable pursuant to clause (f)(i) under "Termination" above
("clause (f)(i)") (other than solely pursuant to a noncurable breach of a
representation or warranty unless such breach was willful) by only one of the
parties thereto, or (ii) pursuant to clause (e) under "Termination" above
("clause (e)"), then the party receiving the notice pursuant to clause (f)(i),
or giving the notice pursuant to clause (e) shall promptly (but not later than
five business days after such notice is received or given, as the case may be)
pay to the other party $15 million in cash, plus in each case cash in an amount
equal to all documented out-of-pocket expenses and fees incurred by the other
party (including, without limitation, fees and expenses payable to all legal,
accounting, financial, public relations and other professional advisors arising
out of, in connection with or related to the Merger or the transactions
contemplated by the Merger Agreement) not in excess of $6 million.
If (i) the Merger Agreement (x) is terminated by any party pursuant to
clause (e), (y) is terminated following a failure of the shareholders of Midwest
Power or Resources or Iowa-Illinois to grant the necessary approvals or (z) is
terminated as a result of a party's failure to take specified action with
67
<PAGE>
respect to obtaining approval of the Merger Agreement from its shareholders, and
(ii) at the time of such termination or prior to the meeting of such party's
shareholders there shall have been a third-party tender offer for shares of, or
a third-party offer or proposal with respect to a Business Combination
involving, such party or its affiliates which at the time of such termination or
of the meeting of such party's shareholders shall not have been (x) rejected by
such party and its Board of Directors and (y) withdrawn by the third-party and
(iii) within 2 years of any such termination described in clause (i) above, the
party or its affiliate which is the subject of the tender offer or offer or
proposal with respect to a Business Combination (the "Target Party") becomes a
subsidiary of such offeror or a subsidiary of an affiliate of such offeror, or
merges with and into the offeror or a subsidiary or affiliate of the offeror or
enters into a definitive agreement to consummate a Business Combination with
such offeror or affiliate thereof, then (a) in the event Resources or one of its
affiliates is the Target Party, Midwest Power shall pay to Iowa-Illinois and (b)
in the event Iowa-Illinois or one of its affiliates is the target party,
Iowa-Illinois shall pay to Midwest Power, at the closing of the transaction (and
as a condition to such closing) in which such Target Party becomes a subsidiary
or such Business Combination occurs (a "Subsequent Transaction"), (1) a
termination fee of $30 million in cash, plus (2) a Subsequent Transaction fee
payable in cash equal to 20% of the difference between (A) $815,376,077 (if
Resources is the Target Party), or $637,751,871 (if Iowa-Illinois is the Target
Party) and (B) the number of shares of Target Party common stock outstanding at
the time of the closing of the Subsequent Transaction multiplied by the higher
of (x) the average daily closing price of Target Party common stock on the NYSE
or, if such common stock is not admitted to trading on the NYSE on, the market
on which such common stock is traded which has the highest volume of trades, on
the ten NYSE trading days immediately preceding the date of such closing, or (y)
the amount of cash plus the fair market value on the day prior to such closing
of any non-cash consideration to be received for each share of Target Party
common stock by the holder thereof in the Subsequent Transaction (including in
such fair market value the fair market value of any Target Party common stock
retained by such holder as a result of the Subsequent Transaction). The fair
market value of any such non-cash consideration shall be determined by a
nationally recognized accounting firm selected jointly by Resources and Iowa-
Illinois at least 60 days prior to the date of such closing. The Target Party
shall pay all of the fees and expenses of such accounting firm for making such
determination. The Target Party shall agree to indemnify such accounting firm
against any and all liabilities, costs and expenses of whatever nature such
accounting firm may incur in connection with its determination of such fair
market value. The Target Party shall provide to such accounting firm such
security for the fee and expense payment and indemnification obligations of the
Target Party to such accounting firm as it may request, and the other party
shall have no liability for any of such fees and expenses nor shall it have any
obligation to indemnify such accounting firm for anything.
In the Merger Agreement, the parties thereto agree that the agreements
described under this section entitled "Termination Fees" are an integral part of
the transactions contemplated by the Merger Agreement and constitute liquidated
damages and not a penalty. If one party fails to pay promptly to the other any
expense and/or fee due thereunder, 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.
In the event that termination fees are payable pursuant to the termination
provisions contained in the Merger Agreement and described above, the aggregate
amount payable to Iowa-Illinois and its affiliates shall not exceed $51 million
and the aggregate amount payable to Resources and its affiliates shall not
exceed $51 million.
68
<PAGE>
EXPENSES
Except as set forth above, all fees and expenses incurred in connection with
the Merger Agreement and the transactions contemplated thereby will be paid by
the party incurring such expense, except that the expenses in connection with
printing and filing of this Joint Proxy Statement/ Prospectus will be shared
equally by Resources and Iowa-Illinois.
AMENDMENT AND WAIVER
The Merger Agreement may be amended by the Boards of Directors of the
parties thereto, at any time before or after approval thereof by the
shareholders of Resources, Midwest Power and Iowa-Illinois and prior to the
Effective Time, but after such approvals, no such amendment shall (i) alter or
change the amount or kind of shares, rights or any of the proceeds of the
conversion of such shares, or (ii) alter or change any of the terms and
conditions of the Merger Agreement if any of the alterations or changes, alone
or in the aggregate, would materially adversely affect the rights of holders of
Iowa-Illinois Common Stock, Iowa-Illinois Preferred Stock, Iowa-Illinois
Preference Stock, Midwest Power Preferred Stock or Resources Common Stock. At
any time prior to the Effective Time, the parties to the Merger Agreement may
extend the time for the performance of any of the obligations or other acts of
the other parties thereto, waive any inaccuracies in the representations and
warranties contained therein or in any document delivered pursuant thereto, and
waive compliance with any of the agreements or conditions contained in the
Merger Agreement.
DESCRIPTION OF COMPANY CAPITAL STOCK
The authorized capital stock of the Company immediately prior to the
Effective Time will consist of 350,000,000 shares of Common Stock, no par value,
and 100,000,000 shares of Preferred Stock, no par value. The shares of Company
Preferred Stock will be senior to Company Common Stock with respect to dividends
and the distribution of assets upon the dissolution, liquidation or winding up
of the Company.
The description of Company capital stock set forth herein is qualified in
its entirety by reference to the Company Articles attached to this Joint Proxy
Statement/Prospectus as Annex II.
The registrar and transfer agent for Company Common Stock and Company
Preferred Stock will be the Company.
COMPANY COMMON STOCK
VOTING RIGHTS. For all purposes, each registered holder of Company Common
Stock will, at each meeting of shareholders, be entitled to one vote for each
share of Company Common Stock held, either in person or by proxy duly authorized
in writing. Except to the extent required by law or as permitted by the Company
Articles, as amended from time to time, the registered holders of the shares of
Company Common Stock shall have unlimited and exclusive voting rights.
DIVIDENDS. The holders of Company Common Stock will be entitled to receive
dividends as and when declared by the Company Board out of funds legally
available therefor, subject to the terms of any Company Preferred Stock
outstanding at the time. See "Description of Company Capital Stock -- Company
Preferred Stock -- Dividends" below.
LIQUIDATION RIGHTS. In the event of a liquidation, dissolution or winding
up of the affairs of the Company, the holders of Company Common Stock will be
entitled to share ratably in any assets remaining after payment in full of all
liabilities of the Company and the aggregate liquidation preference of any
Company Preferred Stock then outstanding.
NO OTHER RIGHTS. The holders of Company Common Stock will have no
preemptive rights to acquire or subscribe to any shares, or securities
convertible into shares, of Company Common Stock. The Company Common Stock
contains no redemption provisions or conversion rights. The holders of Company
Common Stock do not have the right to cumulate their votes in the election of
directors.
69
<PAGE>
COMPANY PREFERRED STOCK
GENERAL. The Company Preferred Stock will be issued in different series.
The Articles of Amendment included in the Company Articles (the "Articles of
Amendment") authorize several series as described below.
The Company Board is authorized to approve the issuance of one or more
classes or series of Company Preferred Stock without further authorization of
its shareholders and to determine the number of shares, designations,
preferences, limitations and relative rights of such classes or series,
including provision for special, conditional, limited or no voting rights. Thus,
any series of Company Preferred Stock may, if so determined by the Company
Board, have full voting rights with holders of Company Common Stock or limited
or no voting rights (except as may be required by law), be convertible into or
exchangeable for Company Common Stock or another security, and have such other
powers, preferences and relative, participating, optional and other special
rights, and such qualifications, limitations and restrictions thereon, as the
Company Board shall determine. Further, the ability of the Company Board to
issue classes and series of Company Preferred Stock may have the effect of
delaying, deferring or preventing a future takeover or change in control of the
Company, and could prevent shareholders from tendering their shares in
transactions which they might favor by decreasing the likelihood that such
offers would be made in the first instance.
DESIGNATED SERIES. There are designated in the Articles of Amendment ten
series of Company Preferred Stock ("Merger Series") aggregating 3,217,789 shares
as follows:
<TABLE>
<CAPTION>
SERIES NUMBER OF SHARES
- ----------------------------------------------------------------- -----------------
<S> <C>
$3.30 Series..................................................... 49,622
$3.75 Series..................................................... 38,320
$3.90 Series..................................................... 32,630
$4.20 Series..................................................... 47,369
$4.35 Series..................................................... 49,950
$4.40 Series..................................................... 50,000
$4.80 Series..................................................... 49,898
$5.25 Series..................................................... 100,000
$7.80 Series..................................................... 400,000
$1.7375 Series................................................... 2,400,000
</TABLE>
At the Effective Time, pursuant to the Merger Agreement (except as otherwise
provided therein), each share of $3.30 Series, $3.75 Series, $3.90 Series, $4.20
Series, $4.35 Series, $4.40 Series, $4.80 Series and $1.7375 Series of Midwest
Power Preferred Stock will be converted into one share of $3.30 Series, $3.75
Series, $3.90 Series, $4.20 Series, $4.35 Series, $4.40 Series, $4.80 Series and
$1.7375 Series of Company Preferred Stock, respectively, and each share of $5.25
Series and $7.80 Series of Iowa-Illinois Preference Stock will be converted into
one share of $5.25 and $7.80 Series of Company Preferred Stock, respectively.
DIVIDENDS. The holders of Merger Series shares of Company Preferred Stock
are entitled to receive, when as, and if declared payable by the Company Board
from funds legally available for the payment thereof, dividends in the amount
per annum fixed by resolution of the Company Board
70
<PAGE>
creating such particular class or series. The respective annual dividend rates
per share set for each Merger Series of Company Preferred Stock, payable
quarterly on the first day of March, June, September and December, are as
follows:
<TABLE>
<CAPTION>
SERIES ANNUAL DIVIDEND RATE
- -------------------------------------------------------------- --------------------
<S> <C>
$3.30 Series.................................................. $ 3.30
$3.75 Series.................................................. $ 3.75
$3.90 Series.................................................. $ 3.90
$4.20 Series.................................................. $ 4.20
$4.35 Series.................................................. $ 4.35
$4.40 Series.................................................. $ 4.40
$4.80 Series.................................................. $ 4.80
$5.25 Series.................................................. $ 5.25
$7.80 Series.................................................. $ 7.80
$1.7375 Series................................................ $ 1.7375
</TABLE>
The regular quarterly dividend payment dates on shares of Iowa-Illinois
Preference Stock which will be converted into Merger Series shares of Company
Preferred Stock in the Merger are the first day of February, May, August and
November. As a result, the first dividend payable on the Merger Series shares of
Company Preferred Stock, into which shares of Iowa-Illinois Preference Stock are
to be converted in the Merger, following the Effective Time will be paid as
follows:
(a) if a regular dividend payment date for the shares of Iowa-Illinois
Preference Stock which were converted into Merger Series shares of Company
Preferred Stock in the Merger ("Iowa-Illinois Payment Date"), occurs after
the Effective Time but before the first dividend payment date on Company
Preferred Stock after the Effective Time ("First Dividend Payment Date"),
then
(i) a dividend will be paid on the shares of such Merger Series on
the Iowa-Illinois Payment Date in the regular quarterly amount, and
(ii) a dividend will be paid on the shares of such Merger Series on
the First Dividend Payment Date, but only in the amount obtained by
multiplying the regular quarterly amount of such dividend by a fraction
(A) the numerator of which is the number of days in the period commencing
on the Iowa-Illinois Payment Date and ending on and including the day
prior to the First Dividend Payment Date, and (B) the denominator of
which is the number of days in the regular quarterly dividend period; or
(b) if the First Dividend Payment Date occurs before an Iowa-Illinois
Payment Date, a dividend will be paid on the Merger Series shares of Company
Preferred Stock into which Iowa-Illinois Preference Stock was converted in
the Merger, on the First Dividend Payment Date, but only in the amount
obtained by multiplying the regular quarterly amount of such dividend by a
fraction (i) the numerator of which is the number of days in the period
commencing on the Iowa-Illinois Payment Date preceding the Effective Time
and ending on and including the day prior to the First Dividend Payment
Date, and (ii) the denominator of which is the number of days in the regular
quarterly dividend period.
So long as any Merger Series shares of Company Preferred Stock are
outstanding, the Company may not (i) pay or declare any dividend or other
distribution on any shares of Company Common Stock or any other shares of the
Company ranking junior to the Company Preferred Stock, or (ii) purchase, redeem
or otherwise acquire for value any shares of Company Common Stock or other
shares of the Company ranking junior to the Company Preferred Stock, unless and
until all dividends in arrears on all Company Preferred Stock are paid in full;
PROVIDED that a dividend or distribution may be declared and paid on shares of
Company Common Stock or such junior shares or such shares may be acquired by the
Company, notwithstanding the foregoing if (a) such dividend or distribution is
payable solely in
71
<PAGE>
shares of Company Common Stock or in such junior shares or (b) such acquisition
is in exchange for, or through the application of the proceeds of the sale of,
shares of Company Common Stock or such junior shares.
No dividend may be paid on or declared with respect to any Merger Series
shares of Company Preferred Stock on which dividends are payable on a particular
date, in whole or in part, unless at the same time a like proportionate dividend
for the same dividend payment period or portion thereof is likewise paid or
declared, as the case may be, for all Merger Series shares of Company Preferred
Stock for which dividends are payable on the same date.
LIQUIDATION PREFERENCES. Upon any involuntary dissolution, liquidation or
winding up ("Liquidation") of the Company, the holders of outstanding shares of
each series of Company Preferred Stock will be entitled to receive out of the
assets of the Company an amount per share set forth in the articles of amendment
to the Company Articles in which the terms of such series are set forth. In the
event of a voluntary Liquidation of the Company, (i) the holders of shares of
the $1.7375 Series, $3.30 Series, $3.75 Series, $4.35 Series, $4.40 Series,
$4.80 Series, $5.25 Series and $7.80 Series of Company Preferred Stock will be
entitled to receive out of the assets of the Company the amount which would then
be payable upon such share in the event of the redemption thereof, plus accrued
and unpaid dividends to the date fixed for payment and no more (See "Description
of Capital Stock -- Company Preferred Stock -- Optional Redemption"), except
that prior to November 1, 1998, the holders of the shares of the $5.25 Series
will be entitled to receive $105.25 per share and prior to May 1, 2001, the
holders of the shares of the $7.80 Series shall be entitled to receive $107.80
per share, and no more, and (ii) the holders of shares of the $3.90 Series and
$4.20 Series will be entitled to receive out of the assets of the Company the
amount of $100 per share, plus accrued and unpaid dividends to the date of
payment of such amount, and no more. In the event of an involuntary Liquidation
of the Company (a) holders of shares of the $3.30 Series, $3.75 Series, $3.90
Series, $4.20 Series, $4.35 Series, $4.40 Series, $4.80 Series, $5.25 Series and
$7.80 Series of Company Preferred Stock will be entitled to receive out of the
assets of the Company, $100 per share, and (b) the holders of the $1.7375 Series
of Company Preferred Stock will be entitled to receive $25 per share, in each
case plus accrued and unpaid dividends to the date of payment of such amount,
and no more.
Until payment to the holders of Company Preferred Stock as aforesaid, or
until moneys or other assets sufficient for such payment have been set apart for
payment, no payment or distribution will be made to holders of Company Common
Stock or any other junior shares which rank below the Company Preferred Stock
with respect to the payment of dividends or assets in connection with or upon
such Liquidation. Neither a consolidation nor a merger of the Company with or
into any other corporation, nor a merger of any other corporation into the
Company, nor the purchase or redemption of all or any part of the outstanding
shares of any class or classes of the Company, nor the sale or transfer of the
property and business of the Company as or substantially as an entirety, will
constitute a Liquidation for purposes of the foregoing provisions.
OPTIONAL REDEMPTION. Upon not more than 60 nor less than 30 days' prior
notice, the outstanding shares of each Merger Series of Company Preferred Stock
may be redeemed by the Company, at its option, by action of the Company Board,
as a whole at any time or in part from time to time, by paying in cash on a
redemption date specified by the Company Board, the following redemption prices,
in each case plus an amount equal to accrued and unpaid dividends thereon to
such redemption date:
<TABLE>
<CAPTION>
SERIES AMOUNTS FIXED FOR REDEMPTION
- ---------------------------------------------- ------------------------------------
<S> <C>
$3.30 Series.................................. $101.50 per share
$3.75 Series.................................. $102.75 per share
$3.90 Series.................................. $105.00 per share
$4.20 Series.................................. $103.439 per share
$4.35 Series.................................. $102.00 per share
$4.40 Series.................................. $101.50 per share
$4.80 Series.................................. $102.70 per share
</TABLE>
72
<PAGE>
<TABLE>
<CAPTION>
SERIES AMOUNTS FIXED FOR REDEMPTION
- ---------------------------------------------- ------------------------------------
<S> <C>
$5.25 Series.................................. $101.97 per share on November 1,
1998 through October 31, 1999;
$101.31 per share on November 1,
1999 through October 31, 2000;
$100.66 per share on November 1,
2000 through October 31, 2001; and
$100.00 per share on or after
November 1, 2001.
$7.80 Series.................................. $107.80 per share on May 1, 1996
through April 30, 2001;
$103.90 per share on May 1, 2001
through April 30, 2002; and
$101.95 per share on or after May 1,
2002.
$1.7375 Series................................ $26.7375 per share through
November 30, 1994;
$26.3900 per share on
December 1, 1994 through
November 30, 1995;
$26.0425 per share on
December 1, 1995
through November 30, 1996;
$25.6950 per share on
December 1, 1996 through
November 30, 1997;
$25.3475 per share on
December 1, 1997 through
November 30, 1998; and
$25.0000 per share on or after
December 1, 1998.
</TABLE>
However, (i) prior to December 1, 1998, no shares of the $1.7375 Series of
Company Preferred Stock may be redeemed through a refunding, directly or
indirectly, by or in anticipation of the incurring of any debt which has an
interest cost, or the issuance of stock ranking equally with or prior to the
$1.7375 Series of Company Preferred Stock as to the payment of dividends or
assets, which has a dividend cost to the Company (computed in accordance with
generally accepted financial practice), of less than 7.15% per annum, (ii) prior
to November 1, 1998, no shares of the $5.25 Series may be redeemed at the option
of the Company, and (iii) prior to May 1, 1996, no shares of the $7.80 Series
may be redeemed at the option of the Company.
Subject to the limitations set forth under "-- Repurchases; Limitations on
Reacquisitions" below, the Company will on November 1, 2003 redeem all shares of
the $5.25 Series of Company Preferred Stock then outstanding at $100 per share,
plus accrued and unpaid dividends thereon through October 31, 2003.
If less than all of the shares of any Merger Series of Company Preferred
Stock are to be redeemed, their redemption will be determined by lot. Notice of
redemption having been mailed and funds necessary for such redemption having
been deposited as provided in the Articles of Amendment, all
73
<PAGE>
shares to be redeemed will be deemed no longer outstanding, and all voting and
other rights with respect thereto will thereupon cease except for the right to
receive, out of funds so deposited, without interest, the redemption funds.
SINKING FUNDS. Subject to the limitations set forth under "-- Repurchase;
Limitations on Reacquisitions" below, while any shares of the $7.80 Series of
the Company Preferred Stock are outstanding, the Company must set aside and make
sinking fund payments in the amount of $6,660,000 (or, if less, such amount as
would be sufficient to redeem all of the then outstanding shares of the $7.80
Series), plus accrued and unpaid dividends on all shares to be redeemed, on or
before May 1, 2001 and on or before May 1 of each year thereafter through May 1,
2005. Such obligation will be cumulative. Shares of the $7.80 Series of the
Company Preferred Stock redeemed, purchased or otherwise acquired by the Company
other than through sinking fund payments (whether mandatory or optional) may be
credited against such obligation. The Company may make optional sinking fund
payments of up to $6,660,000, plus accrued and unpaid dividends on the shares to
be redeemed, in respect to each sinking fund payment date. Such option is not
cumulative and will not relieve the Company of its obligations to make future
mandatory sinking fund payments. All amounts set aside on a particular date,
whether mandatorily or at the Company's option, will be applied on the first
sinking fund payment date that occurs on or after such date, in the manner
indicated above under "-- Optional Redemption." There will be no sinking funds
for the purchase or redemption of any other Merger Series shares of Company
Preferred Stock to be issued upon consummation of the Merger.
CONVERSION RIGHTS. None of the Merger Series shares of Company Preferred
Stock will have any conversion rights.
REPURCHASES; LIMITATIONS ON REACQUISITIONS. Subject to applicable law and
the provisions of the Articles of Amendment determining the terms of the Merger
Series of Company Preferred Stock, the Company may acquire Merger Series shares
at a price per share not exceeding the amount at the time payable in the event
of their redemption otherwise than through the operation of the applicable
sinking fund, if any.
If the Company is in default in the payment of any quarterly dividend or in
setting aside or making any sinking fund payments on Merger Series shares, it
may not (other than by use of unapplied sinking fund amounts set aside prior to
such default):
(a) redeem any Merger Series shares unless all Merger Series shares are
redeemed; or
(b) purchase or otherwise acquire for a valuable consideration any shares of
the Merger Series, except pursuant to offers of sale made by the holders
of the Merger Series in response to an invitation for tenders given by
mail by the Company simultaneously to the holders of record of all
outstanding Merger Series shares.
VOTING RIGHTS. The holders of Merger Series shares of Company Preferred
Stock will not be entitled to vote on any matter submitted to a vote of the
shareholders of the Company except to the extent required by law or as permitted
by the Articles of Amendment, as described herein. Whenever dividends payable on
any shares of Company Preferred Stock are in default in an aggregate amount
equivalent to six full quarterly dividends, and until all such dividends then in
default shall have been paid or declared and set apart for payment, the holders
of shares of such stock, of all series, voting together as a single class, will
be entitled to elect two directors to the Company Board.
For a description of the voting rights of the Midwest Power Preferred Stock
and Iowa-Illinois Preference Stock to be converted into the Merger Series of
Company Preferred Stock in the Merger and for a comparison of the voting rights
of the holders of Midwest Power Preferred Stock and Iowa-Illinois Preference
Stock and the holders of Merger Series of Company Preferred Stock, see
"Comparison of Corporate Charters and Rights of Security Holders -- Midwest
Power" and "-- Iowa-Illinois," respectively.
74
<PAGE>
NO PREEMPTIVE RIGHTS. No holder of Merger Series shares of Company
Preferred Stock will have any preemptive or preferential right to purchase or
subscribe for any shares of stock or rights or options to purchase stock or any
other securities of the Company of any kind whatsoever, whether now or hereafter
authorized.
CERTAIN BUSINESS COMBINATIONS
The Company Articles require the affirmative vote of the holders of at least
75%, excluding shares beneficially owned by a 25% Shareholder (as defined
therein), of the outstanding shares of Voting Stock (as defined therein), to
approve any merger or other Business Combination (as defined therein), which
term includes a merger of the Company, sale of assets having a Fair Market Value
(as defined therein) of $25 million or more of the Company or any subsidiary,
the adoption of a plan of liquidation of the Company, the issuance or transfer
of securities of the Company to a 25% Shareholder or an Affiliate (as defined
therein) or Associate (as defined therein) thereof, the reclassification of
securities of the Company and similar extraordinary corporate transactions)
between, or otherwise involving, the Company and any 25% Shareholder or
Affiliate or Associate thereof, unless (i) the transaction has been approved by
a majority of the Continuing Directors (as defined therein), or (ii) certain
fair price, form of consideration and procedural requirements are satisfied by
the 25% Shareholder, in addition to the satisfaction of certain conditions
relating to directors, dividends, loans, corporate structure and the acquisition
by the 25% Shareholder of additional shares. In addition to Business
Combinations, the Company Articles require the affirmative vote of the holders
of at least 75% of the outstanding shares of Voting Stock, excluding shares
beneficially owned by an Interested Securityholder (as defined therein), for the
Company to make any purchase or other acquisition of any equity security (as
defined in Rule 3a11-1 under the Exchange Act) from any Interested
Securityholder who has beneficially owned such securities for less than two
years prior to the date of such purchase or other acquisition, or any agreement
in respect thereof.
COMPARISON OF CORPORATE CHARTERS AND RIGHTS OF SECURITY HOLDERS
RESOURCES
If the Merger is consummated, holders of Common Stock of Resources, an Iowa
corporation, will become holders of Common Stock of the Company, also an Iowa
corporation, and their rights will continue to be governed by the Iowa Act. The
Company Articles and Company By-Laws will also govern the rights of the
shareholders. The material differences between the rights of shareholders of the
Company and shareholders of Resources are set forth below. This summary is
qualified in its entirety by reference to the full text of such documents. See
the Company Articles attached as Annex II. See also "Available Information."
VOTING POWER. If the Merger is approved, Resources shareholders will hold
approximately 56% of the aggregate number of shares of Company Common Stock
outstanding at the Effective Time. Following the Merger, Resources shareholders
will therefore not possess the same relative voting power on matters put to a
vote of the shareholders of the Company as possessed prior to the Merger.
CAPITALIZATION. The Company Articles authorize the issuance of up to
350,000,000 shares of Company Common Stock and 100,000,000 shares of Company
Preferred Stock which may be issued without the approval of the holders of
Company Common Stock. The Articles of Incorporation of Resources (the "Resources
Articles") authorize 250,000,000 shares of Resources Common Stock and
100,000,000 shares of preferred stock, no par value, which may be issued without
the approval of the holders of Resources Common Stock; no shares of such
preferred stock are currently outstanding. It is expected that 3,217,789 shares
of Company Preferred Stock will be outstanding at the Effective Time.
BOARD OF DIRECTORS. The Resources Articles provide for the Resources Board
to consist of not less than nine nor more than nineteen directors, as determined
from time to time by its By-Laws (the "Resources By-Laws"). The Company Articles
provide for not less than ten nor more than 22 directors as determined from time
to time in accordance with the Company By-Laws. The Company Board after
75
<PAGE>
the Effective Time will consist of 19 members, eleven designated by Resources
and eight designated by Iowa-Illinois. Neither the Resources Articles nor the
Company Articles provide for a classified Board of Directors.
CERTAIN BUSINESS COMBINATIONS. The Resources Articles and the Company
Articles both require the affirmative vote of the holders of at least 75%,
excluding shares beneficially owned by a 25% Shareholder (as defined therein),
of the outstanding shares of Voting Stock (as defined therein), to approve any
merger or other Business Combination (as defined therein), which term includes a
merger of the corporation, sale of assets having a Fair Market Value (as defined
therein) of $25 million or more of the corporation or any subsidiary, the
adoption of a plan of liquidation of the corporation, the issuance or transfer
of securities of the corporation to a 25% Shareholder or an Affiliate (as
defined therein) or Associate (as defined therein) thereof, the reclassification
of securities of the corporation and similar extraordinary corporate
transactions) between, or otherwise involving, Resources or the Company, as the
case may be, and any 25% Shareholder or Affiliate or Associate thereof, unless
(i) the transaction has been approved by a majority of the Continuing Directors
(as defined therein), or (ii) certain fair price, form of consideration and
procedural requirements are satisfied by the 25% Shareholder, in addition to the
satisfaction of certain conditions relating to directors, dividends, loans,
corporate structure and the acquisition by the 25% Shareholder of additional
shares. In addition to Business Combinations, the Resources Articles and the
Company Articles both require the affirmative vote of the holders of at least
75% of the outstanding shares of Voting Stock, excluding shares beneficially
owned by an Interested Securityholder (as defined therein), for either Resources
or the Company, as the case may be, to make any purchase or other acquisition of
any equity security (as defined in Rule 3a11-1 under the Exchange Act) from any
Interested Securityholder who has beneficially owned such securities for less
than two years prior to the date of such purchase or other acquisition, or any
agreement in respect thereof.
SPECIAL MEETING OF SHAREHOLDERS. The Resources Articles provide that its
shareholders may call a special meeting of shareholders by the written demand of
holders of 10% or more of all of the votes of the capital stock of Resources.
The Company Articles contain no such provision. However, the Iowa Act currently
grants to shareholders of the Company the right to call a special meeting of
shareholders by the written demand of holders of 10% or more of all of the votes
entitled to be cast on any issue proposed to be considered at the proposed
special meeting.
INDEMNIFICATION. The Resources Articles provide for the indemnification of
directors, officers or professional or supervisory employees in certain
circumstances while the Company Articles provide such indemnification to
directors, officers, employees and agents. The Resources Articles provide that
any such person seeking indemnity in connection with an action, suit or
proceeding initiated by such person must receive authorization of the Resources
Board prior to the commencement of the action for which indemnity is sought. The
Company Articles do not contain a similar requirement.
MIDWEST POWER
If the Merger is consummated, holders of preferred stock of Midwest Power,
an Iowa corporation, will become holders of Company Preferred Stock of the
Company, also an Iowa corporation, and their rights will continue to be governed
by the Iowa Act. The Company Articles will also govern the rights of holders of
Company Preferred Stock. The material differences between the rights of
shareholders of the Company and shareholders of Midwest Power are set forth
below. This summary is qualified in its entirety by reference to the full text
of such documents. See the Company Articles attached as Annex II. See also
"Available Information."
VOTING POWER. The Company Articles provide that in the event the Company is
in arrears with respect to the payment of dividends on Company Preferred Stock
for six or more quarterly periods, the holders of shares of Company Preferred
Stock will be entitled to elect two directors to the Company Board until such
time as all arrearages have been paid; the Articles of Incorporation of Midwest
Power (the "Midwest Power Articles") include the same provision. As a result,
following the Merger, in the event the Company is in arrears with respect to the
payment of dividends on Company Preferred
76
<PAGE>
Stock, current holders of Midwest Power Preferred Stock whose share will be
converted into Company Preferred Stock will not possess the same relative voting
power in the election of two directors as they possessed prior to the Merger
because such power will be shared with current holders of Iowa-Illinois
Preference Stock whose shares will also be converted into Company Preferred
Stock in the Merger.
CAPITALIZATION. The Company Articles will authorize the issuance of up to
350,000,000 shares of Company Common Stock and 100,000,000 shares of Company
Preferred Stock which may be issued without the approval of the holders of
Company Common Stock. The Midwest Power Articles authorize the issuance of up to
100,000,000 shares of Midwest Power Common Stock, no par value, and 10,000,000
shares of Midwest Power Preferred Stock which may be issued without the approval
of the holders of Midwest Power Common Stock. It is currently anticipated that
3,217,789 shares of Company Preferred Stock will be outstanding at the Effective
Time.
BOARD OF DIRECTORS. The Midwest Power Articles provide for the Midwest
Power Board to consist of not less than four nor more than ten directors, as
determined from time to time by its by-laws (the "Midwest Power By-Laws"). The
Company Articles provide for not less than ten nor more than 22 directors, as
determined from time to time in accordance with the Company By-Laws. The Company
Board after the Effective Time of the Merger will consist of 19 members, eleven
designated by Resources and eight designated by Iowa-Illinois. Neither the
Midwest Power Articles nor the Company Articles provide for a classified Board
of Directors.
CERTAIN BUSINESS COMBINATIONS. The Midwest Power Articles and the Company
Articles both require the affirmative vote of the holders of at least 75%,
excluding shares beneficially owned by a 25% Shareholder (as defined therein),
of the outstanding shares of Voting Stock (as defined therein), to approve any
merger or other Business Combination (as defined therein, which term includes a
merger of the corporation, sale of assets having a Fair Market Value (as defined
therein) of $25 million or more of the corporation or any subsidiary, the
adoption of a plan of liquidation of the corporation, the issuance or transfer
of securities of the corporation to a 25% Shareholder or an Affiliate (as
defined therein) or Associate (as defined therein) thereof, the reclassification
of securities of the corporation and similar extraordinary corporate
transactions) between, or otherwise involving, Midwest Power or the Company, as
the case may be, and any 25% Shareholder or Affiliate or Associate thereof,
unless (i) the transaction has been approved by a majority of the Continuing
Directors (as defined therein), or (ii) certain fair price, form of
consideration and procedural requirements are satisfied by the 25% Shareholder,
in addition to the satisfaction of certain conditions relating to directors,
dividends, loans, corporate structure and the acquisition by the 25% Shareholder
of additional shares. In addition to Business Combinations, the Midwest Power
Articles and the Company Articles both require the affirmative vote of the
holders of at least 75% of the outstanding shares of Voting Stock, excluding
shares beneficially owned by an Interested Securityholder (as defined therein),
for either Midwest Power or the Company, as the case may be, to make any
purchase or other acquisition of any equity security (as defined in Rule 3a 11-1
under the Exchange Act) from any Interested Securityholder who has beneficially
owned such securities for less than two years prior to the date of such purchase
or other acquisition, or any agreement in respect thereof.
SPECIAL MEETING OF SHAREHOLDERS. The Midwest Power Articles provide that
the shareholders may call a special meeting of shareholders by the written
demand of holders of 10% or more of all of the votes of the capital stock of
Midwest Power. The Company Articles contain no such provision. However, the Iowa
Act currently grants to shareholders of the Company the right to call a special
meeting of shareholders by the written demand of holders of 10% or more of all
of the votes entitled to be cast on any issue proposed to be considered at the
proposed special meeting.
INDEMNIFICATION. The Midwest Power Articles provide for the indemnification
of directors, officers or professional or supervisory employees in certain
circumstances while the Company Articles provide such indemnification to
directors, officers, employees and agents. The Midwest Power Articles provide
that any such person seeking indemnity in connection with an action, suit or
proceeding
77
<PAGE>
initiated by such person must receive authorization of the Midwest Power Board
prior to the commencement of the action for which indemnity is sought. The
Company Articles do not contain a similar requirement.
IOWA-ILLINOIS
If the Merger is consummated, holders of Iowa-Illinois Common Stock and
Iowa-Illinois Preference Stock, each of whose rights are governed by the
Iowa-Illinois Articles, the Iowa-Illinois by-laws and the Illinois Act, will
become holders of Company Common Stock and Company Preferred Stock,
respectively, and their rights will be governed by the Company Articles and
Company By-Laws and by the Iowa Act. The material differences between the rights
of shareholders of the Company and shareholders of Iowa-Illinois are set forth
below. This summary is qualified in its entirety by reference to the full text
of such documents. See the Company Articles attached as Annex II. See also
"Available Information."
VOTING POWER. If the Merger is approved, the holders of Iowa-Illinois
Common Stock will hold approximately 44% of the aggregate number of shares of
Company Common Stock outstanding at the Effective Time. Following the Merger,
Iowa-Illinois shareholders will therefore not possess the same relative voting
power on matters put to a vote of the shareholders of the Company as possessed
prior to the Merger.
VOTING RIGHTS. With respect to Illinois corporations incorporated prior to
December 31, 1981, the Illinois Act provides that each outstanding share,
regardless of class, will entitle its holder to one vote on each matter
submitted to a vote at a meeting of shareholders. As a result, the holders of
Iowa-Illinois Preference Stock are entitled to vote on all matters submitted to
a vote of Iowa-Illinois shareholders, including the right to vote cumulatively
in the election of directors, as described below.
The Iowa Act provides that a corporation's articles of incorporation may
provide for more or less than one vote per share. The Company Articles provide
that the holders of shares of Company Preferred Stock will have no voting
rights, except in the event the Company is in arrears with respect to the
payment of dividends on such shares, in which case the holders of Company
Preferred Stock will be entitled to elect two directors to the Company Board.
With respect to Illinois corporations incorporated prior to December 31,
1981, the Illinois Act requires, and the Articles of Incorporation of
Iowa-Illinois (the "Iowa-Illinois Articles") provide, that every shareholder
shall have the right to vote cumulatively in the election of directors. Under
the Iowa Act, shareholders are entitled to cumulate their voting power in the
election of directors only if such right is expressly granted in a corporation's
articles of incorporation. The Company Articles do not grant such right to its
shareholders, and as a result the holders of Company Common Stock will not be
entitled to cumulate their votes in the election of directors.
NOTICE OF SHAREHOLDERS' MEETINGS. Both the Illinois Act and the Iowa Act
require that notice of shareholders' meetings be provided only to each
shareholder of record entitled to vote at such meeting. Since the holder of each
outstanding share of Iowa-Illinois Preference Stock is entitled to one vote on
each matter submitted to a vote of Iowa-Illinois shareholders, the holders of
such shares receive notice of all Iowa-Illinois shareholders' meetings at which
matters are to be submitted to a vote of shareholders. The Company Articles
provide that (i) the holders of Company Preferred Stock will have no voting
rights, except in limited circumstances, as described in "Description of Capital
Stock -- Company Preferred Stock", and (ii) the holders of such shares are not
entitled to receive notice of any meeting at which they are not entitled to
vote. As a result, the holders of Company Preferred Stock will not be entitled
to notice of Company shareholders' meetings except in the limited instances, if
any, where they are entitled to vote.
CAPITALIZATION. The Company Articles authorize the issuance of up to
350,000,000 shares of Company Common Stock and 100,000,000 shares of Company
Preferred Stock which may be issued without the approval of the holders of
Company Common Stock. As a result, the Company will have one class of stock
which ranks prior to the holders of Company Common Stock with respect to the
78
<PAGE>
payment of dividends and upon the dissolution, liquidation or winding up of the
Company. The Iowa-Illinois Articles authorize the issuance of up to 80,000,000
shares of Iowa-Illinois Common Stock, 400,000 shares of Iowa-Illinois Preferred
Stock, and 2,386,250 shares of Iowa-Illinois Preference Stock, and thus provide
for two classes of stock which are senior to the Iowa-Illinois Common Stock;
shares of both of such classes are currently outstanding. Shares of
Iowa-Illinois Preferred Stock and Iowa-Illinois Preference Stock may be issued
without the approval of the holders of Iowa-Illinois Common Stock. It is
currently expected that 3,217,789 shares of Company Preferred Stock will be
outstanding at the Effective Time.
BOARD OF DIRECTORS. The Iowa-Illinois Board consists of 10 directors, as
determined from time to time by its by-laws (the "Iowa-Illinois By-Laws"). The
Company Articles provide for not less than 10 nor more than 22 directors. The
Company Board after the Effective Time will consist of 19 members, eleven
designated by Resources and eight designated by Iowa-Illinois. Neither the
Iowa-Illinois Articles nor the Company Articles provide for a classified Board
of Directors.
REMOVAL OF DIRECTORS. The Illinois Act provides for the removal of
directors, with or without cause, by the affirmative vote of the holders of a
majority of the outstanding shares then entitled to vote in the election of
directors, except that in the case of a corporation having cumulative voting, no
director may be removed if the votes cast against removal would be sufficient to
elect such director if then cumulatively voted at an election of the entire
Board of Directors. Iowa-Illinois shareholders are entitled to vote cumulatively
in the election of directors, and as a result, no director may be removed if the
votes cast against removal would be sufficient to elect such director.
The Iowa Act provides for the removal of directors by the shareholders of a
corporation, with or without cause, only if the number of votes cast to remove
the director exceeds the number of votes cast not to remove the director, except
that in the case of a corporation having cumulative voting, a director will not
be removed if the number of votes sufficient to elect that director under
cumulative voting is voted against removal of the director. The Company Articles
do not provide for cumulative voting and, as a result the vote required for
removal of a director will be a simple majority under the Iowa Act.
MERGERS AND SHARE EXCHANGE. The Illinois Act requires the affirmative vote
of the holders of at least two-thirds of the outstanding shares entitled to vote
in order to approve a plan of merger, consolidation or share exchange. The Iowa
Act provides that unless a corporation's articles of incorporation require a
greater vote, the affirmative vote of a majority of all votes entitled to be
cast is required to approve a plan of merger or share exchange. The Company
Articles do not require a greater vote, and as a result, a majority vote is
sufficient for the Company's shareholders to approve a merger or share exchange,
whereas a two-thirds vote is required for Iowa-Illinois shareholders to approve
such matters.
CERTAIN BUSINESS COMBINATIONS. The Illinois Act requires (i) the
affirmative vote of the holders of at least 80% of the combined voting power of
the then outstanding Voting Shares (as defined therein) voting together as a
single class, and (ii) the affirmative vote of a majority of the combined voting
power of the then outstanding Voting Shares held by Disinterested Shareholders
(as defined therein), voting together as a single class to approve any merger or
other Business Combination (as defined therein, which term includes a merger of
the corporation, sale of all or substantially all the assets of the corporation,
the adoption of a plan of liquidation of the corporation, the issuance or
transfer of securities of the corporation to a 10% Shareholder or an Affiliate
(as defined therein) or Associate (as defined therein) thereof, the
reclassification of securities of the corporation and similar extraordinary
corporate transactions) between, or otherwise involving, the Company and any 10%
Shareholder or Affiliate or Associate thereof, unless (a) the transaction has
been approved by a majority of the Disinterested Directors (as defined therein),
or (b) certain fair price, form of consideration and procedural requirements are
satisfied by the 10% Shareholder, in addition to the satisfaction of certain
conditions relating to directors, dividends, loans, corporate structure and the
acquisition by the 10% Shareholder of additional shares.
79
<PAGE>
While the Iowa Act contains no such provision, the Company Articles require
the affirmative vote of the holders of at least 75%, excluding shares
beneficially owned by a 25% Shareholder (as defined therein), of the outstanding
shares of Voting Stock (as defined therein), to approve any merger or other
Business Combination (as defined therein, which term includes a merger of the
corporation, sale of assets having a Fair Market Value (as defined therein) of
$25 million or more of the corporation or any subsidiary, the adoption of a plan
of liquidation of the corporation, the issuance or transfer of securities of the
corporation to a 25% Shareholder or an Affiliate (as defined therein) thereof,
the reclassification of securities of the corporation and similar extraordinary
corporate transactions) between, or otherwise involving, the Company and any 25%
Shareholder or Affiliate thereof, unless (i) the transaction has been approved
by a majority of the Continuing Directors (as defined therein), or (ii) certain
fair price, form of consideration and procedural requirements are satisfied by
the 25% Shareholder, in addition to the satisfaction of certain conditions
relating to directors, dividends, loans, corporate structure and the acquisition
by the 25% Shareholder of additional shares. In addition to Business
Combinations, the Company Articles require the affirmative vote of the holders
of at least 75% of the outstanding shares of Voting Stock, excluding shares
beneficially owned by an Interested Securityholder (as defined therein), for the
Company to make any purchase or other acquisition of any equity security (as
defined in Rule 3a 11-1 under the Exchange Act) from any Interested
Securityholder who has beneficially owned such securities for less than two
years prior to the date of such purchase or other acquisition, or any agreement
in respect thereof.
SPECIAL MEETING OF SHAREHOLDERS. The Iowa-Illinois by-laws currently grant
to shareholders of Iowa-Illinois the right to call a special meeting of
shareholders by the request of not less than one-fifth of all outstanding shares
entitled to vote on the matter for which the meeting is called. The Iowa Act
currently grants to shareholders of the Company the right to call a special
meeting of shareholders by the written demand of holders of 10% or more of all
of the votes entitled to be cast on any issue proposed to be considered at the
proposed special meeting.
INDEMNIFICATION. The Iowa-Illinois Articles and the Company Articles both
provide for the indemnification of directors, officers or employees in certain
circumstances. The Company Articles also provide for indemnification of agents
in certain circumstances.
AMENDMENT TO ARTICLES OF INCORPORATION. The Illinois Act requires the
affirmative vote of the holders of at least two-thirds of the outstanding shares
entitled to vote in order to amend the Iowa-Illinois Articles. The Iowa Act
requires the affirmative vote of the holders of a majority of the outstanding
shares entitled to vote in order to amend the Company Articles.
COMMON SHARE PURCHASE RIGHTS. Iowa-Illinois is party to a Rights Agreement,
dated as of February 25, 1992 (the "Rights Agreement"), with First Chicago Trust
Company of New York pursuant to which Iowa-Illinois Common Stock currently
trades with common stock purchase rights (the "Rights"). The Rights, which
cannot be traded separately from Iowa-Illinois Common Stock, become exercisable
upon the occurrence of certain triggering events, including acquisition by a
person or group of beneficial ownership of 15% or more of the Iowa-Illinois
Common Stock. The Rights could have the effect of delaying, deferring or
preventing a takeover or change of control of Iowa-Illinois that has not been
approved by the Iowa-Illinois Board. At the Effective Time the Company will not
be a party to any rights agreement.
PRO FORMA COMBINED FINANCIAL INFORMATION (UNAUDITED)
The following unaudited pro forma financial information combines the
historical consolidated balance sheets and statements of income of
Iowa-Illinois, Resources and Midwest Power after giving effect to the Merger.
Midwest Power balance sheets and statements of income are fully consolidated
with Resources and thus are not shown separately. The unaudited pro forma
consolidated balance sheets at June 30, 1994 and December 31, 1993, set forth
below, give effect to the Merger under the pooling of interests accounting
method as if the Merger had occurred at June 30, 1994 and December 31, 1993,
respectively. The unaudited pro forma combined statements of income for each of
the three
80
<PAGE>
years ended December 31, 1993, and the six-months ended June 30, 1994, give
effect to the Merger under the pooling of interests accounting method as if it
had occurred at January 1, 1991. These statements are prepared on the basis of
accounting for the Merger as a pooling of interests and are based on the
assumptions set forth in the notes thereto.
The following pro forma financial information has been prepared from, and
should be read in conjunction with, the historical consolidated financial
statements and related notes thereto of Iowa-Illinois, Resources and Midwest
Power, that are contained in their respective Annual Reports on Form 10-K which
are incorporated by reference herein. The following information is not
necessarily indicative of the financial position or operating results that would
have occurred had the Merger been consummated on the date, or at the beginning
of the periods, for which the Merger is being given effect, nor is it
necessarily indicative of future operating results or financial position.
81
<PAGE>
MIDAMERICAN ENERGY COMPANY
UNAUDITED PRO FORMA COMBINED BALANCE SHEETS
JUNE 30, 1994
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
RESOURCES IOWA-ILLINOIS PRO FORMA PRO FORMA
(AS REPORTED) (AS REPORTED) TOTAL ADJUSTMENTS COMBINED
------------- -------------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Utility Plant
Electric.................................................. $ 2,267,229 $ 1,469,457 $3,736,686 $ 3,736,686
Gas....................................................... 371,602 269,885 641,487 641,487
------------- -------------- ---------- ----------- -----------
Gross plant............................................. 2,638,831 1,739,342 4,378,173 -- 4,378,173
Less accumulated depreciation and amortization............ 1,076,446 774,247 1,850,693 1,850,693
------------- -------------- ---------- ----------- -----------
Utility plant, net........................................ 1,562,385 965,095 2,527,480 -- 2,527,480
------------- -------------- ---------- ----------- -----------
Construction work in progress............................. 48,358 35,827 84,185 84,185
------------- -------------- ---------- ----------- -----------
Total................................................... 1,610,743 1,000,922 2,611,665 -- 2,611,665
------------- -------------- ---------- ----------- -----------
Power Purchase Contract..................................... 244,749 -- 244,749 -- 244,749
------------- -------------- ---------- ----------- -----------
Investment in Discontinued Operations....................... -- -- -- 21,974 21,974
------------- -------------- ---------- ----------- -----------
Current Assets
Cash and cash equivalents................................. 25,958 13,268 39,226 (12,559) 26,667
Receivables, less reserves................................ 125,177 52,773 177,950 (13,731) 164,219
Inventories............................................... 53,156 30,978 84,134 (22) 84,112
Other..................................................... 9,012 15,377 24,389 (125) 24,264
------------- -------------- ---------- ----------- -----------
Total................................................... 213,303 112,396 325,699 (26,437) 299,262
------------- -------------- ---------- ----------- -----------
Investments................................................. 201,982 586,080 788,062 (3,466) 784,596
------------- -------------- ---------- ----------- -----------
Other Assets
Regulatory Assets......................................... 237,375 95,697 333,072 -- 333,072
Other..................................................... 41,161 10,624 51,785 (6,297) 45,488
------------- -------------- ---------- ----------- -----------
Total................................................... 278,536 106,321 384,857 (6,297) 378,560
------------- -------------- ---------- ----------- -----------
Total Assets.......................................... $ 2,549,313 $ 1,805,719 $4,355,032 $ (14,226) $ 4,340,806
------------- -------------- ---------- ----------- -----------
------------- -------------- ---------- ----------- -----------
CAPITALIZATION AND LIABILITIES
Capitalization
Common shareholders' equity............................... $ 695,495 $ 504,099 $1,199,594 $ 1,199,594
Non-redeemable preferred stock............................ 89,981 19,829 109,810 109,810
Redeemable preference stock............................... -- 50,000 50,000 50,000
Long-term debt............................................ 740,527 633,318 1,373,845 1,373,845
------------- -------------- ---------- ----------- -----------
Total................................................... 1,526,003 1,207,246 2,733,249 -- 2,733,249
------------- -------------- ---------- ----------- -----------
Current Liabilities
Notes payable............................................. 85,172 31,500 116,672 -- 116,672
Debt and purchased power contract due within one year..... 19,418 59,145 78,563 -- 78,563
Accounts payable.......................................... 62,821 31,955 94,776 (13,217) 81,559
Taxes accrued............................................. 96,778 24,227 121,005 1,875 122,880
Interest accrued.......................................... 19,375 11,490 30,865 -- 30,865
Other..................................................... 26,309 23,669 49,978 (1,701) 48,277
------------- -------------- ---------- ----------- -----------
Total................................................... 309,873 181,986 491,859 (13,043) 478,816
------------- -------------- ---------- ----------- -----------
Other Liabilities
Power purchase contract................................... 140,655 -- 140,655 -- 140,655
Deferred income taxes..................................... 395,472 278,611 674,083 (606) 673,477
Investment tax credit..................................... 63,839 40,275 104,114 -- 104,114
Other..................................................... 113,471 97,601 211,072 (577) 210,495
------------- -------------- ---------- ----------- -----------
Total................................................... 713,437 416,487 1,129,924 (1,183) 1,128,741
------------- -------------- ---------- ----------- -----------
Total Capitalization and Liabilities.................. $ 2,549,313 $ 1,805,719 $4,355,032 (14,226) $ 4,340,806
------------- -------------- ---------- ----------- -----------
------------- -------------- ---------- ----------- -----------
</TABLE>
82
<PAGE>
MIDAMERICAN ENERGY COMPANY
UNAUDITED PRO FORMA COMBINED BALANCE SHEETS
DECEMBER 31, 1993
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
RESOURCES IOWA-ILLINOIS PRO FORMA PRO FORMA
(AS REPORTED) (AS REPORTED) TOTAL ADJUSTMENTS COMBINED
------------- ------------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Utility Plant
Electric.................................................. $ 2,204,107 $ 1,447,905 $3,652,012 $ 3,652,012
Gas....................................................... 368,830 271,342 640,172 640,172
------------- ------------- ---------- ----------- -----------
Gross plant............................................. 2,572,937 1,719,247 4,292,184 -- 4,292,184
Less accumulated depreciation and amortization............ 1,051,676 749,992 1,801,668 1,801,668
------------- ------------- ---------- ----------- -----------
Utility plant, net........................................ 1,521,261 969,255 2,490,516 -- 2,490,516
------------- ------------- ---------- ----------- -----------
Construction work in progress............................. 87,736 23,990 111,726 111,726
------------- ------------- ---------- ----------- -----------
Total................................................... 1,608,997 993,245 2,602,242 -- 2,602,242
------------- ------------- ---------- ----------- -----------
Power Purchase Contract..................................... 248,643 -- 248,643 -- 248,643
------------- ------------- ---------- ----------- -----------
Investment in Discontinued Operations....................... -- -- -- 22,206 22,206
------------- ------------- ---------- ----------- -----------
Current Assets
Cash and cash equivalents................................. 14,448 17,844 32,292 (8,003) 24,289
Receivables, less reserves................................ 170,369 65,571 235,940 (21,170) 214,770
Inventories............................................... 65,100 35,597 100,697 (22) 100,675
Other..................................................... 13,603 24,040 37,643 (1,448) 36,195
------------- ------------- ---------- ----------- -----------
Total................................................... 263,520 143,052 406,572 (30,643) 375,929
------------- ------------- ---------- ----------- -----------
Investments................................................. 209,809 554,135 763,944 (3,636) 760,308
------------- ------------- ---------- ----------- -----------
Other Assets
Regulatory Assets......................................... 232,644 92,828 325,472 -- 325,472
Other..................................................... 43,606 10,303 53,909 (6,955) 46,954
------------- ------------- ---------- ----------- -----------
Total................................................... 276,250 103,131 379,381 (6,955) 372,426
------------- ------------- ---------- ----------- -----------
Total Assets........................................ $ 2,607,219 $ 1,793,563 $4,400,782 $ (19,028) $ 4,381,754
------------- ------------- ---------- ----------- -----------
------------- ------------- ---------- ----------- -----------
CAPITALIZATION AND LIABILITIES
Capitalization
Common shareholder's equity............................... $ 681,098 $ 499,412 $1,180,510 $ 1,180,510
Non-redeemable preferred stock............................ 90,042 19,829 109,871 109,871
Redeemable preference stock............................... -- 50,000 50,000 50,000
Long-term debt............................................ 726,603 614,400 1,341,003 1,341,003
------------- ------------- ---------- ----------- -----------
Total................................................... 1,497,743 1,183,641 2,681,384 -- 2,681,384
------------- ------------- ---------- ----------- -----------
Current Liabilities
Notes payable............................................. 142,035 31,000 173,035 -- 173,035
Debt and purchased power contract due within one year..... 17,969 59,232 77,201 -- 77,201
Accounts payable.......................................... 98,844 44,847 143,691 (14,187) 129,504
Taxes accrued............................................. 86,077 24,913 110,990 (67) 110,923
Interest accrued.......................................... 19,608 11,413 31,021 -- 31,021
Other..................................................... 26,411 30,067 56,478 (3,784) 52,694
------------- ------------- ---------- ----------- -----------
Total................................................... 390,944 201,472 592,416 (18,038) 574,378
------------- ------------- ---------- ----------- -----------
Other Liabilities
Power purchase contract................................... 140,655 -- 140,655 -- 140,655
Deferred income taxes..................................... 396,094 274,605 670,699 (411) 670,288
Investment tax credit..................................... 65,374 41,355 106,729 -- 106,729
Other..................................................... 116,409 92,490 208,899 (579) 208,320
------------- ------------- ---------- ----------- -----------
Total................................................... 718,532 408,450 1,126,982 (990) 1,125,992
------------- ------------- ---------- ----------- -----------
Total Capitalization and Liabilities................ $ 2,607,219 $ 1,793,563 $4,400,782 $ (19,028) $ 4,381,754
------------- ------------- ---------- ----------- -----------
------------- ------------- ---------- ----------- -----------
</TABLE>
83
<PAGE>
MIDAMERICAN ENERGY COMPANY
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
RESOURCES IOWA-ILLINOIS PRO FORMA PRO FORMA
(RECLASSIFIED) (AS REPORTED) TOTAL ADJUSTMENTS COMBINED
-------------- ------------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Operating Revenues
Electric................................................... $ 322,898 $ 173,716 $496,614 $ 496,614
Gas........................................................ 176,903 125,580 302,483 302,483
-------------- ------------- -------- ----------- -----------
Total.................................................. 499,801 299,296 799,097 -- 799,097
-------------- ------------- -------- ----------- -----------
Operating Expenses and Taxes
Cost of fuel, energy and capacity.......................... 64,782 35,843 100,625 100,625
Cooper Nuclear Station power purchased..................... 50,071 -- 50,071 50,071
Cost of gas sold........................................... 119,550 88,833 208,383 208,383
Other operating expenses................................... 76,308 54,069 130,377 130,377
Maintenance................................................ 26,127 22,282 48,409 48,409
Depreciation and amortization.............................. 45,938 30,800 76,738 76,738
Income taxes............................................... 24,285 13,041 37,326 37,326
Property and other taxes................................... 27,701 18,032 45,733 45,733
-------------- ------------- -------- ----------- -----------
Total.................................................. 434,762 262,900 697,662 -- 697,662
-------------- ------------- -------- ----------- -----------
Utility Operating Income..................................... 65,039 36,396 101,435 -- 101,435
-------------- ------------- -------- ----------- -----------
Other Income
Non-regulated operations
Revenues................................................. 93,522 49,136 142,658 (28,231) 114,427
Expenses................................................. (95,408) (42,373) (137,781) 30,262 (107,519)
-------------- ------------- -------- ----------- -----------
Net.................................................... (1,886) 6,763 4,877 2,031 6,908
Allowance for equity funds................................. -- 31 31 -- 31
Miscellaneous.............................................. 1,663 (147) 1,516 (669) 847
-------------- ------------- -------- ----------- -----------
Total.................................................. (223) 6,647 6,424 1,362 7,786
-------------- ------------- -------- ----------- -----------
Income Before Utility Interest Charges....................... 64,816 43,043 107,859 1,362 109,221
-------------- ------------- -------- ----------- -----------
Utility Interest Charges
Interest on long-term debt................................. 24,576 11,785 36,361 36,361
Other interest expense..................................... 1,757 537 2,294 2,294
Allowance for borrowed funds............................... (1,069) (580) (1,649) (1,649)
-------------- ------------- -------- ----------- -----------
Total.................................................. 25,264 11,742 37,006 -- 37,006
-------------- ------------- -------- ----------- -----------
Net Income................................................... 39,552 31,301 70,853 1,362 72,215
Preferred & Preference Dividends............................. 2,740 2,406 5,146 -- 5,146
-------------- ------------- -------- ----------- -----------
Earnings on Common Stock..................................... $ 36,812 $ 28,895 $ 65,707 $ 1,362 $ 67,069
-------------- ------------- -------- ----------- -----------
-------------- ------------- -------- ----------- -----------
Average Common Shares Outstanding............................ 54,854 29,372 98,030 -- 98,030
-------------- ------------- -------- ----------- -----------
-------------- ------------- -------- ----------- -----------
Earnings Per Common Share.................................... $ 0.67 $ 0.98 $ 0.67 -- $ 0.68
-------------- ------------- -------- ----------- -----------
-------------- ------------- -------- ----------- -----------
</TABLE>
84
<PAGE>
MIDAMERICAN ENERGY COMPANY
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
RESOURCES IOWA-ILLINOIS PRO FORMA PRO FORMA
(RECLASSIFIED) (AS REPORTED) TOTAL ADJUSTMENTS COMBINED
-------------- ------------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Operating Revenues
Electric................................................. $ 664,377 $ 338,593 $1,002,970 $ 1,002,970
Gas...................................................... 332,168 206,821 538,989 538,989
-------------- ------------- ---------- ----------- -----------
Total.................................................. 996,545 545,414 1,541,959 -- 1,541,959
-------------- ------------- ---------- ----------- -----------
Operating Expenses and Taxes
Cost of fuel, energy and capacity........................ 143,406 64,619 208,025 208,025
Cooper Nuclear Station power purchased................... 85,987 -- 85,987 85,987
Cost of gas sold......................................... 224,337 141,712 366,049 366,049
Other operating expenses................................. 159,812 104,281 264,093 264,093
Maintenance.............................................. 57,077 44,524 101,601 101,601
Depreciation and amortization............................ 89,805 61,017 150,822 150,822
Income taxes............................................. 43,887 24,477 68,364 68,364
Property and other taxes................................. 59,837 33,401 93,238 93,238
-------------- ------------- ---------- ----------- -----------
Total.................................................. 864,148 474,031 1,338,179 -- 1,338,179
-------------- ------------- ---------- ----------- -----------
Utility Operating Income................................... 132,397 71,383 203,780 -- 203,780
-------------- ------------- ---------- ----------- -----------
Other Income
Non-regulated operations
Revenues............................................... 176,552 84,084 260,636 (94,350) 166,286
Expenses............................................... (180,479) (71,583) (252,062) 98,676 (153,386)
-------------- ------------- ---------- ----------- -----------
Net.................................................. (3,927) 12,501 8,574 4,326 12,900
Miscellaneous............................................ 14,239 461 14,700 (472) 14,228
-------------- ------------- ---------- ----------- -----------
Total.................................................. 10,312 12,962 23,274 3,854 27,128
-------------- ------------- ---------- ----------- -----------
Income Before Utility Interest Charges..................... 142,709 84,345 227,054 3,854 230,908
-------------- ------------- ---------- ----------- -----------
Utility Interest Charges
Interest on long-term debt............................... 56,171 24,471 80,642 80,642
Other interest expense................................... 3,122 1,625 4,747 4,747
Allowance for borrowed funds............................. (1,207) (979) (2,186) (2,186)
-------------- ------------- ---------- ----------- -----------
Total.................................................. 58,086 25,117 83,203 -- 83,203
-------------- ------------- ---------- ----------- -----------
Net Income................................................. 84,623 59,228 143,851 3,854 147,705
Preferred and Preference Dividends......................... 3,372 4,995 8,367 -- 8,367
-------------- ------------- ---------- ----------- -----------
Earnings on Common Stock................................... $ 81,251 $ 54,233 $ 135,484 $ 3,854 $ 139,338
-------------- ------------- ---------- ----------- -----------
-------------- ------------- ---------- ----------- -----------
Average Common Shares Outstanding.......................... 54,635 29,338 97,762 -- 97,762
-------------- ------------- ---------- ----------- -----------
-------------- ------------- ---------- ----------- -----------
Earnings Per Common Share.................................. $ 1.49 $ 1.85 $ 1.39 -- $ 1.43
-------------- ------------- ---------- ----------- -----------
-------------- ------------- ---------- ----------- -----------
</TABLE>
85
<PAGE>
MIDAMERICAN ENERGY COMPANY
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1992
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
RESOURCES IOWA-ILLINOIS PRO FORMA PRO FORMA
(RECLASSIFIED) (AS REPORTED) TOTAL ADJUSTMENTS COMBINED
-------------- ------------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Operating Revenues
Electric................................................. $ 623,360 $ 312,667 $ 936,027 $ 936,027
Gas...................................................... 299,820 184,867 484,687 484,687
-------------- ------------- ---------- ----------- -----------
Total.................................................. 923,180 497,534 1,420,714 -- 1,420,714
-------------- ------------- ---------- ----------- -----------
Operating Expenses and Taxes
Cost of fuel, energy and capacity........................ 137,902 58,266 196,168 196,168
Cooper Nuclear Station power purchased................... 86,455 -- 86,455 86,455
Cost of gas sold......................................... 200,780 125,317 326,097 326,097
Other operating expenses................................. 156,901 102,311 259,212 259,212
Maintenance.............................................. 54,233 39,536 93,769 93,769
Depreciation and amortization............................ 86,190 58,456 144,646 144,646
Income taxes............................................. 24,096 16,320 40,416 40,416
Property and other taxes................................. 63,652 33,827 97,479 97,479
-------------- ------------- ---------- ----------- -----------
Total.................................................. 810,209 434,033 1,244,242 -- 1,244,242
-------------- ------------- ---------- ----------- -----------
Utility Operating Income................................... 112,971 63,501 176,472 -- 176,472
-------------- ------------- ---------- ----------- -----------
Other Income
Non-regulated operations
Revenues............................................... 114,842 55,828 170,670 (77,102) 93,568
Expenses............................................... (120,050) (46,351) (166,401) 76,871 (89,530)
-------------- ------------- ---------- ----------- -----------
Net.................................................. (5,208) 9,477 4,269 (231) 4,038
Allowance for equity funds............................... 1,213 -- 1,213 -- 1,213
Miscellaneous............................................ (2,918) (984) (3,902) (563) (4,465)
-------------- ------------- ---------- ----------- -----------
Total.................................................. (6,913) 8,493 1,580 (794) 786
-------------- ------------- ---------- ----------- -----------
Income Before Utility Interest Charges..................... 106,058 71,994 178,052 (794) 177,258
-------------- ------------- ---------- ----------- -----------
Utility Interest Charges
Interest on long-term debt............................... 61,440 25,793 87,233 87,233
Other interest expense................................... 2,230 1,872 4,102 4,102
Allowance for borrowed
funds................................................... (1,058) (1,104) (2,162) (2,162)
-------------- ------------- ---------- ----------- -----------
Total.................................................. 62,612 26,561 89,173 -- 89,173
-------------- ------------- ---------- ----------- -----------
Net Income................................................. 43,446 45,433 88,879 (794) 88,085
Preferred and Preference Dividends......................... 3,706 5,029 8,735 -- 8,735
-------------- ------------- ---------- ----------- -----------
Earnings on Common Stock................................... $ 39,740 $ 40,404 $ 80,144 (794) $ 79,350
-------------- ------------- ---------- ----------- -----------
-------------- ------------- ---------- ----------- -----------
Average Common Shares Outstanding.......................... 54,351 27,944 95,430 -- 95,430
-------------- ------------- ---------- ----------- -----------
-------------- ------------- ---------- ----------- -----------
Earnings Per Common Share.................................. $ 0.73 $ 1.45 $ 0.84 -- $ 0.83
-------------- ------------- ---------- ----------- -----------
-------------- ------------- ---------- ----------- -----------
</TABLE>
86
<PAGE>
MIDAMERICAN ENERGY COMPANY
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1991
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
RESOURCES IOWA-ILLINOIS PRO FORMA PRO FORMA
(RECLASSIFIED) (AS REPORTED) TOTAL ADJUSTMENTS COMBINED
-------------- ------------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Operating Revenues
Electric............................................... $ 637,222 $ 331,577 $ 968,799 $ 968,799
Gas.................................................... 292,291 180,960 473,251 473,251
-------------- ------------- ---------- ----------- -----------
Total................................................ 929,513 512,537 1,442,050 -- 1,442,050
-------------- ------------- ---------- ----------- -----------
Operating Expenses and Taxes
Cost of fuel, energy and capacity...................... 133,866 65,437 199,303 199,303
Cooper Nuclear Station power purchased................. 72,659 -- 72,659 72,659
Cost of gas sold....................................... 196,979 126,134 323,113 323,113
Other operating expenses............................... 151,603 95,590 247,193 247,193
Maintenance............................................ 52,140 39,408 91,548 91,548
Depreciation and amortization.......................... 82,475 52,587 135,062 135,062
Income taxes........................................... 40,083 25,360 65,443 65,443
Property and other taxes............................... 62,161 32,711 94,872 94,872
-------------- ------------- ---------- ----------- -----------
Total................................................ 791,966 437,227 1,229,193 -- 1,229,193
-------------- ------------- ---------- ----------- -----------
Utility Operating Income................................. 137,547 75,310 212,857 -- 212,857
-------------- ------------- ---------- ----------- -----------
Other Income
Non-regulated operations
Revenues............................................. 99,546 33,090 132,636 (65,967) 66,669
Expenses............................................. (108,684) (25,697) (134,381) 66,237 (68,144)
-------------- ------------- ---------- ----------- -----------
Net................................................ (9,138) 7,393 (1,745) 270 (1,475)
Allowance for equity funds............................. 124 -- 124 -- 124
Miscellaneous.......................................... 5,867 (648) 5,219 (473) 4,746
-------------- ------------- ---------- ----------- -----------
Total................................................ (3,147) 6,745 3,598 (203) 3,395
-------------- ------------- ---------- ----------- -----------
Income Before Utility Interest Charges................... 134,400 82,055 216,455 (203) 216,252
-------------- ------------- ---------- ----------- -----------
Utility Interest Charges
Interest on long-term debt............................. 55,492 27,096 82,588 82,588
Other interest expensed................................ 8,002 2,040 10,042 10,042
Allowance for borrowed funds........................... (2,899) (1,448) (4,347) (4,347)
-------------- ------------- ---------- ----------- -----------
Total................................................ 60,595 27,688 88,283 -- 88,283
-------------- ------------- ---------- ----------- -----------
Net Income............................................... 73,805 54,367 128,172 (203) 127,969
Preferred & Preference Dividends......................... 5,361 4,347 9,708 -- 9,708
-------------- ------------- ---------- ----------- -----------
Earnings on Common Stock................................. $ 68,444 $ 50,020 $ 118,464 $ (203) $ 118,261
-------------- ------------- ---------- ----------- -----------
-------------- ------------- ---------- ----------- -----------
Average Common Shares Outstanding........................ 50,393 26,838 89,844 -- 89,844
-------------- ------------- ---------- ----------- -----------
-------------- ------------- ---------- ----------- -----------
Earnings Per Common Share................................ $ 1.36 $ 1.86 $ 1.32 -- $ 1.32
-------------- ------------- ---------- ----------- -----------
-------------- ------------- ---------- ----------- -----------
</TABLE>
87
<PAGE>
MIDAMERICAN ENERGY COMPANY
NOTES TO PRO FORMA COMBINED BALANCE SHEET AND STATEMENTS OF INCOME
A. General
The preceding unaudited pro forma combined balance sheets and statements of
income show the effect of the Merger of Iowa-Illinois, Resources and Midwest
Power into the Company. The preceding financial statements are prepared on the
pooling of interests basis of accounting.
Iowa-Illinois and Resources signed a definitive agreement on July 26, 1994,
as amended and restated as of September 27, 1994, to merge with and into the
Company. Iowa-Illinois is an Illinois corporation engaged in the business of
generating, transmitting, distributing and selling electric energy and
distributing, selling and transporting natural gas in the states of Illinois and
Iowa. Through a wholly owned subsidiary, InterCoast Energy Company,
Iowa-Illinois engages in non-regulated energy-related businesses. Iowa-Illinois
is headquartered in Davenport, Iowa.
Resources is an Iowa corporation headquartered in Des Moines, Iowa.
Resources, through its utility subsidiary, Midwest Power, is engaged in the
business of generating, transmitting, distributing and selling electric energy
in the states of Iowa and South Dakota and distributing, selling and
transporting natural gas in the states of Iowa, South Dakota and Nebraska.
Resources is engaged in non-regulated activities including construction of
electric generating facilities and electric lines, telecommunications,
nonregulated electric and natural gas activities, railcar leasing and
management, real estate development and leveraged leases.
The Merger Agreement establishes Conversion Ratios of 1.47 shares of Company
Common Stock for each share of Iowa-Illinois Common Stock and 1.0 share of
Company Common Stock for each 1.0 share of Resources Common Stock. The Merger
Agreement is subject to approval by the shareholders of each corporation and
certain regulatory agencies.
B. Average Shares Outstanding
Pro forma per common share amounts give effect to the conversion of each
share of Resources Common Stock outstanding into one share of Company Common
Stock and each share of Iowa-Illinois Common Stock outstanding into 1.47 shares
of Company Common Stock. Pro forma dividends declared per common share reflect
the historical dividends declared by Resources and Iowa-Illinois, divided by the
pro forma average number of shares of Company Common Stock outstanding. The
Company anticipates paying annual dividends of $1.20 per share subsequent to the
Merger.
C. Estimated transaction costs directly associated with the merger of
Iowa-Illinois and Resources into the Company, including printing, engraving,
filing fees and fees of financial advisors, accountants and attorneys:
Estimated transaction costs directly associated with the Merger of
Iowa-Illinois, Resources and Midwest Power with and into the Company are
approximately $10 million and will be treated as expenses as incurred. These
non-recurring costs of the Merger are not shown in the unaudited pro forma
combined financial statements.
D. Midwest Power is a subsidiary of Resources. The Resources consolidated
financial statements include Midwest Power balance sheets and statements of
income.
E. Iowa-Illinois will purchase or redeem its outstanding Preferred Stock. In
addition, Midwest Capital Group will repay certain of its obligations which are
guaranteed by Resources. These transactions are expected to be funded through
the issuance of commercial paper, and are not reflected in the pro forma
financial statements because they would not have a material effect on the Ratio
of Earnings to Fixed Charges and Preferred and Preference Dividend Requirements.
F. Pro Forma Adjustments
In an effort to more closely focus its nonregulated activities on businesses
that relate to its core utility business, Resources intends to dispose of its
investments in subsidiaries which construct electric generating facilities and
electric lines as soon as practicable in a manner that will minimize
88
<PAGE>
the effect on its earnings. The pro forma adjustments reflect the entries
necessary to report the results of the discontinued operations for the periods
presented as a separate component of income. In addition, Resources anticipates
recording an estimated loss of $3.8 million (net of taxes of $7.9 million)
during the third quarter of 1994, which includes provisions for the estimated
future losses from operations prior to final disposition and the estimated loss
on disposal. The loss provisions are not included in the pro forma adjustments
or the estimated transaction costs discussed in Note C above.
G. Resources Reclassifying Financial Information (Unaudited)
The following Resources schedules reflect the reclassifying entries
necessary to adjust Resources consolidated statement of income presentation to
be consistent with the presentation expected to be used by the Company. The
reclassifying entries further reflect previously discontinued oil and gas
operations as continuing operations. Non-operating realized and unrealized gains
and losses and revaluations of assets are reflected in "Miscellaneous" for
regulated and non-regulated operations.
89
<PAGE>
MIDWEST RESOURCES INC.
RECLASSIFYING STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
RESOURCES RESOURCES RESOURCES
(AS REPORTED) RECLASSES RECLASSIFIED
-------------- --------- -------------
<S> <C> <C> <C>
Operating Revenues
Electric........................... $ 322,853 $ 45 $ 322,898
Gas................................ 176,769 134 176,903
Other.............................. 90,936 (90,936) --
-------------- --------- -------------
Total............................ 590,558 (90,757) 499,801
-------------- --------- -------------
Operating Expenses and Taxes
Cost of fuel, energy and
capacity.......................... 62,631 2,151 64,782
Cooper Nuclear Station power
purchased......................... 50,071 -- 50,071
Cost of gas sold................... 119,378 172 119,550
Other operating expenses........... 166,613 (90,305) 76,308
Maintenance........................ 26,686 (559) 26,127
Depreciation and amortization...... 49,583 (3,645) 45,938
Income taxes....................... -- 24,285 24,285
Property and other taxes........... 29,146 (1,445) 27,701
-------------- --------- -------------
Total............................ 504,108 (69,346) 434,762
-------------- --------- -------------
Utility Operating Income............. 86,450 (21,411) 65,039
-------------- --------- -------------
Other Income
Non-regulated operations
Revenues......................... -- 93,522 93,522
Expenses......................... -- (95,408) (95,408)
-------------- --------- -------------
Net............................ -- (1,886) (1,886)
Allowance for equity funds......... -- -- --
Miscellaneous...................... 5,978 (4,315) 1,663
-------------- --------- -------------
Total............................ 5,978 (6,201) (223)
-------------- --------- -------------
Income Before Utility Interest
Charges............................. 92,428 (27,612) 64,816
-------------- --------- -------------
Utility Interest Charges
Interest on long-term debt......... 27,412 (2,836) 24,576
Other interest expense............. 1,842 (85) 1,757
Preferred stock dividends of
subsidiary........................ 2,740 (2,740) --
Allowance for borrowed funds....... -- (1,069) (1,069)
-------------- --------- -------------
Total............................ 31,994 (6,730) 25,264
-------------- --------- -------------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES................. 60,434 (20,882) 39,552
INCOME TAXES......................... 23,622 (23,622) --
-------------- --------- -------------
NET INCOME FROM CONTINUING
OPERATIONS.......................... 36,812 2,740 39,552
Income from discontinued oil and gas
exploration operations (net of
income taxes)....................... -- -- --
-------------- --------- -------------
Net Income........................... 36,812 2,740 39,552
Preferred & Preference Dividends..... -- 2,740 2,740
-------------- --------- -------------
Earnings on Common Stock............. $ 36,812 $ -- $ 36,812
-------------- --------- -------------
-------------- --------- -------------
Average Common Shares Outstanding.... 54,854 54,854
-------------- -------------
-------------- -------------
Earnings Per Common Share............ $ 0.67 $ 0.67
-------------- -------------
-------------- -------------
</TABLE>
90
<PAGE>
MIDWEST RESOURCES INC.
RECLASSIFYING STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
RESOURCES RESOURCES RESOURCES
(AS REPORTED) RECLASSES RECLASSIFIED
-------------- --------- -------------
<S> <C> <C> <C>
Operating Revenues
Electric........................... $ 664,323 $ 54 $ 664,377
Gas................................ 332,168 -- 332,168
Other.............................. 171,586 (171,586) --
-------------- --------- -------------
Total............................ 1,168,077 (171,532) 996,545
-------------- --------- -------------
Operating Expenses and Taxes
Cost of fuel, energy and
capacity.......................... 140,277 3,129 143,406
Cooper Nuclear Station power
purchased......................... 85,987 -- 85,987
Cost of gas sold................... 223,745 592 224,337
Other operating expenses........... 334,036 (174,224) 159,812
Maintenance........................ 58,418 (1,341) 57,077
Depreciation and amortization...... 96,797 (6,992) 89,805
Income taxes....................... -- 43,887 43,887
Property and other taxes........... 63,202 (3,365) 59,837
-------------- --------- -------------
Total............................ 1,002,462 (138,314) 864,148
-------------- --------- -------------
Utility Operating Income............. 165,615 (33,218) 132,397
-------------- --------- -------------
Other Income
Non-regulated operations
Revenues......................... -- 176,552 176,552
Expenses......................... -- (180,479) (180,479)
-------------- --------- -------------
Net............................ -- (3,927) (3,927)
Allowance for equity funds......... -- -- --
Miscellaneous...................... 27,467 (13,228) 14,239
-------------- --------- -------------
Total............................ 27,467 (17,155) 10,312
-------------- --------- -------------
Income Before Utility Interest
Charges............................. 193,082 (50,373) 142,709
-------------- --------- -------------
Utility Interest Charges
Interest on long-term debt......... 62,021 (5,850) 56,171
Other interest expense............. 3,416 (294) 3,122
Preferred stock dividends of
subsidiary........................ 3,372 (3,372) --
Allowance for borrowed funds....... -- (1,207) (1,207)
-------------- --------- -------------
Total............................ 68,809 (10,723) 58,086
-------------- --------- -------------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES................. 124,273 (39,650) 84,623
INCOME TAXES......................... 43,944 (43,944) --
-------------- --------- -------------
NET INCOME FROM CONTINUING
OPERATIONS.......................... 80,329 4,294 84,623
Income from discontinued oil and gas
exploration operations (net of
income taxes)....................... 922 (922) --
-------------- --------- -------------
Net Income........................... 81,251 3,372 84,623
Preferred Dividends.................. -- 3,372 3,372
-------------- --------- -------------
Earnings on Common Stock............. $ 81,251 $ -- $ 81,251
-------------- --------- -------------
-------------- --------- -------------
Average Common Shares Outstanding.... 54,635 54,635
-------------- -------------
-------------- -------------
Earnings Per Common Share............ $ 1.49 $ 1.49
-------------- -------------
-------------- -------------
</TABLE>
91
<PAGE>
MIDWEST RESOURCES INC.
RECLASSIFYING STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1992
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
RESOURCES RESOURCES RESOURCES
(AS REPORTED) RECLASSES RECLASSIFIED
-------------- --------- -------------
<S> <C> <C> <C>
Operating Revenues
Electric........................... $ 623,360 $ -- $ 623,360
Gas................................ 299,820 -- 299,820
Other.............................. 110,164 (110,164) --
-------------- --------- -------------
Total.......................... 1,033,344 (110,164) 923,180
-------------- --------- -------------
Operating Expenses and Taxes
Cost of fuel, energy and
capacity.......................... 134,969 2,933 137,902
Cooper Nuclear Station power
purchased......................... 86,455 -- 86,455
Cost of gas sold................... 200,780 -- 200,780
Other operating expenses........... 260,237 (103,336) 156,901
Maintenance........................ 55,643 (1,410) 54,233
Depreciation and amortization...... 93,270 (7,080) 86,190
Income taxes....................... -- 24,096 24,096
Property and other taxes........... 66,706 (3,054) 63,652
-------------- --------- -------------
Total.......................... 898,060 (87,851) 810,209
-------------- --------- -------------
Utility Operating Income............. 135,284 (22,313) 112,971
-------------- --------- -------------
Other Income
Non-regulated operations
Revenues......................... -- 114,842 114,842
Expenses......................... -- (120,050) (120,050)
-------------- --------- -------------
Net............................ -- (5,208) (5,208)
Allowance for equity funds....... -- 1,213 1,213
Miscellaneous.................... (2,924) 6 (2,918)
-------------- --------- -------------
Total.......................... (2,924) (3,989) (6,913)
-------------- --------- -------------
Income Before Utility Interest
Charges............................. 132,360 (26,302) 106,058
-------------- --------- -------------
Utility Interest Charges
Interest on long-term debt......... 67,945 (6,505) 61,440
Other interest expense............. 2,662 (432) 2,230
Preferred stock dividends of
subsidiary........................ 3,706 (3,706) --
Allowance for borrowed funds....... -- (1,058) (1,058)
-------------- --------- -------------
Total.......................... 74,313 (11,701) 62,612
-------------- --------- -------------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES................. 58,047 (14,601) 43,446
INCOME TAXES......................... 15,452 (15,452) --
-------------- --------- -------------
NET INCOME FROM CONTINUING
OPERATIONS.......................... 42,595 851 43,446
Income from discontinued oil and gas
exploration (net of income taxes)... (2,855) 2,855 --
-------------- --------- -------------
Net Income........................... 39,740 3,706 43,446
Preferred Dividends.................. -- 3,706 3,706
-------------- --------- -------------
Earnings on Common Stock............. $ 39,740 $ -- $ 39,740
-------------- --------- -------------
-------------- --------- -------------
Average Common Shares Outstanding.... 54,351 54,351
-------------- -------------
-------------- -------------
Earning Per Common Share............. $ 0.73 $ 0.73
-------------- -------------
-------------- -------------
</TABLE>
92
<PAGE>
MIDWEST RESOURCES INC.
RECLASSIFYING STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1991
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
RESOURCES RESOURCES RESOURCES
(AS REPORTED) RECLASSES RECLASSIFIED
------------- ---------- ------------
<S> <C> <C> <C>
Operating Revenues
Electric.............................................................. $ 637,222 $ -- $ 637,222
Gas................................................................... 292,291 -- 292,291
Other................................................................. 92,675 (92,675) --
------------- ---------- ------------
Total............................................................... 1,022,188 (92,675) 929,513
------------- ---------- ------------
Operating Expenses and Taxes
Cost of fuel, energy and capacity..................................... 130,041 3,825 133,866
Cooper Nuclear Station power purchased................................ 72,659 -- 72,659
Cost of gas sold...................................................... 196,979 -- 196,979
Other operating expenses.............................................. 238,759 (87,156) 151,603
Maintenance........................................................... 53,483 (1,343) 52,140
Depreciation and amortization......................................... 89,437 (6,962) 82,475
Income taxes.......................................................... -- 40,083 40,083
Property and other taxes.............................................. 64,695 (2,534) 62,161
------------- ---------- ------------
Total............................................................... 846,053 (54,087) 791,966
------------- ---------- ------------
Utility Operating Income................................................ 176,135 (38,588) 137,547
------------- ---------- ------------
Other Income
Non-regulated operations
Revenues............................................................ -- 99,546 99,546
Expenses............................................................ -- (108,684) (108,684)
------------- ---------- ------------
Net............................................................... -- (9,138) (9,138)
Allowance for equity funds............................................ -- 124 124
Miscellaneous......................................................... 11,039 (5,172) 5,867
------------- ---------- ------------
Total............................................................... 11,039 (14,186) (3,147)
------------- ---------- ------------
Income Before Utility Interest Charges.................................. 187,174 (52,774) 134,400
------------- ---------- ------------
Utility Interest Charges
Interest on long-term debt............................................ 61,749 (6,257) 55,492
Other interest expense................................................ 9,925 (1,923) 8,002
Preferred stock dividends of subsidiary............................... 5,361 (5,361) --
Allowance for borrowed funds.......................................... -- (2,899) (2,899)
------------- ---------- ------------
Total............................................................... 77,035 (16,440) 60,595
------------- ---------- ------------
NET INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES............... 110,139 (36,334) 73,805
INCOME TAXES............................................................ 38,437 (38,437) --
------------- ---------- ------------
NET INCOME FROM CONTINUING OPERATIONS................................... 71,702 2,103 73,805
Income from discontinued oil and gas exploration operations (net of
income taxes).......................................................... (3,258) 3,258 --
------------- ---------- ------------
Net Income.............................................................. 68,444 5,361 73,805
Preferred Dividends..................................................... -- 5,361 5,361
------------- ---------- ------------
Earnings on Common Stock................................................ $ 68,444 $ -- $ 68,444
------------- ---------- ------------
------------- ---------- ------------
Average Common Shares Outstanding....................................... 50,393 50,393
------------- ------------
------------- ------------
Earnings Per Common Share............................................... $ 1.36 $ 1.36
------------- ------------
------------- ------------
</TABLE>
93
<PAGE>
SELECTED INFORMATION CONCERNING IOWA-ILLINOIS, RESOURCES
AND MIDWEST POWER
BUSINESS OF IOWA-ILLINOIS
Iowa-Illinois, an Illinois corporation, is engaged in the business of
generating, transmitting, distributing and selling electric energy and
distributing, selling and transporting natural gas in the States of Illinois and
Iowa. Iowa-Illinois serves more than 200,000 electric customers in 51
communities. These include the Illinois and Iowa Quad-Cities on the Mississippi
River and Iowa City and Fort Dodge, Iowa. Iowa-Illinois also serves two full
requirements wholesale customers and one partial requirements wholesale
customer. Sales to these three customers are 0.1% of total electric sales. Iowa-
Illinois serves more than 240,000 natural gas customers in 64 communities,
including the Quad-Cities, along with Iowa City, Cedar Rapids, Fort Dodge and
Ottumwa, Iowa.
Through a wholly owned subsidiary, InterCoast Energy Company ("InterCoast"),
Iowa-Illinois engages in non-regulated energy-related businesses. InterCoast
provides a vehicle for the separation of non-regulated activities from
Iowa-Illinois' regulated utility businesses. The operations of InterCoast
emphasize energy-related diversification, credit quality and liquidity.
InterCoast takes advantage of a core expertise in energy, participating in the
energy industry through three major areas: oil and gas (Medallion Production
Company), energy services (InterCoast Energy Services) and financial investments
(InterCoast Capital Company).
Headquartered in Davenport, Iowa, Iowa-Illinois has approximately 1,400
employees. Iowa-Illinois' principal executive offices are located at 206 East
Second Street, Davenport, Iowa 52801 (telephone 319/326-7111).
Information regarding the names, ages, positions and business backgrounds of
the executive officers and directors of Iowa-Illinois, as well as additional
information, including executive compensation, security ownership of certain
beneficial owners and management and certain relationships and related
transactions, is incorporated by reference to the Iowa-Illinois Annual Report on
Form 10-K for the year ended December 31, 1993.
BUSINESS OF RESOURCES AND MIDWEST POWER
RESOURCES. Resources is an Iowa corporation which is the largest utility
holding company in the state of Iowa, serving one-third of the state's electric
and natural gas customers in urban, small-town and rural areas. Through its
utility subsidiary, Midwest Power, described below, Resources provides electric
and natural gas utility services. Resources operates its nonregulated businesses
and investments through a second subsidiary Midwest Capital Group, Inc. These
businesses and investments include electric and natural gas activities,
management of rail cars, telecommunications, real estate development, venture
capital and leveraged leases. Headquartered in Des Moines, the capital city of
Iowa, Resources and its subsidiaries have approximately 3,000 full-time
employees.
In an effort to more closely focus its nonregulated activities on businesses
that relate to its core utility business, Resources intends to dispose of its
investments in subsidiaries which construct electric generating facilities and
electric lines as soon as practicable in a manner that will minimize the effect
on its earnings. These subsidiaries are reflected as discontinued operations
under "Pro Forma Combined Financial Information (unaudited)."
Information regarding the names, ages, positions and business backgrounds of
the executive officers and directors of Resources, as well as additional
information, including executive compensation, security ownership of certain
beneficial owners and management and certain relationships and related
transactions, is incorporated by reference to the Resources Proxy Statement for
the 1994 annual meeting of its shareholders.
MIDWEST POWER. Midwest Power, an Iowa corporation, has two operating
divisions: Midwest Power and Midwest Power Gas. Midwest Power provides electric
service to 424,000 customers in 327 communities in central, western and northern
Iowa and six communities in southeastern South
94
<PAGE>
Dakota. Midwest Power Gas provides natural gas service to 342,000 customers in
204 Iowa, Two Nebraska and 27 South Dakota communities. The largest communities
served by one or both of the utilities are Des Moines, Sioux City, Waterloo and
Council Buffs, Iowa, and Sioux Falls, South Dakota.
Information regarding the names, ages, positions and business backgrounds of
the executive officers and directors of Midwest Power, as well as additional
information, including executive compensation, security ownership of certain
beneficial owners and management and certain relationships and related
transactions, is incorporated by reference to the Midwest Power Annual Report on
Form 10-K for the year ended December 31, 1993.
THE COMPANY FOLLOWING THE MERGER
MANAGEMENT OF THE COMPANY
The Company Board currently consists of Russell E. Christiansen and Stanley
J. Bright. Pursuant to the Merger Agreement, at the Effective Time the Company
Board will consist of 19 members, eight of whom will be designated by
Iowa-Illinois and 11 of whom will be designated by Resources. Iowa-Illinois has
designated Stanley J. Bright, John W. Colloton, Frank S. Cottrell, William C.
Fletcher, Mel Foster Jr., Nancy L. Seifert, W. Scott Tinsman and Leonard L.
Woodruff, and Resources has designated Russell E. Christiansen and will
designate ten other persons from the following persons: John W. Aalfs, Betty T.
Asher, Robert A. Burnett, Ross D. Christensen, Jack W. Eugster, Nolden Gentry,
James M. Hoak, Jr., Gerald M. Kirke, Richard L. Lawson, Robert L. Peterson, Mark
W. Putney and Richard A. Schneider; to serve as directors of the Company as of
the Effective Time. Each of such persons is currently a director of
Iowa-Illinois or Resources. The Board of Directors, after the Effective Time,
will implement a plan to reduce the number of outside directors to no more than
14 by June 1, 1997. The Nominating Committee of the Board with certain
guidelines set forth in the Merger Agreement will be responsible for the initial
preparation of the plan. All committees of the Board of Directors of the Company
at the Effective Time shall consist of an equal number of Resources Designees
and Iowa-Illinois Designees.
Initially, Russell E. Christiansen will be Chairman and Chairman, Office of
the Chief Executive Officer of the Company and Stanley J. Bright will be
President and President, Office of the Chief Executive Officer of the Company.
Each of Mr. Christiansen and Mr. Bright will have an employment agreement with
the Company following the Merger. See "The Merger -- Interests of Certain
Persons in the Merger -- Employment Agreements."
OPERATIONS OF THE COMPANY
The Merger Agreement provides that the Company will maintain (i) its
corporate headquarters, the principal office of the Chief Executive Officer and
the corporate functions (without limitation) of finance, treasury, secretary,
shareholder services, human resources and general counsel in Des Moines, Iowa;
(ii) the headquarters of the electric division and the office of the most senior
executive of such division in Davenport, Iowa; and (iii) the headquarters of the
gas division and the office of the most senior executive of such division in
Sioux City, Iowa. Such provision cannot be modified prior to June 1, 1997,
unless and until the terms of such modification are approved by a vote of
two-thirds of the members of the Board of Directors of the Company.
The Merger Agreement also provides that during the period from the Effective
Time until June 1, 1997, the Company's name, as agreed upon by the Resources
Board and the Iowa-Illinois Board prior to the Effective Time, may not be
modified unless and until the terms of such modification are approved by a vote
of two-thirds of the members of the Board of Directors of the Company and any
required vote of the shareholders of the Company under applicable law.
It is anticipated that following the Merger the Company will initially pay
dividends on Company Common Stock at the rate of $1.20 per annum, subject to
change from time to time by the Company Board based on the Company's results of
operations, financial condition, capital requirements and other relevant
considerations. However, no assurance can be given that such dividend rate will
be in
95
<PAGE>
effect or will remain unchanged, and the Company reserves the right to increase
or decrease the dividend on Company Common Stock as may be required by law or
contract or as may be determined by the Company Board, in its discretion, to be
advisable. For a description of certain restrictions on the Company's ability to
pay dividends on Company Common Stock, see "Description of Company Capital
Stock."
REORGANIZATION OF NONREGULATED SUBSIDIARIES
At the Effective Time, the businesses and assets of InterCoast and Midwest
Capital, the wholly-owned nonregulated subsidiaries of Iowa-Illinois and
Resources, respectively, will be reorganized. The existing service area business
development projects of Resources and Iowa-Illinois which are located in the
Company's utility service territory will remain with or be transferred to
Midwest Capital. In addition, a line of credit in the amount of $25 million will
be established for the Company to provide funds to Midwest Capital to finance
existing development projects and new development opportunities in the Company's
utility service territory. Midwest Capital may also use the line of credit to
explore other opportunities in the Company's service territory.
The remaining assets of Midwest Capital at the Effective Time will be
transferred to InterCoast, which will own and operate the nonregulated
businesses of the Company, including oil and gas, power brokering and marketing,
and investments. The Company currently plans to contribute $55 million of
equity, in cash, to InterCoast to enable it to repay certain obligations which
are guaranteed by Resources and are associated with certain nonregulated
businesses which will be transferred from Midwest Capital to InterCoast. This
equity contribution is consistent with the philosophy that the operations and
businesses of the nonregulated subsidiaries should be non-recourse to the
regulated utility company and should be separate from its operations. The equity
contribution will initially be made with funds obtained by the Company from
short term credit facilities, but is expected to be replaced with long term debt
or equity, or a combination thereof, by the Company in the future, depending on
the entire financing needs of the Company at the time, including the potential
effect on credit ratings and utility rates.
Authorization for the planned reorganization of the wholly-owned
nonregulated subsidiaries will be requested in the Merger applications filed
with the IUB and the ICC.
EXPERTS
The 1993 consolidated financial statements and the related 1993 financial
statement schedules incorporated in this Joint Proxy Statement/Prospectus by
reference from the Iowa-Illinois Annual Report on Form 10-K for the year ended
December 31, 1993 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports, which are incorporated herein by
reference, and have been so incorporated in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing. The
consolidated financial statements and schedules of Iowa-Illinois as of December
31, 1992 and for the two years then ended, included or incorporated by reference
in its Annual Report on Form 10-K for the year ended December 31, 1993, which
statements and schedules are incorporated by reference in this Joint Proxy
Statement/Prospectus, have been audited by Arthur Andersen LLP (formerly Arthur
Andersen & Co.), independent public accountants, as indicated in their reports
with respect thereto, and are included herein in reliance upon the authority of
said firm as experts in accounting and auditing in giving said reports.
The consolidated financial statements and schedules of Resources and Midwest
Power included in their respective Annual Reports on Form 10-K for the year
ended December 31, 1993, which statements and schedules are incorporated by
reference in this Joint Proxy Statement/Prospectus, have been audited by Arthur
Andersen LLP (formerly Arthur Andersen & Co.), independent public accountants,
as indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said reports. Reference is made to said reports, each dated January
28, 1994, which include an explanatory paragraph with
96
<PAGE>
respect to the change in method of accounting for postretirement benefits other
than pensions in 1993 as discussed in Note 15 to the Resources' consolidated
financial statements and Note 14 to the Midwest Power's consolidated financial
statements.
LEGAL MATTERS
Sidley & Austin will pass upon the legality of the shares of Company Common
Stock and Company Preferred Stock issued in connection with the Merger.
Sidley & Austin has for many years regularly provided legal services to
Iowa-Illinois and to Resources and Midwest Power and their predecessor
corporations in matters in which the interests of Iowa-Illinois and Resources
and Midwest Power did not conflict. With the consent of Iowa-Illinois, Sidley &
Austin is representing Resources and Midwest Power in connection with the Merger
and other matters in which their interests do not conflict with those of
Iowa-Illinois. With the consent of Resources and Midwest Power, Sidley & Austin
is continuing to represent Iowa-Illinois in matters in which its interests do
not conflict with those of Resources and Midwest Power. LeBoeuf, Lamb, Greene &
MacRae, L.L.P., a limited liability partnership including professional
corporations, is representing Iowa-Illinois in connection with the Merger.
SHAREHOLDER PROPOSALS
In order for proposals of Resources shareholders intended to be presented at
the annual meeting of shareholders to be held in 1995 to be considered for
inclusion in the Resources Proxy Statement and form of proxy relating to that
meeting, such proposals must be received by Resources on or before November 16,
1994. Proposals should be sent to the Secretary, Midwest Resources Inc., P.O.
Box 9244, Des Moines, Iowa 50306-9244.
In order for proposals of Iowa-Illinois shareholders intended to be
presented at the annual meeting of shareholders to be held in 1995 to be
considered for inclusion in the Iowa-Illinois Proxy Statement and form of proxy
relating to that meeting, such proposals must be received by Iowa-Illinois on or
before November 16, 1994. Proposals should be sent to Keith M. Giger, Secretary
and Treasurer, Iowa-Illinois Gas and Electric Company, P.O. Box 4350, Davenport,
Iowa 52808.
97
<PAGE>
ANNEX I
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
MIDWEST RESOURCES INC.
AND
MIDWEST POWER SYSTEMS INC.
AND
IOWA-ILLINOIS GAS AND ELECTRIC COMPANY
AND
MIDAMERICAN ENERGY COMPANY
DATED AS OF JULY 26, 1994
AS
AMENDED AND RESTATED
AS OF SEPTEMBER 27, 1994
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
ARTICLE I
THE MERGER
SECTION 1.1 The Merger........................................................................... I-1
SECTION 1.2 Effects of the Merger................................................................ I-1
SECTION 1.3 Effective Time of the Merger......................................................... I-1
ARTICLE II
CONVERSION OF SHARES
SECTION 2.1 Effect of the Merger on Capital Stock................................................ I-2
SECTION 2.2 Exchange of Common Stock Certificates................................................ I-3
SECTION 2.3 Exchange of Certain Stock Certificates Not Required.................................. I-5
SECTION 2.4 No Further Ownership Rights in Preferred Stock or Preference Stock................... I-5
ARTICLE III
THE CLOSING
SECTION 3.1 Closing.............................................................................. I-6
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF RESOURCES
AND MIDWEST POWER
SECTION 4.1 Organization and Qualification....................................................... I-6
SECTION 4.2 Subsidiaries......................................................................... I-6
SECTION 4.3 Capitalization....................................................................... I-7
SECTION 4.4 Authority; Non-Contravention; Statutory Approvals; Compliance........................ I-7
SECTION 4.5 Reports and Financial Statements..................................................... I-9
SECTION 4.6 Absence of Certain Changes or Events; Absence of Undisclosed Liabilities............. I-9
SECTION 4.7 Litigation........................................................................... I-10
SECTION 4.8 Registration Statement and Proxy Statement........................................... I-10
SECTION 4.9 Tax Matters.......................................................................... I-10
SECTION 4.10 Employee Matters; ERISA.............................................................. I-13
SECTION 4.11 Environmental Protection............................................................. I-15
SECTION 4.12 Regulation as a Utility.............................................................. I-17
SECTION 4.13 Vote Required........................................................................ I-17
SECTION 4.14 Accounting Matters................................................................... I-17
SECTION 4.15 Opinion of Financial Advisor......................................................... I-17
SECTION 4.16 Insurance............................................................................ I-17
SECTION 4.17 Ownership of Iowa-Illinois Capital Stock............................................. I-18
</TABLE>
I-i
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF IOWA-ILLINOIS
SECTION 5.1 Organization and Qualification....................................................... I-18
SECTION 5.2 Subsidiaries......................................................................... I-18
SECTION 5.3 Capitalization....................................................................... I-18
SECTION 5.4 Authority; Non-Contravention; Statutory Approvals; Compliance........................ I-19
SECTION 5.5 Reports and Financial Statements..................................................... I-20
SECTION 5.6 Absence of Certain Changes or Events; Absence of Undisclosed Liabilities............. I-20
SECTION 5.7 Litigation........................................................................... I-21
SECTION 5.8 Registration Statement and Proxy Statement........................................... I-21
SECTION 5.9 Tax Matters.......................................................................... I-21
SECTION 5.10 Employee Matters; ERISA.............................................................. I-23
SECTION 5.11 Environmental Protection............................................................. I-26
SECTION 5.12 Regulation as a Utility.............................................................. I-27
SECTION 5.13 Vote Required........................................................................ I-27
SECTION 5.14 Accounting Matters................................................................... I-27
SECTION 5.15 Opinion of Financial Advisor......................................................... I-27
SECTION 5.16 Insurance............................................................................ I-27
SECTION 5.17 Ownership of Resources Common Stock.................................................. I-27
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 6.1 Covenants of the Parties............................................................. I-27
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.1 Access to Information................................................................ I-31
SECTION 7.2 Joint Proxy Statement and Registration Statement..................................... I-31
SECTION 7.3 Regulatory Approvals and Other Matters............................................... I-32
SECTION 7.4 Shareholder Approval................................................................. I-33
SECTION 7.5 Directors' and Officers' Indemnification............................................. I-33
SECTION 7.6 Disclosure Schedules................................................................. I-34
SECTION 7.7 Public Announcements................................................................. I-35
SECTION 7.8 Rule 145 Affiliates.................................................................. I-35
SECTION 7.9 No Solicitations..................................................................... I-35
SECTION 7.10 Expenses............................................................................. I-36
SECTION 7.11 Board of Directors................................................................... I-36
SECTION 7.12 Officers............................................................................. I-36
SECTION 7.13 Employment Agreements and Workforce Matters.......................................... I-36
SECTION 7.14 Severance Plan....................................................................... I-37
SECTION 7.15 Post-Merger Operations............................................................... I-37
SECTION 7.16 Purchase or Redemption of Iowa-Illinois Preferred Stock.............................. I-37
</TABLE>
I-ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
ARTICLE VIII
CONDITIONS
SECTION 8.1 Conditions to Each Party's Obligations to Effect the Merger.......................... I-37
SECTION 8.2 Conditions to Obligations of Resources and Midwest Power to Effect the Merger........ I-38
SECTION 8.3 Conditions to Obligations of Iowa-Illinois to Effect the Merger...................... I-39
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.1 Termination.......................................................................... I-40
SECTION 9.2 Effect of Termination................................................................ I-43
SECTION 9.3 Termination Fee; Expenses............................................................ I-43
SECTION 9.4 Amendment............................................................................ I-44
SECTION 9.5 Waiver............................................................................... I-44
ARTICLE X
GENERAL PROVISIONS
SECTION 10.1 Non-Survival of Representations, Warranties and Agreements........................... I-45
SECTION 10.2 Brokers.............................................................................. I-45
SECTION 10.3 Notices.............................................................................. I-45
SECTION 10.4 Miscellaneous........................................................................ I-46
SECTION 10.5 Interpretation....................................................................... I-46
SECTION 10.6 Counterparts; Effect................................................................. I-46
SECTION 10.7 Specific Performance................................................................. I-46
SECTION 10.8 Parties in Interest.................................................................. I-46
SECTION 10.9 Further Assurances................................................................... I-47
</TABLE>
<TABLE>
<S> <C> <C>
Exhibit A -- Articles of Incorporation of the Company
Exhibit B -- By-laws of the Company
Exhibit C -- Articles of Merger
Exhibit D -- Task Forces
Exhibit E -- Initial Board Committees
Exhibit F-1 -- Employment Agreement With Russell Christiansen
Exhibit F-2 -- Employment Agreement With Stanley Bright
Exhibit F-3 -- Positions and Duties of Mr. Christiansen and Mr. Bright
Exhibit G -- Severance Plan
</TABLE>
I-iii
<PAGE>
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of July 26, 1994, as amended and
restated in its entirety as of September 27, 1994, ("Agreement"), by and among
Midwest Resources Inc., an Iowa corporation ("Resources"), Iowa-Illinois Gas and
Electric Company, an Illinois corporation ("Iowa-Illinois"), Midwest Power
Systems Inc., an Iowa corporation ("Midwest Power") and a subsidiary of
Resources and MidAmerican Energy Company, an Iowa corporation ("Company"), 50%
of whose outstanding capital stock is owned by Iowa-Illinois and 50% of whose
outstanding capital stock is owned by Resources.
WHEREAS, Resources, Midwest Power and Iowa-Illinois have determined to
engage in a business combination as peer firms in a merger of equals whereby
Iowa-Illinois, Midwest Power and Resources will be merged with and into the
Company, with the Company as the surviving corporation in such merger
("Merger"); and
WHEREAS, in furtherance thereof, the respective Boards of Directors of
Resources, Midwest Power, Iowa-Illinois and the Company have approved the Merger
of Resources, Midwest Power and Iowa-Illinois with and into the Company, all
upon the terms and subject to the conditions set forth in this Agreement; and
WHEREAS, for federal income tax purposes, it is intended that the Merger
will be treated as a reorganization under Section 368 of the Internal Revenue
Code of 1986, as amended (the "Code").
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. Upon the terms and subject to the conditions of
this Agreement, at the Effective Time (as defined in Section 1.3), Resources,
Midwest Power and Iowa-Illinois shall be merged with and into the Company in
accordance with the laws of the States of Illinois and Iowa. The Company shall
be the surviving corporation in the Merger and shall continue its corporate
existence under the laws of the State of Iowa. The effects and the consequences
of the Merger shall be as set forth in Section 1.2.
SECTION 1.2 EFFECTS OF THE MERGER. At the Effective Time, (i) the Articles
of Incorporation of the Company, as in effect immediately prior to the Effective
Time substantially in the form attached hereto as Exhibit A, shall be the
Articles of Incorporation of the Company as the surviving corporation in the
Merger until thereafter duly amended and (ii) the by-laws of the Company, as in
effect immediately prior to the Effective Time, substantially in the form
attached hereto as Exhibit B, shall be the by-laws of the Company as the
surviving corporation in the Merger, until thereafter duly amended. Subject to
the foregoing, the additional effects of the Merger shall be as provided in the
applicable provisions of the Iowa Business Corporation Act ("Iowa Act") and the
Illinois Business Corporation Act of 1983 ("Illinois Act").
SECTION 1.3 EFFECTIVE TIME OF THE MERGER. On the Closing Date (as defined
in Section 3.1), articles of merger substantially in the form attached hereto as
Exhibit C ("Articles of Merger") complying with the requirements of the Illinois
Act and the Iowa Act shall be executed by Midwest Power, Resources,
Iowa-Illinois and the Company and shall be filed with the Secretary of State of
the State of Illinois and the Secretary of State of the State of Iowa. The
Merger shall become effective at the time that the parties agree to specify in
the Articles of Merger ("Effective Time").
I-1
<PAGE>
ARTICLE II
CONVERSION OF SHARES
SECTION 2.1 EFFECT OF THE MERGER ON CAPITAL STOCK. At the Effective Time,
by virtue of the Merger and without any action on the part of any holder of any
capital stock of Iowa-Illinois, Midwest Power, Resources or the Company:
(a) CANCELLATION OF CERTAIN COMMON STOCK. Each share of Iowa-Illinois
common stock, par value $1.00 per share ("Iowa-Illinois Common Stock"), and
each share of Resources common stock, no par value ("Resources Common
Stock"), that is owned by Iowa-Illinois or any of its subsidiaries (as
defined in Section 4.1) or by Resources or any of its subsidiaries, and each
share of Midwest Power common stock, no par value ("Midwest Power Common
Stock"), shall be cancelled and cease to exist, and no consideration shall
be delivered in exchange therefor.
(b) CONVERSION OF CERTAIN COMMON STOCK. Each share of Iowa-Illinois
Common Stock issued and outstanding immediately prior to the Effective Time
(other than shares cancelled pursuant to Section 2.1(a) and shares with
respect to which the holder thereof duly exercises the right to dissent
under applicable law) shall be converted into the right to receive 1.47
shares ("Iowa-Illinois Conversion Ratio") of Company common stock, no par
value ("Company Common Stock"), and each share of Resources Common Stock
issued and outstanding immediately prior to the Effective Time (other than
shares cancelled pursuant to Section 2.1(a) and shares with respect to which
the holder thereof duly exercises the right to dissent under applicable law)
shall be converted into the right to receive 1.0 shares ("Resources
Conversion Ratio") of Company Common Stock. Upon such conversions as
provided for herein, each holder of a certificate formerly representing any
such shares of Iowa-Illinois Common Stock or Resources Common Stock shall
cease to have any rights with respect thereto, except the right to receive
the shares of Company Common Stock to be issued in consideration therefor
(and cash in lieu of fractional shares) upon the surrender of such
certificate in accordance with Section 2.2.
(c) CANCELLATION OF COMPANY COMMON STOCK. Each share of Company Common
Stock issued and outstanding immediately prior to the Effective Time shall
be cancelled, and no consideration shall be delivered in exchange therefor.
(d) CANCELLATION OF CERTAIN PREFERRED STOCK AND PREFERENCE STOCK. Each
of the Iowa-Illinois Preference Shares, without par value ("Iowa-Illinois
Preference Stock"), and each share of Midwest Power Preferred Stock, no par
value ("Midwest Power Preferred Stock"), that is owned by Iowa-Illinois or
any of its subsidiaries or by Resources or any of its subsidiaries shall be
cancelled and cease to exist, and no consideration shall be delivered in
exchange therefor.
(e) CONVERSION OF IOWA-ILLINOIS PREFERENCE STOCK. Each issued and
outstanding share of each series of Iowa-Illinois Preference Stock, other
than shares cancelled pursuant to Section 2.1(d) and shares with respect to
which the holder thereof exercises the right to dissent, shall be converted
into and become one duly authorized, validly issued, fully paid and
nonassessable share of Company Preferred Stock, without par value ("Company
Preferred Stock"), of the respective series specified below:
<TABLE>
<CAPTION>
IOWA-ILLINOIS COMPANY
PREFERENCE STOCK PREFERRED STOCK
----------------- ----------------
<S> <C>
$7.80 Series $7.80 Series
$5.25 Series $5.25 Series
</TABLE>
I-2
<PAGE>
(f) CONVERSION OF MIDWEST POWER PREFERRED STOCK. Each issued and
outstanding share of each series of Midwest Power Preferred Stock, other
than shares cancelled pursuant to Section 2.1(d) and shares with respect to
which the holder thereof exercises the right to dissent, shall be converted
into and become one duly authorized, validly issued, fully paid and
nonassessable share of Company Preferred Stock, of the respective series
specified below:
<TABLE>
<CAPTION>
MIDWEST POWER COMPANY CLASS M
PREFERRED STOCK PREFERRED STOCK
-------------------- --------------------
<S> <C>
$3.30 Series $3.30 Series
$3.75 Series $3.75 Series
$3.90 Series $3.90 Series
$4.20 Series $4.20 Series
$4.35 Series $4.35 Series
$4.40 Series $4.40 Series
$4.80 Series $4.80 Series
$1.7375 Series $1.7375 Series
</TABLE>
(g) The Company Preferred Stock issued upon conversion of the Midwest
Power Preferred Stock and Iowa-Illinois Preference Stock shall have the
preferences, limitations and relative rights which are described in the
Articles of Incorporation of the Company substantially in the form attached
hereto as Exhibit A.
(h) SHARES OF DISSENTING HOLDERS. Any issued and outstanding shares of
Resources Common Stock, Iowa-Illinois Common Stock, Iowa-Illinois Preference
Stock or Midwest Power Preferred Stock held by a person who objects to the
Merger and complies with all applicable provisions of the Iowa Act or the
Illinois Act, as applicable, concerning the right of such person to dissent
from the Merger and demand appraisal of such shares ("Dissenting Holder")
shall not be converted as described in Section 2.1(b), (e) or (f) but shall
from and after the Effective Time represent only the right to receive such
consideration as may be determined to be due to such Dissenting Holder with
respect to such shares pursuant to the Iowa Act or the Illinois Act, as
applicable; PROVIDED, HOWEVER, that shares of Resources Common Stock,
Iowa-Illinois Common Stock, Iowa-Illinois Preference Stock or Midwest Power
Preferred Stock outstanding immediately prior to the Effective Time and held
by a Dissenting Holder who shall, after the Effective Time, withdraw the
demand for appraisal or lose the right of appraisal of such shares pursuant
to the Iowa Act or the Illinois Act, as applicable, shall be deemed to be
converted, as of the Effective Time, into the right to receive the Company
Common Stock or Company Preferred Stock specified in Section 2.1(b), (e), or
(f) and cash in lieu of fractional shares in accordance with Section 2.2,
without interest.
SECTION 2.2 EXCHANGE OF COMMON STOCK CERTIFICATES.
(a) DEPOSIT WITH EXCHANGE AGENT. As soon as practicable after the
Effective Time, the Company shall deposit with a bank, trust company or
other agent selected by Iowa-Illinois and Resources ("Exchange Agent")
certificates representing shares of Company Common Stock required to effect
the conversion of Iowa-Illinois Common Stock and, at the option of the
Company, Resources Common Stock, into Company Common Stock referred to in
Section 2.1(b).
(b) EXCHANGE PROCEDURES. As soon as practicable after the Effective
Time, the Exchange Agent shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented issued and outstanding shares of (i) Iowa-Illinois Common Stock
and (ii) if the Company exercises its option pursuant to Section 2.2(a),
Resources Common Stock ("Certificates") that were converted ("Converted
Shares") into the right to receive shares of Company Common Stock ("Company
Shares") pursuant to Section 2.1(b), (i) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to
the Certificates shall pass, only upon actual delivery of the Certificates
to the Exchange Agent) and (ii) instructions for use in effecting the
exchange of Certificates for certificates representing Company
I-3
<PAGE>
Shares. Upon delivery of a Certificate to the Exchange Agent for exchange,
together with a duly executed letter of transmittal and such other documents
as the Exchange Agent shall require, the holder of such Certificate shall be
entitled to receive in exchange therefor a certificate representing that
number of whole Company Shares and the amount of cash in lieu of fractional
share interests which such holder has the right to receive pursuant to the
provisions of this Article II. In the event of a transfer of ownership of
Converted Shares which is not registered in the transfer records of
Iowa-Illinois or Resources, as the case may be, a certificate representing
the proper number of Company Shares may be issued to a transferee if the
Certificate representing such Converted Shares is presented to the Exchange
Agent, accompanied by all documents required to evidence and effect such
transfer and by evidence satisfactory to the Exchange Agent that any
applicable stock transfer taxes have been paid. Until delivered as
contemplated by this Section 2.2, each Certificate shall be deemed at any
time after the Effective Time to represent only the right to receive upon
such delivery the certificate representing Company Shares and cash in lieu
of any fractional shares of Company Common Stock as contemplated by this
Section 2.2.
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or
other distributions declared or made after the Effective Time with respect
to Company Shares with a record date after the Effective Time shall be paid
to the holder of any undelivered Certificate with respect to the Company
Shares represented thereby, and no cash payment in lieu of fractional shares
shall be paid to any such holder pursuant to Section 2.2(d), until the
holder of record of such Certificate (or a transferee as described in
Section 2.2(b)) shall have delivered such Certificate as contemplated in
Section 2.2(b). Subject to the effect of unclaimed property, escheat and
other applicable laws, following delivery of any such Certificate, there
shall be paid to the record holder (or transferee) of the certificates
representing whole Company Shares issued in exchange therefor, without
interest, (i) at the time of such delivery, the amount of any cash payable
in lieu of a fractional share of Company Common Stock to which such holder
(or transferee) is entitled pursuant to Section 2.2(d) and the amount of
dividends or other distributions with a record date after the Effective Time
theretofore paid with respect to such whole Company Shares and (ii) at the
appropriate payment date, the amount of dividends or other distributions
with a record date after the Effective Time but prior to delivery and a
payment date subsequent to delivery payable with respect to such whole
Company Shares, as the case may be.
(d) NO FRACTIONAL SHARES. (i) No certificates or scrip representing
fractional shares of Company Common Stock shall be issued upon the delivery
for exchange of Certificates, and such fractional share interests will not
entitle the owner thereof to vote or to any rights of a shareholder of the
Company.
(ii) As promptly as practicable following the Effective Time, the
Exchange Agent shall determine the excess of (x) the number of full shares
of Company Common Stock delivered to the Exchange Agent by the Company
pursuant to Section 2.2(a) over (y) the aggregate number of full shares of
Company Common Stock to be distributed to holders of Iowa-Illinois Common
Stock pursuant to Section 2.2(b) (such excess being herein called the
"Excess Shares"). As soon after the Effective Time as practicable, the
Exchange Agent, as agent for the holders of Iowa-Illinois Common Stock,
shall sell the Excess Shares at then prevailing prices on the New York Stock
Exchange ("NYSE"), all in the manner provided in Section 2.2(d)(iii).
(iii) The sale of the Excess Shares by the Exchange Agent shall be
executed on the NYSE through one or more member firms of the NYSE and shall
be executed in round lots to the extent practicable. Until the net proceeds
of such sale or sales have been distributed to the holders of Iowa-Illinois
Common Stock and, the Exchange Agent shall, until remitted pursuant to
Section 2.2(f), hold such proceeds in trust for the holders of Iowa-Illinois
Common Stock ("Common Shares Trust"). The Company shall pay all commissions,
transfer taxes and other out-of-pocket transaction costs, including the
expenses and compensation, of the Exchange Agent incurred in connection with
such sale of the Excess Shares. The Exchange Agent shall determine the
portion of the net proceeds comprising the Common Shares Trust to which each
holder of Iowa-Illinois
I-4
<PAGE>
Common Stock shall be entitled, if any, by multiplying the amount of the
aggregate net proceeds comprising the Common Shares Trust by a fraction the
numerator of which is the amount of the fractional share interest to which
such holder of Iowa-Illinois Common Stock is entitled and the denominator of
which is the aggregate amount of fractional share interests to which all
holders of Iowa-Illinois Common Stock are entitled.
(iv) As soon as practicable after the sale of Excess Shares pursuant to
clause (iii) above and the determination of the amount of cash, if any, to
be paid to holders of Iowa-Illinois Common Stock in lieu of any fractional
share interests, the Exchange Agent shall distribute such amounts to holders
of Iowa-Illinois Common Stock who have theretofore delivered Certificates
for Iowa-Illinois Common Stock for exchange pursuant to this Article II.
(e) CLOSING OF TRANSFER BOOKS. From and after the Effective Time, the
stock transfer books with respect to shares of Iowa-Illinois Common Stock
and Resources Common Stock issued and outstanding prior to the Effective
Time shall be closed and no transfer of any such shares shall thereafter be
made. If, after the Effective Time, Certificates are presented to the
Company, they shall be cancelled and exchanged for certificates representing
the appropriate number of whole Company Shares and cash in lieu of
fractional shares of Company Common Stock as provided in this Section 2.2.
(f) TERMINATION OF EXCHANGE AGENT. Any certificates representing
Company Shares deposited with the Exchange Agent pursuant to Section 2.2(a)
and not exchanged within one year after the Effective Time pursuant to this
Section 2.2 shall be returned by the Exchange Agent to the Company, which
shall thereafter act as Exchange Agent. All funds held by the Exchange Agent
for payment to the holders of undelivered Certificates and unclaimed at the
end of one year from the Effective Time shall be remitted to the Company,
after which time any holder of undelivered Certificates shall look as a
general creditor only to the Company for payment of such funds to which such
holder may be due, subject to applicable law. The Company shall not be
liable to any person for such shares or funds delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
SECTION 2.3 EXCHANGE OF CERTAIN STOCK CERTIFICATES NOT REQUIRED. (A)
EXCHANGE OF MIDWEST POWER PREFERRED STOCK AND IOWA-ILLINOIS PREFERENCE STOCK
CERTIFICATES NOT REQUIRED. Holders of Midwest Power Preferred Stock and
Iowa-Illinois Preference Stock (other than, in each case, Dissenting Holders
thereof) will automatically become holders of Company Preferred Stock in
accordance with Section 2.1(e) and (f), and their certificates which represent
shares of Midwest Power Preferred Stock or Iowa-Illinois Preference Stock, as
the case may be, will automatically represent the shares of Company Preferred
Stock into which such shares were converted in the Merger. After the Merger, as
presently outstanding certificates of Midwest Power Preferred Stock and
Iowa-Illinois Preference Stock are presented for transfer, new stock
certificates bearing the name of the Company and the appropriate number of
shares of Company Preferred Stock will be issued.
(b) EXCHANGE OF RESOURCES COMMON STOCK CERTIFICATES NOT REQUIRED IF SECTION
2.2(A) OPTION NOT EXERCISED. If the Company does not exercise its option
pursuant to Section 2.2(a), holders of Resources Common Stock (other than
Dissenting Holders thereof) will automatically become holders of Company Common
Stock in accordance with Section 2.1(b), and their certificates which represent
shares of Resources Common Stock will automatically represent the shares of
Company Common Stock into which such shares were converted in the Merger, and in
such case, (i) from and after the Effective Time, the stock transfer books of
Resources with respect to shares of Resources Common Stock issued and
outstanding prior to the Effective Time shall be closed and no transfer of any
such shares will thereafter be made and (ii) after the Merger, as presently
outstanding certificates of Resources Common Stock are presented for transfer,
new stock certificates bearing the name of the Company and the appropriate
number of shares of Company Common Stock will be issued.
SECTION 2.4 NO FURTHER OWNERSHIP RIGHTS IN PREFERRED STOCK OR PREFERENCE
STOCK. All shares of Company Preferred Stock issued in the Merger upon
conversion of shares of Midwest Power
I-5
<PAGE>
Preferred Stock and Iowa-Illinois Preference Stock in accordance with the terms
hereof shall be deemed to have been issued in full satisfaction of all rights
pertaining to such shares of Midwest Power Preferred Stock or Iowa-Illinois
Preference Stock, as the case may be, subject, however, to the obligation of the
Company to pay any dividends or make any other distributions with a record date
prior to the Effective Time which may have been declared or made by
Iowa-Illinois on such shares of Iowa-Illinois Preference Stock or by Midwest
Power on such shares of Midwest Power Preferred Stock, and which remain unpaid
at the Effective Time, and there shall be no further registration of transfers
on the stock transfer books of the Company of the shares of Iowa-Illinois
Preference Stock or Midwest Power Preferred Stock which were outstanding
immediately prior to the Effective Time.
ARTICLE III
THE CLOSING
SECTION 3.1 CLOSING. The closing (the "Closing") of the Merger shall take
place at the offices of Sidley & Austin, One First National Plaza, Chicago,
Illinois 60603, at 10:00 A.M., local 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 and date and
place as Resources and Iowa-Illinois shall mutually agree ("Closing Date").
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF RESOURCES AND MIDWEST POWER
Resources and Midwest Power represent and warrant to Iowa-Illinois as
follows:
SECTION 4.1 ORGANIZATION AND QUALIFICATION. Resources and each of its
subsidiaries (including Midwest Power) is a corporation duly organized,
validly existing and in good standing under the laws of its state of
incorporation, has all requisite power and authority, and has been duly
authorized by all necessary regulatory 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 be so
qualified and in good standing will not, when taken together with all other
such failures, have a material adverse effect on the business, operations,
properties, assets, condition (financial or other), prospects or the results
of operations of Resources and its subsidiaries taken as a whole or on the
consummation of the transactions contemplated by this Agreement (any such
material adverse effect being hereinafter referred to as a "Resources
Material Adverse Effect"). As used in this Agreement, the term "subsidiary"
of a person shall mean any corporation or other entity (including
partnerships and other business associations) in which such person directly
or indirectly owns at least a majority of the outstanding voting securities
or other equity interests having the power, under ordinary circumstances, to
elect a majority of the directors, or otherwise to direct the management and
policies, of such corporation or other entity.
SECTION 4.2 SUBSIDIARIES. Section 4.2 of the Resources Disclosure
Schedule (as defined in Section 7.6(a)(i)) sets forth a description as of
the date hereof of all subsidiaries of Resources and their 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
Resources and its subsidiaries therein. Except as set forth in Section 4.2
of the Resources Disclosure Schedule, none of such entities is a "holding
company," a "subsidiary company" of a holding company, or an "affiliate" of
a holding company within the meaning of Section 2(a)(7), 2(a)(8) or 2(a)(11)
of the Public Utility Holding Company Act of 1935, as amended ("1935 Act"),
respectively. Except as set forth in Section 4.2 of the Resources Disclosure
Schedule, all of the issued and outstanding shares of capital stock of each
subsidiary of Resources are validly issued, fully paid, nonassessable and
free of preemptive rights, are owned directly or indirectly by Resources
free and clear of any liens,
I-6
<PAGE>
claims, encumbrances, security interests, equities, charges and options of
any nature whatsoever ("Liens") and there are no outstanding subscriptions,
options, calls, contracts, voting trusts, proxies or other commitments,
understandings, restrictions, arrangements, rights or warrants, including
any right of conversion or exchange under any outstanding security,
instrument or other agreement, obligating Resources or any subsidiary of
Resources to issue, deliver or sell, or cause to be issued, delivered or
sold, shares of the capital stock of any subsidiary of Resources or
obligating Resources or any of its subsidiaries to grant, extend or enter
into any such agreement or commitment. As used in this Agreement, 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 or one or more of its subsidiaries 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 held
for passive investment purposes which are less than 5% of any class of the
outstanding voting securities or equity of any such entity.
SECTION 4.3 CAPITALIZATION.
(a) RESOURCES. The authorized capital stock of Resources consists of
250,000,000 shares of Resources Common Stock and 100,000,000 shares of
Resources Preferred Stock, no par value, none of which are outstanding. As
of the close of business on July 22, 1994, 55,279,734 shares of Resources
Common Stock were issued and outstanding. All of the issued and outstanding
shares of Resources Common Stock are validly issued, fully paid,
nonassessable and free of preemptive rights. Except as set forth in Section
4.3(a) of the Resources Disclosure Schedule, there are no outstanding
subscriptions, options, calls, contracts, voting trusts, proxies or other
commitments, understandings, restrictions, arrangements, rights or warrants,
including any right of conversion or exchange under any outstanding
security, instrument or other agreement, obligating Resources or any of its
subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, shares of the capital stock of Resources or obligating Resources or
any of its subsidiaries to grant, extend or enter into any such agreement or
commitment, other than under the Resources Dividend Reinvestment and Common
Stock Purchase Plan, Resources Employee Stock Purchase Plan, Midwest Power
401(k) Plan for Salaried Employees and Midwest Power 401(k) Plan for
Bargaining Employees.
(b) MIDWEST POWER. The authorized capital stock of Midwest Power
consists of 100,000,000 shares of Midwest Power Common Stock and 10,000,000
shares of Midwest Power Preferred Stock. As of the close of business on July
22, 1994, 1,000 shares of Midwest Power Common Stock were issued and
outstanding and 2,717,794 shares of Midwest Power Preferred Stock were
issued and outstanding; Section 4.3(b) of the Resources Disclosure Schedule
lists the numbers of shares of each Series of Midwest Power Preferred Stock
outstanding on the date hereof. All of the issued and outstanding shares of
Midwest Power Common Stock and Midwest Power Preferred Stock are validly
issued, fully paid, nonassessable and free of preemptive rights. Except as
set forth in Section 4.3(b) of the Resources Disclosure Schedule, there are
no outstanding subscriptions, options, calls, contracts, voting trusts,
proxies or other commitments, understandings, restrictions, arrangements,
rights or warrants, including any right of conversion or exchange under any
outstanding security, instrument or other agreement, obligating Midwest
Power to issue, deliver or sell, or cause to be issued, delivered or sold,
shares of the capital stock of Midwest Power or obligating Midwest Power or
any of its subsidiaries to grant, extend or enter into any such agreement or
commitment.
(c) NO CHANGE IN CAPITAL STRUCTURE. There has been no material change
in the information set forth in Section 4.3(a) or 4.3(b) between the close
of business on July 22, 1994, and the date hereof.
SECTION 4.4 AUTHORITY; NON-CONTRAVENTION; STATUTORY APPROVALS;
COMPLIANCE.
(a) AUTHORITY. Each of Resources and Midwest Power has all requisite
power and authority to enter into this Agreement and, subject to the
applicable Resources Shareholders' Approval and
I-7
<PAGE>
the applicable Midwest Power Shareholders' Approval (as defined in Section
4.13) and the applicable Resources Required Statutory Approvals (as defined
in clause (c) below), to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation by
Resources and Midwest Power of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of
Resources and Midwest Power, subject to obtaining the applicable Resources
Shareholders' Approval and the Midwest Power Shareholders' Approval. This
Agreement has been duly and validly executed and delivered by Resources and
Midwest Power and, assuming the due authorization, execution and delivery
hereof by Iowa-Illinois, constitutes a valid and binding obligation of each
of Resources and Midwest Power enforceable against each of them in
accordance with its terms.
(b) NON-CONTRAVENTION. Except as set forth in Section 4.4(b) of the
Resources Disclosure Schedule, the execution and delivery of this Agreement
by Resources and Midwest Power do not, and, subject to obtaining the
Resources Required Statutory Approvals, the Resources Shareholders' Approval
and the third-party consents set forth in Section 4.4(b) of the Resources
Disclosure Schedule ("Resources Required Consents"), the consummation of the
transactions contemplated hereby will not, 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 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 material
benefit under, or result in the creation of any Lien upon any of the
properties or assets (any such violation, conflict, breach, default,
termination, acceleration, right of termination, cancellation or
acceleration, loss or creation, a "Violation") of Resources or any of its
subsidiaries or of any of their joint ventures pursuant to, any provisions
of (i) the articles of incorporation, by-laws or similar governing documents
of Resources or any of its subsidiaries or of any of their joint ventures,
(ii) any statute, law, ordinance, rule, regulation, judgment, decree, order,
injunction, writ, permit or license of any Governmental Authority (as
hereinafter defined) applicable to Resources or any of its subsidiaries or
any of their joint ventures or any of their respective 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 Resources or any of its
subsidiaries or any of their joint ventures is now a party or by which they
or any of their respective properties or assets may be bound or affected,
excluding from the foregoing clauses (ii) and (iii) such Violations as would
not, in the aggregate, have a Resources Material Adverse Effect.
(c) STATUTORY APPROVALS. No declaration, filing or registration with,
or notice to or authorization, consent or approval of, any court,
governmental or regulatory body (including a stock exchange or other
self-regulatory body) or authority, domestic or foreign (each, a
"Governmental Authority"), is necessary for the execution and delivery of
this Agreement by Resources and Midwest Power or the consummation by
Resources and Midwest Power, as the case may be, of the transactions
contemplated hereby, the failure of which to obtain, make or give would
have, in the aggregate, a Resources Material Adverse Effect, except as
described in Section 4.4(c) of the Resources Disclosure Schedule ("Resources
Required Statutory Approvals," it being understood that references in this
Agreement to "obtaining" such Resources Required Statutory Approvals shall
mean making such declarations, filings or registrations; giving such notice;
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 Sections 4.4(d) or 4.11 of the
Resources Disclosure Schedule, or as disclosed in the Resources SEC Reports
(as defined in Section 4.5), neither Resources nor any of its subsidiaries
nor, to the knowledge of Resources, any of their joint ventures, is in
violation of or is under investigation with respect to, 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 in the aggregate do not, and insofar
as
I-8
<PAGE>
reasonably can be foreseen will not, have a Resources Material Adverse
Effect. Except as set forth in Sections 4.4(d) or 4.11 of the Resources
Disclosure Schedule, Resources and each of its subsidiaries and each of
their joint ventures has all permits, licenses, franchises and other
governmental authorizations, consents and approvals (collectively,
"Permits") necessary to conduct their businesses as presently conducted,
except those the failure of which to obtain, in the aggregate do not, and
insofar as reasonably can be foreseen will not, have a Resources Material
Adverse Effect. Except as set forth in Section 4.4(d) of the Resources
Disclosure Schedule, or as disclosed in the Resources SEC Reports, neither
Resources nor any of its subsidiaries nor, to the knowledge of Resources,
any of their joint ventures, is 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 under, (i) the articles of incorporation, by-laws or similar
governing documents of Resources or such subsidiary or joint venture or (ii)
any contract, commitment, agreement, indenture, mortgage, loan agreement,
note, lease, bond, license, approval or other instrument to which Resources
or such subsidiary or joint venture is a party or by which it is bound or to
which any of its property is subject, except in the case of clause (ii)
above, for breaches, violations and defaults which in the aggregate do not,
and insofar as reasonably can be foreseen will not, have a Resources
Material Adverse Effect.
SECTION 4.5 REPORTS AND FINANCIAL STATEMENTS. The filings required to
be made by Resources and each of its subsidiaries under the Securities Act
of 1933, as amended ("Securities Act"), the Securities Exchange Act of 1934,
as amended ("Exchange Act"), applicable Iowa, South Dakota and Nebraska
public utility laws and regulations, the Federal Power Act ("Power Act") and
the 1935 Act have been filed with the Securities and Exchange Commission
("SEC"), the appropriate Iowa, South Dakota and Nebraska public utility
commissions or the Federal Energy Regulatory Commission ("FERC"), as the
case may be, including all forms, statements, reports, agreements (oral or
written) and all documents, exhibits, amendments and supplements
appertaining thereto, and complied in all material respects with all
applicable requirements of the appropriate act and the rules and regulations
thereunder. Resources has made available to Iowa-Illinois a true and
complete copy of each report, schedule, registration statement and
definitive proxy statement and all amendments thereto filed by Resources or
any of its subsidiaries with the SEC since January 1, 1991 (as such
documents have since the time of their filing been amended, the "Resources
SEC Reports"). As of their respective dates, the Resources SEC Reports did
not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not misleading. The
audited consolidated financial statements and unaudited interim financial
statements of Resources and Midwest Power included in the Resources SEC
Reports (collectively, the "Resources 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 except with respect to unaudited statements as permitted
by Form 10-Q under the Exchange Act) and fairly present the financial
position of Resources and Midwest Power, 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 of Resources and Midwest
Power, as in effect on the date hereof, and true, accurate and complete
copies of the by-laws of Resources and Midwest Power, as in effect on the
date hereof, are included (or incorporated by reference) in the Resources
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 the
Resources SEC Reports or Section 4.6 of the Resources Disclosure Schedule,
since December 31, 1993, Resources and each of its subsidiaries has
conducted its 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, insofar as reasonably can be foreseen, could have, a
Resources Material Adverse Effect.
I-9
<PAGE>
(b) ABSENCE OF UNDISCLOSED LIABILITIES. Neither Resources nor any of
its subsidiaries has any liabilities or obligations (whether absolute,
accrued, contingent or otherwise) 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 Resources and Midwest Power or
reflected in the notes thereto for the year ended December 31, 1993, or
which were incurred after December 31, 1993 in the ordinary course of
business and would not, in the aggregate, have a Resources Material Adverse
Effect.
SECTION 4.7 LITIGATION. Except as disclosed in the Resources SEC
Reports or as set forth in Sections 4.7 or 4.11 of the Resources Disclosure
Schedule, (i) there are no claims, suits, actions or proceedings, pending
or, to the knowledge of Resources, threatened, nor are there, to the
knowledge of Resources, any investigations or reviews pending or threatened
against, relating to or affecting Resources or any of its subsidiaries or
any of their joint ventures, (ii) there have not been any material
developments since December 31, 1993 with respect to such disclosed claims,
suits, actions, proceedings, investigations or reviews and (iii) there are
no judgments, decrees, injunctions, rules or orders of any Governmental
Authority or any arbitrator applicable to Resources or any of its
subsidiaries or any of their joint ventures, which, when taken together with
any other nondisclosures described in clauses (i), (ii) or (iii), would, or
insofar as reasonably can be foreseen could, have a Resources Material
Adverse Effect.
SECTION 4.8 REGISTRATION STATEMENT AND PROXY STATEMENT. None of the
information supplied or to be supplied by or on behalf of Resources or
Midwest Power for inclusion or incorporation by reference in (i) the
registration statement on Form S-4 to be filed with the SEC by the Company
in connection with the issuance of shares of Company Common Stock and
Company Preferred Stock, in the Merger ("Registration Statement") will, at
the time the Registration Statement is filed with the SEC and at the time it
becomes effective under the Securities Act, contain any untrue statement of
a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading and (ii)
the joint proxy statement in definitive form relating to the meetings of
Resources, Midwest Power and Iowa-Illinois shareholders to be held in
connection with the Merger ("Joint Proxy Statement") will, at the dates
mailed to shareholders of Resources, Midwest Power and Iowa-Illinois and at
the times of the meetings of such shareholders to be held in connection with
the Merger, 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. The
Registration Statement and the Joint 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 receipts, 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 similar statement 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.
(a) FILING OF TIMELY TAX RETURNS. Except as set forth in Section
4.9(a) of the Resources Disclosure Schedule, Resources and each of its
subsidiaries have filed (or will file) all Tax Returns required to be filed
by each of them under applicable law. All Tax Returns were in all material
respects (and, as to Tax Returns not filed as of the date hereof, will be)
true, complete and correct and filed on a timely basis.
I-10
<PAGE>
(b) PAYMENT OF TAXES. Resources and each of its 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. Resources and each of its subsidiaries have
established (and until the Closing Date will maintain) on their books and
records liabilities which adequately reflect its estimate of the amounts
required for federal and state income taxes in accordance with GAAP.
(d) TAX LIENS. There are no material Tax liens upon any assets of
Resources or any of its subsidiaries except liens for Taxes not yet due.
(e) WITHHOLDING TAXES. Resources and each of its subsidiaries have
complied (and until the Closing Date will comply) in all material respects
with the provisions of the Code relating to the payment and withholding of
Taxes, including, without limitation, the withholding and reporting
requirements under Code SectionSection 1441 through 1464, 3401 thorough
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 disclosed in
Section 4.9(f) of the Resources Disclosure Schedule, neither Resources nor
any of its subsidiaries has requested or been granted 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 disclosed in Section
4.9(g) of the Resources Disclosure Schedule, neither Resources nor any of
its 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 Resources Disclosure Schedule, the statute of
limitations for the assessment of all Taxes has expired for all applicable
Tax Returns of Resources and each of its subsidiaries or those Tax Returns
have been examined by the appropriate taxing authorities for all tax periods
ending before the date hereof, and no deficiency for any Taxes has been
proposed, asserted or assessed against Resources or any of its 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 Resources Disclosure Schedule, no audits or other
administrative proceedings or court proceedings are presently pending with
regard to any Taxes or Tax Returns of Resources or any of its subsidiaries.
(j) POWERS OF ATTORNEY. Except as disclosed in Section 4.9(j) of the
Resources Disclosure Schedule, no power of attorney currently in force has
been granted by Resources or any of its subsidiaries concerning any Tax
matter.
(k) TAX RULINGS. Except as disclosed in Section 4.9(k) of the
Resources Disclosure Schedule, neither Resources nor any of its 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 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.
(l) AVAILABILITY OF TAX RETURNS. As soon as practicable after the date
hereof, Resources and its subsidiaries will make available to Iowa-Illinois
complete and accurate copies, covering all years ending on or after December
31, 1989, of (i) all Tax Returns, and any amendments thereto, filed by
Resources or any of its subsidiaries, (ii) all audit reports received from
any taxing
I-11
<PAGE>
authority relating to any Tax Return filed by Resources or any of its
subsidiaries and (iii) any Tax Ruling or request for a Tax Ruling applicable
to Resources or any of its subsidiaries and any Closing Agreements entered
into by Resources or any of its subsidiaries.
(m) TAX SHARING AGREEMENTS. Except as disclosed in Section 4.9(m) of
the Resources Disclosure Schedule, no agreements relating to allocating or
sharing of Taxes exist between or among Resources and any of its
subsidiaries.
(n) CODE SECTION 341(F). Neither Resources nor any of its 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 Resources or any of its subsidiaries.
(o) CODE SECTION 168. Except as set forth in Section 4.9(o) of the
Resources Disclosure Schedule, no property of Resources or any of its
subsidiaries is property that Resources or any such 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).
(p) CODE SECTION 481 ADJUSTMENTS. Except as set forth in Section
4.9(p) of the Resources Disclosure Schedule, neither Resources nor any of
its 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 Resources or
any of its subsidiaries, and to the knowledge of Resources the Internal
Revenue Service ("IRS") has not proposed any such adjustment or change in
accounting method.
(q) ACQUISITION INDEBTEDNESS. Except as set forth in Section 4.9(q) of
the Resources Disclosure Schedule, no indebtedness of Resources or any of
its subsidiaries is "corporate acquisition indebtedness" within the meaning
of Code Section 279(b).
(r) INTERCOMPANY TRANSACTIONS. Except as set forth in Section 4.9(r)
of the Resources Disclosure Schedule, neither Resources nor any of its
subsidiaries has engaged in any intercompany transactions within the meaning
of Treasury Regulations 1.1502-13 or -14 or Temporary Treasury Regulation
Section 1.1502-13T or -14T for which any income or gain remains unrecognized
as of the close of the last taxable year prior to the Closing Date, and no
excess loss account within the meaning of Treasury Regulation SectionSection
1.1502-14, -19 or -32 exists with respect to Resources or any of its
subsidiaries.
(s) CODE SECTION 280G. Except as set forth in Section 4.9(s) of the
Resources Disclosure Schedule, neither Resources nor any of its subsidiaries
is a party to any agreement, contract, or arrangement that could result, on
account of the transactions contemplated hereunder, separately or in the
aggregate, in the payment of "excess parachute payments" within the meaning
of Code Section 280G.
(t) CONSOLIDATED TAX RETURNS. Neither Resources nor any of its
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 Resources is the common parent.
(u) NOLS. As of December 31, 1992, Resources and its subsidiaries had
net operating loss carryovers available to offset future income as set forth
in Section 4.9(u) of the Resources Disclosure Schedule. Section 4.9(u) of
the Resources Disclosure Schedule sets forth the amount of and year of
expiration of each company's net operating loss carryovers.
(v) CREDIT CARRYOVERS. As of December 31, 1992, Resources and its
subsidiaries had tax credit carryovers available to offset future tax
liability as set forth in Section 4.9(v) of the Resources Disclosure
Schedule. Section 4.9(v) of the Resources Disclosure Schedule sets forth the
amount and year of expiration of each company's tax credit carryovers.
I-12
<PAGE>
(w) CODE SECTION 338 ELECTIONS. Except as set forth in Section 4.9(w)
of the Resources Disclosure Schedule, no election under Code Section 338 (or
any predecessor provision) has been made by or with respect to Resources or
any of its subsidiaries or any of their respective assets or properties.
SECTION 4.10 EMPLOYEE MATTERS; ERISA.
(a) BENEFIT PLANS. As used in this Section 4.10, "Plan" shall mean any
employee plan, practice, arrangement (including, without limitation, any
employee benefit plan within the meaning of ERISA Section 3(3), employee
pension benefit plan, program, arrangement or agreement, any health,
medical, welfare, disability, life insurance, bonus, severance pay, and
other employee benefit or fringe benefit plan) maintained by or with respect
to which Resources has any fixed or contingent, direct or indirect
liability; and "Resources Benefit Plan" shall mean any Plan that provides
benefits with respect to employees or former employees of Resources or any
of its subsidiaries. Section 4.10(a) of the Resources Disclosure Schedule
contains a true and complete list of all Plans.
(b) CONTRIBUTIONS. Except as set forth in Section 4.10(b) of the
Resources Disclosure Schedule, all material contributions and other payments
required to be made by Resources or any of its subsidiaries to any Resources
Benefit Plan (or to any person pursuant to the terms thereof) have been made
or the amount of such contribution or payment obligation has been reflected
in the Resources Financial Statements. Except as set forth in Section
4.10(b) of the Resources Disclosure Schedule, the current value of all
accrued benefits under any Resources 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. Neither Resources nor any
entity which is or ever has been considered as a single employer together
with Resources or Midwest Power pursuant to Section 414 of the Code
contributes or has ever contributed 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 Resources Disclosure Schedule, each of the Resources Benefit Plans
intended to be "qualified" within the meaning of Code Section 401(a) has
been determined by the IRS to be so qualified, and, to the knowledge of
Resources and any of its subsidiaries, no circumstances exist that are
reasonably expected by Resources or any of its subsidiaries to result in the
revocation of any such determination. Resources and each of its subsidiaries
is in compliance in all respects with, and each of the Resources Benefit
Plans is and has been operated in all respects in compliance with the terms
thereof and all applicable laws, rules and regulations governing such plan,
including, without limitation, ERISA and the Code, except for any violations
that would not, or insofar as reasonably can be foreseen, could not, give
rise to a Resources Material Adverse Effect. Except as set forth in Section
4.10(c) of the Resources Disclosure Schedule, each Resources Benefit Plan
intended to provide for the deferral of income or the reduction of salary or
other compensation is effective to provide such deferral or reduction.
I-13
<PAGE>
(d) LIABILITIES. With respect to the Plans individually and in the
aggregate, there are no actions, suits or claims pending or, to the
knowledge of Resources, threatened (other than routine claims for benefits)
and no event has occurred, and, to the knowledge of Resources and any of its
subsidiaries, as of the date hereof there exists no condition or set of
circumstances, that could subject Resources or any of its 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 ("PBGC")), or under any
indemnity agreement to which Resources or any of its subsidiaries is
subject, which liability, excluding liability for benefit claims and funding
obligations payable in the ordinary course, would have, or insofar as
reasonably can be foreseen, could have, a Resources Material Adverse Effect.
(e) WELFARE PLANS. Except as set forth in Section 4.10(e) of the
Resources Disclosure Schedule, none of the Resources 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, and
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 would not, or insofar as
reasonably can be determined could not, give rise to a Resources Material
Adverse Effect.
(f) DOCUMENTS MADE AVAILABLE. Resources has made available to
Iowa-Illinois a true and correct copy of each collective bargaining
agreement to which Resources or any of its subsidiaries is a party or under
which Resources or any of its subsidiaries has obligations and, with respect
to each Resources 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, (v) the most recent actuarial report or valuation, and
(vi) all material employee communications.
(g) PAYMENTS RESULTING FROM MERGERS. Except as set forth in Section
4.10(g) of the Resources Disclosure Schedule, (i) 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) result in any (A) payment (whether of severance pay or otherwise)
becoming due from Resources or any of its subsidiaries to any officer,
employee, former employee or director thereof or to the trustee under any
"rabbi trust" or similar arrangement that would not have been paid without
regard to such announcement or consummation or (B) benefit being established
or becoming accelerated, vested or payable under any Resources Benefit Plan
and (ii) neither Resources nor any of its subsidiaries is a party to (A) any
management, employment, deferred compensation, severance (including any
payment, right or benefit resulting from a change in control), bonus or
other contract for personal services with any officer, director or employee,
(B) any consulting contract with any person who prior to entering into such
contract was a director or officer of Resources or any of its subsidiaries
or (C) any material plan, agreement, arrangement or understanding similar to
the foregoing.
(h) LABOR AGREEMENTS. As of the date hereof, except as set forth in
Section 4.10(h) of the Resources Disclosure Schedule, neither Resources nor
any of its subsidiaries is a party to any collective bargaining agreement or
other labor agreement with any union or labor organization. To the knowledge
of Resources and its subsidiaries, as of the date hereof, there is no
current union representation question involving employees of Resources or
any of its subsidiaries, nor does Resources nor any of its subsidiaries know
of any activity or proceeding of any labor organization (or representative
thereof) or employee group to organize any such employees. Except as
disclosed in the Resources SEC Reports or in Section 4.10(h) of the
Resources Disclosure Schedule, (i) there
I-14
<PAGE>
is no unfair labor practice, employment discrimination or other complaint
against Resources or any of its subsidiaries pending, or, to the knowledge
of Resources or any of its subsidiaries, threatened, which has or reasonably
may be expected by Resources or any of its subsidiaries to have, a Resources
Material Adverse Effect, (ii) there is no strike, dispute, slowdown, work
stoppage or lockout or other significant labor controversy pending, or, to
the knowledge of Resources or any of its subsidiaries, threatened, against
or involving Resources or any of its subsidiaries which has or, insofar as
reasonably can be foreseen, could have, a Resources Material Adverse Effect
and (iii) there is no proceeding, claim, suit, action or governmental
investigation pending or, to the knowledge of Resources or any of its
subsidiaries, threatened, in respect of which any director, officer,
employee or agent of Resources or any of its subsidiaries is or may be
entitled to claim indemnification from Resources or any of its subsidiaries
pursuant to their respective articles of incorporation or by-laws. Except as
set forth in Section 4.10(h) of the Resources Disclosure Schedule, Resources
and its subsidiaries have, to the knowledge of Resources and its
subsidiaries, 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 Resources
or any of its subsidiaries, asserted that Resources or any of its
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.
SECTION 4.11 ENVIRONMENTAL PROTECTION.
(a) COMPLIANCE. Except as set forth in Section 4.11(a) of the
Resources Disclosure Schedule, Resources and each of its subsidiaries is in
compliance with all applicable Environmental Laws (as hereinafter defined),
except where the failure to be in compliance would not have a Resources
Material Adverse Effect. Except as set forth in Section 4.11(a) of the
Resources Disclosure Schedule, neither Resources nor any of its subsidiaries
has received any communication (written or oral) from any person or
Governmental Authority that alleges that Resources or any of its
subsidiaries is not in such compliance with applicable Environmental Laws,
except where the failure to be in compliance would not have a Resources
Material Adverse Effect.
(b) ENVIRONMENTAL PERMITS. Except as set forth in Section 4.11(b) of
the Resources Disclosure Schedule, Resources and each of its subsidiaries
has 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, and all such permits are in good standing or,
where applicable, a renewal application has been timely filed and is pending
agency approval, and Resources and its subsidiaries are in material
compliance with all terms and conditions of the Environmental Permits,
except where the failure to obtain or be in compliance with such
Environmental Permit would not have a Resources Material Adverse Effect.
(c) ENVIRONMENTAL CLAIMS. Except as set forth in Section 4.11(c) of
the Resources Disclosure Schedule, to the best knowledge of Resources upon
diligent review, there is no Environmental Claim (as hereinafter defined)
pending or threatened (i) against Resources or any of its subsidiaries or
any of their joint ventures, (ii) against any person or entity whose
liability for any Environmental Claim Resources or any of its subsidiaries
or any of their joint ventures has or may have retained or assumed either
contractually or by operation of law or (iii) against any real or personal
property or operations which Resources or any of its subsidiaries or any of
their joint ventures owns, leases or manages, in whole or in part, which, if
adversely determined, would have in the aggregate a Resources Material
Adverse Effect.
(d) RELEASES. Except as set forth in Section 4.11(c) of the Resources
Disclosure Schedule or Section 4.11(d) of the Resources Disclosure Schedule,
Resources and each of its subsidiaries has no knowledge of any Releases (as
hereinafter defined) of any Hazardous Material (as hereinafter defined) that
would be reasonably likely to form the basis of any Environmental Claim
against
I-15
<PAGE>
Resources or any of its subsidiaries or any of their joint ventures, or
against any person or entity whose liability for any Environmental Claim
Resources or any of its subsidiaries or any of their joint ventures has or
may have retained or assumed either contractually or by operation of law,
except for Releases of Hazardous Materials, the liability for which would
not have, in the aggregate, a Resources Material Adverse Effect.
(e) PREDECESSORS. Except as set forth in Section 4.11(e) of the
Resources Disclosure Schedule, neither Resources nor any of its subsidiaries
has knowledge, with respect to any predecessor of Resources or any of its
subsidiaries or any of their 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
would have, or which Resources or any of its subsidiaries reasonably
believes would have, a Resources Material Adverse Effect.
(f) DISCLOSURE. Resources has disclosed to Iowa-Illinois all material
facts which Resources or any of its subsidiaries reasonably believes form
the basis of a Resources Material Adverse Effect arising from (i) the cost
to Resources or any of its subsidiaries of pollution control equipment
(including, without limitation, upgrades and other modifications to existing
equipment) currently required or known to be required in the future; (ii)
current costs to Resources or any of its subsidiaries of remediation or
costs to Resources or any of its subsidiaries of remediation known to be
required in the future; or (iii) any other environmental matter affecting
Resources or any of its subsidiaries which would have, or which Resources or
any of its subsidiaries reasonably believes would have, a Resources Material
Adverse Effect.
(g) 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 liability for enforcement,
investigatory costs, cleanup costs, governmental response costs, removal
costs, remedial costs, natural resources damages, property damages,
personal injuries, or penalties) arising out of, based on or resulting
from: (A) the presence, or Release or threatened Release into the
environment, of any Hazardous Materials at any location, whether or not
owned, operated, leased or managed by Resources or any of its
subsidiaries or any of their joint ventures (for purposes of this Section
4.11), or by Iowa-Illinois or any of its subsidiaries or any of their
joint ventures (for purposes of Section 5.11); 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 federal, state and local
statutes, regulations, ordinances and regulatory common law or equitable
doctrine relating to pollution control or protection of the environment,
human health or safety (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata),
including, without limitation, laws and regulations 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 ("PCBs"); and (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
I-16
<PAGE>
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 Resources or any of its
subsidiaries or any of their joint ventures operates (for purposes of
this Section 4.11) or in which Iowa-Illinois or any of its subsidiaries
or any of their joint ventures operates (for purposes of Section 5.11).
(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.
SECTION 4.12 REGULATION AS A UTILITY. Midwest Power is regulated as a
public utility in the States of Iowa, South Dakota and Nebraska. Except as
set forth in the preceding sentence, neither Resources nor any "subsidiary
company" or "affiliate" of Resources is subject to regulation as a public
utility or public service company (or similar designation) by a state in the
United States or any foreign country. As used in this Section 4.12 and in
Section 5.12, the terms "subsidiary company" and "affiliate" shall have the
respective meanings ascribed to them in the 1935 Act. Resources is an exempt
holding company under Section 3(a)(1) of the 1935 Act.
SECTION 4.13 VOTE REQUIRED. The approval by the holders of a majority
of the votes entitled to be cast by all holders of outstanding shares of (i)
Resources Common Stock, voting as a single class ("Resources Shareholders'
Approval"), and (ii) Midwest Power Preferred Stock, voting as a single
class, Midwest Power Common Stock, voting as a single class, and Midwest
Power Common Stock and Midwest Power Preferred Stock, voting together as a
single class (collectively, "Midwest Power Shareholders' Approval") are the
only votes of the holders of any class or series of the capital stock of
Resources or Midwest Power required to approve this Agreement and the
transactions contemplated hereby.
SECTION 4.14 ACCOUNTING MATTERS. Neither Resources, Midwest Power nor,
to their knowledge, any of their affiliates has taken or agreed to take any
action that would prevent the Company from accounting for the Merger as a
pooling of interests in accordance with GAAP and applicable SEC regulations.
As used in this Agreement, 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. As used in this definition, "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 interest, by
contract or otherwise).
SECTION 4.15 OPINION OF FINANCIAL ADVISOR. Resources has received the
opinion of PaineWebber Incorporated on July 26, 1994, to the effect that, as
of July 26, 1994, the Resources Conversion Ratio and the consideration to be
received by the holders of Resources Common Stock is fair from a financial
point of view to the holders of Resources Common Stock.
SECTION 4.16 INSURANCE. Except as set forth in Section 4.16 of the
Resources Disclosure Schedule, Resources and each of its subsidiaries is,
and has been continuously since January 1, 1989, insured with financially
responsible insurers in such amounts and against such risks and losses as
are customary for companies conducting the business as conducted by
Resources and its subsidiaries during such time period. Except as set forth
in Schedule 4.16 of the Resources Disclosure Schedule, neither Resources nor
any of its subsidiaries has received any notice of cancellation or
termination with respect to any material insurance policy of Resources or
any of its subsidiaries. The insurance policies of Resources and each of its
subsidiaries are valid and enforceable policies.
I-17
<PAGE>
SECTION 4.17 OWNERSHIP OF IOWA-ILLINOIS CAPITAL STOCK. Resources does
not "beneficially own" (as such term is defined in Rule 13d-3 under the
Exchange Act) any shares of Iowa-Illinois Common Stock, Iowa-Illinois
Preferred Shares, par value $100 per share ("Iowa-Illinois Preferred
Stock"), or Iowa-Illinois Preference Stock.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF IOWA-ILLINOIS
Iowa-Illinois represents and warrants to Resources and Midwest Power as
follows:
SECTION 5.1 ORGANIZATION AND QUALIFICATION. Iowa-Illinois and each of
its subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of its state of incorporation, has all
requisite power and authority, and has been duly authorized by all necessary
regulatory 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 be so qualified and in good standing will
not, when taken together with all other such failures, have a material
adverse effect on the business, operations, properties, assets, condition
(financial or other), prospects or the results of operations of
Iowa-Illinois and its subsidiaries taken as a whole or on the consummation
of the transactions contemplated by this Agreement (any such material
adverse effect being hereinafter referred to as an "Iowa-Illinois Material
Adverse Effect").
SECTION 5.2 SUBSIDIARIES. Section 5.2 of the Iowa-Illinois Disclosure
Schedule (as defined in Section 7.6(a)(ii)) sets forth a description as of
the date hereof of all subsidiaries of Iowa-Illinois and their 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 Iowa-Illinois and its subsidiaries therein. Except as set forth
in Section 5.2 of the Iowa-Illinois Disclosure Schedule, none of such
entities is a "holding company," a "subsidiary company" of a holding company
or an "affiliate" of a holding company within the meaning of Section
2(a)(7), 2(a)(8) or 2(a)(11) of the 1935 Act, respectively. Except as set
forth in Section 5.2 of the Iowa-Illinois Disclosure Schedule, all of the
issued and outstanding shares of capital stock of each subsidiary of
Iowa-Illinois are validly issued, fully paid, nonassessable and free of
preemptive rights, are owned directly or indirectly by Iowa-Illinois free
and clear of any Liens, and there are no outstanding subscriptions, options,
calls, contracts, voting trusts, proxies or other commitments,
understandings, restrictions, arrangements, rights or warrants, including
any right of conversion or exchange under any outstanding security,
instrument or other agreement, obligating Iowa-Illinois or any subsidiary of
Iowa-Illinois to issue, deliver or sell, or cause to be issued, delivered or
sold, shares of the capital stock of any subsidiary of Iowa-Illinois or
obligating Iowa-Illinois or any of its subsidiaries to grant, extend or
enter into any such agreement or commitment.
SECTION 5.3 CAPITALIZATION. (a) The authorized capital stock of
Iowa-Illinois consists of 80,000,000 shares of Iowa-Illinois Common Stock,
400,000 shares of Iowa-Illinois Preferred Stock, and 2,386,250 shares of
Iowa-Illinois Preference Stock. As of the close of business on July 22,
1994, (i) 29,491,416 shares of Iowa-Illinois Common Stock were issued and
outstanding, (ii) 198,288 shares of Iowa-Illinois Preferred Stock were
issued and outstanding and 500,000 shares of Iowa-Illinois Preference Stock
were issued and outstanding; Section 5.3 of the Iowa-Illinois Disclosure
Schedule lists the numbers of shares of each Series of Iowa-Illinois
Preferred Stock and Iowa-Illinois Preference Stock outstanding on the date
hereof. All of the issued and outstanding shares of the capital stock of
Iowa-Illinois are validly issued, fully paid, nonassessable and free of
preemptive rights. Except as set forth in Section 5.3 of the Iowa-Illinois
Disclosure Schedule, there are no outstanding subscriptions, options, calls,
contracts, voting trusts, proxies or other commitments, understandings,
restrictions, arrangements, rights or warrants, including
I-18
<PAGE>
any right of conversion or exchange under any outstanding security,
instrument or other agreement, obligating Iowa-Illinois or any of its
subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, shares of the capital stock of Iowa-Illinois or obligating
Iowa-Illinois or any of its subsidiaries to grant, extend or enter into any
such agreement or commitment other than under the Iowa-Illinois Dividend
Reinvestment Plan, Iowa-Illinois Key Employee Performance Plan or the
Iowa-Illinois Shareholders Rights Agreement dated as of February 25, 1992
("Iowa-Illinois Shareholders Rights Plan").
(b) NO CHANGE IN CAPITAL STRUCTURE. There has been no material change
in the information set forth in Section 5.3(a) between the close of business
on July 22, 1994, and the date hereof.
SECTION 5.4 AUTHORITY; NON-CONTRAVENTION; STATUTORY APPROVALS;
COMPLIANCE.
(a) AUTHORITY. Iowa-Illinois has all requisite power and authority to
enter into this Agreement and, subject to the applicable Iowa-Illinois
Shareholders' Approval (as defined in Section 5.13) and the applicable
Iowa-Illinois Required Statutory Approvals (as defined in clause (c) below),
to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation by Iowa-Illinois of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Iowa-Illinois, subject to obtaining the
applicable Iowa-Illinois Shareholders' Approval. This Agreement has been
duly and validly executed and delivered by Iowa-Illinois and, assuming the
due authorization, execution and delivery hereof by Resources and Midwest
Power, constitutes a valid and binding obligation of Iowa-Illinois
enforceable against it in accordance with its terms.
(b) NON-CONTRAVENTION. Except as set forth in Section 5.4(b) of the
Iowa-Illinois Disclosure Schedule, the execution and delivery of this
Agreement by Iowa-Illinois does not, and, subject to obtaining the
Iowa-Illinois Required Statutory Approvals, the Iowa-Illinois Shareholders'
Approval and the third-party consents set forth in Section 5.4(b) of the
Iowa-Illinois Disclosure Schedule ("Iowa-Illinois Required Consents"), the
consummation of the transactions contemplated hereby will not, 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 any Violation by Iowa-Illinois or any of its subsidiaries or any of their
joint ventures pursuant to, any provisions of (i) the articles of
incorporation, by-laws or similar governing documents of Iowa-Illinois or
any of its subsidiaries or of any of their joint ventures, (ii) any statute,
law, ordinance, rule, regulation, judgment, decree, order, injunction, writ,
permit or license of any Governmental Authority applicable to Iowa-Illinois
or any of its subsidiaries or any of their joint ventures, or any of their
respective 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
Iowa-Illinois or any of its subsidiaries or any of their joint ventures is
now a party or by which they or any of their respective properties or assets
may be bound or affected, excluding from the foregoing clauses (ii) and
(iii) such Violations as would not, in the aggregate, have an Iowa-Illinois
Material Adverse Effect.
(c) STATUTORY APPROVALS. 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
Iowa-Illinois or the consummation by Iowa-Illinois of the transactions
contemplated hereby, the failure of which to obtain, make or give would
have, in the aggregate, an Iowa-Illinois Material Adverse Effect, except as
described in Section 5.4(c) of the Iowa-Illinois Disclosure Schedule
("Iowa-Illinois Required Statutory Approvals," it being understood that
references in this Agreement to "obtaining" such Iowa-Illinois Required
Statutory Approvals shall mean making such declarations, filings or
registrations; giving such notice; 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 Sections 5.4(d) or 5.11 of the
Iowa-Illinois Disclosure Schedule, or as disclosed in the Iowa-Illinois SEC
Reports (as defined in Section 5.5), neither
I-19
<PAGE>
Iowa-Illinois nor any of its subsidiaries nor, to the knowledge of
Iowa-Illinois or any of its subsidiaries, any of their joint ventures, is in
violation of, or is under investigation with respect to 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 in the aggregate do not, and insofar
as can reasonably be foreseen will not, have an Iowa-Illinois Material
Adverse Effect. Except as set forth in Sections 5.4(d) or 5.11 of the
Iowa-Illinois Disclosure Schedule, Iowa-Illinois and each of its
subsidiaries and each of their joint ventures has all Permits necessary to
conduct their businesses as presently conducted except those which the
failure to obtain in the aggregate do not, and insofar as reasonably can be
foreseen will not, have an Iowa-Illinois Material Adverse Effect. Except as
set forth in Section 5.4(d) of the Iowa-Illinois Disclosure Schedule, or as
disclosed in the Iowa-Illinois SEC Reports, neither Iowa-Illinois nor any of
its subsidiaries nor, to the knowledge of Iowa-Illinois, any of their joint
ventures, is 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
under, (i) the articles of incorporation, by-laws or similar governing
documents of Iowa-Illinois or such subsidiary or joint venture or (ii) any
contract, commitment, agreement, indenture, mortgage, loan agreement, note,
lease, bond, license, approval or other instrument to which Iowa-Illinois or
such subsidiary or joint venture is a party or by which it is bound or to
which any of its property is subject, except in the case of clause (ii)
above, for breaches, violations and defaults which in the aggregate do not,
and insofar as reasonably can be foreseen will not, have an Iowa-Illinois
Material Adverse Effect.
SECTION 5.5 REPORTS AND FINANCIAL STATEMENTS. The filings required to
be made by Iowa-Illinois and each of its subsidiaries under the Securities
Act, the Exchange Act, applicable Iowa and Illinois public utility laws and
regulations, the Power Act, the 1935 Act and the Atomic Energy Act have been
filed with the SEC, the appropriate Iowa and Illinois public utility
commissions, the FERC or the Nuclear Regulatory Commission, as the case may
be, including all forms, statements, reports, agreements (oral or written)
and all documents, exhibits, amendments and supplements appertaining
thereto, and complied in all material respects with all applicable
requirements of the appropriate act and the rules and regulations
thereunder. Iowa-Illinois has made available to Resources a true and
complete copy of each report, schedule, registration statement and
definitive proxy statement and all amendments thereto filed by Iowa-Illinois
with the SEC since January 1, 1991 (as such documents have since the time of
their filing been amended, the "Iowa-Illinois SEC Reports"). As of their
respective dates, the Iowa-Illinois SEC Reports did not contain any untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements made therein, in light of the circumstances
under which they were made, not misleading. The audited consolidated
financial statements and unaudited interim financial statements of
Iowa-Illinois included in the Iowa-Illinois SEC Reports ("Iowa-Illinois
Financial Statements") have been prepared in accordance with GAAP (except as
may be indicated therein or in the notes thereto and except with respect to
unaudited statements as permitted by Form 10-Q under the Exchange Act) and
fairly present the financial position of Iowa-Illinois as of the dates
thereof and the results of its 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
Iowa-Illinois, as in effect on the date hereof, are included (or
incorporated by reference) in the Iowa-Illinois SEC Reports.
SECTION 5.6 ABSENCE OF CERTAIN CHANGES OR EVENTS; ABSENCE OF
UNDISCLOSED LIABILITIES.
(a) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in the
Iowa-Illinois SEC Reports or Section 5.6 of the Iowa-Illinois Disclosure
Schedule, since December 31, 1993, Iowa-Illinois and each of its
subsidiaries has conducted its business only in the ordinary course of
I-20
<PAGE>
business consistent with past practice and there has not been any
Iowa-Illinois Material Adverse Effect, and no fact or condition exists which
would have, or, insofar as reasonably can be foreseen, could have, an
Iowa-Illinois Material Adverse Effect.
(b) ABSENCE OF UNDISCLOSED LIABILITIES. Neither Iowa-Illinois nor any
of its subsidiaries has any liabilities or obligations (whether absolute,
accrued, contingent or otherwise) 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 Iowa-Illinois or reflected in the notes
thereto for the year ended December 31, 1993, or which were incurred after
December 31, 1993 in the ordinary course of business and would not, in the
aggregate, have an Iowa-Illinois Material Adverse Effect.
SECTION 5.7 LITIGATION. Except as disclosed in the Iowa-Illinois SEC
Reports or as set forth in Sections 5.7 or 5.11 of the Iowa-Illinois
Disclosure Schedule, (i) there are no claims, suits, actions or proceedings,
pending or, to the knowledge of Iowa-Illinois or its subsidiaries,
threatened, nor are there, to the knowledge of Iowa-Illinois, any
investigations or reviews pending or threatened against, relating to or
affecting Iowa-Illinois or any of its subsidiaries or any of their joint
ventures, (ii) there have not been any material developments since December
31, 1993 with respect to such disclosed claims, suits, actions, proceedings,
investigations or reviews and (iii) there are no judgments, decrees,
injunctions, rules or orders of any Governmental Authority or any arbitrator
applicable to Iowa-Illinois or any of its subsidiaries or any of their joint
ventures, which, when taken together with any other nondisclosures described
in clause (i), (ii) or (iii), would, or insofar as reasonably can be
foreseen could, have an Iowa-Illinois Material Adverse Effect.
SECTION 5.8 REGISTRATION STATEMENT AND PROXY STATEMENT. None of the
information supplied or to be supplied by or on behalf of Iowa-Illinois for
inclusion or incorporation by reference in (i) the Registration Statement
will, at the time the Registration Statement is filed with the SEC and at
the time it becomes effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein not misleading
and (ii) the Joint Proxy Statement will, at the date mailed to shareholders
of Resources, Midwest Power and Iowa-Illinois and at the times of the
meetings of such shareholders to be held in connection with the Merger,
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. The
Registration Statement and the Joint Proxy Statement will comply as to form
in all material respects with the provisions of applicable federal
securities law.
SECTION 5.9 TAX MATTERS.
(a) FILING OF TIMELY TAX RETURNS. Except as set forth in Section
5.9(a) of the Iowa-Illinois Disclosure Schedule, Iowa-Illinois and each of
its subsidiaries have filed or will file all Tax Returns required to be
filed by each of them under applicable law. All Tax Returns were in all
material respects (and, as to Tax Returns not filed as of the date hereof,
will be) true, complete and correct and filed on a timely basis.
(b) PAYMENT OF TAXES. Iowa-Illinois and each of its subsidiaries have,
within the time and in the matter 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. Iowa-Illinois and each of its subsidiaries have
established (and until the Closing Date will maintain) on their books and
records liabilities which adequately reflect its estimate of amounts
required for federal and state income taxes in accordance with GAAP.
(d) TAX LIENS. There are no material Tax liens upon any assets of
Iowa-Illinois or any of its subsidiaries except liens for Taxes not yet due.
I-21
<PAGE>
(e) WITHHOLDING TAXES. Iowa-Illinois and each of its subsidiaries have
complied (and until the Closing Date will comply) in all material respects
with the provisions of the Code relating to the payment and withholding of
Taxes, including, without limitation, the withholding and reporting
requirements under Code SectionSection 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 5.9(f) of the Iowa-Illinois Disclosure Schedule, neither
Iowa-Illinois nor any of its subsidiaries has requested or been granted 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
5.9(g) of the Iowa-Illinois Disclosure Schedule, neither Iowa-Illinois nor
any of its 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 set forth in
Section 5.9(h) of the Iowa-Illinois Disclosure Schedule, the statute of
limitations for the assessment of all Taxes has expired for all applicable
Tax Returns of Iowa-Illinois and each of its subsidiaries or those Tax
Returns have been examined by the appropriate taxing authorities for all tax
periods ended before the date hereof, and no deficiency for any Taxes has
been proposed, asserted or assessed against Iowa-Illinois or any of its
subsidiaries that has not been resolved and paid in full.
(i) AUDIT, ADMINISTRATIVE AND COURT PROCEEDINGS. Except as set forth
in Section 5.9(i) of the Iowa-Illinois Disclosure Schedule, no audits or
other administrative proceedings or court proceedings are presently pending
with regard to any Taxes or Tax Returns of Iowa-Illinois or any of its
subsidiaries.
(j) POWERS OF ATTORNEY. Except as set forth in Section 5.9(j) of the
Iowa-Illinois Disclosure Schedule, no power of attorney currently in force
has been granted by Iowa-Illinois or any of its subsidiaries concerning any
Tax matter.
(k) TAX RULINGS. Except as set forth in Section 5.9(k) of the
Iowa-Illinois Disclosure Schedule, neither Iowa-Illinois nor any of its
subsidiaries has received or requested a Tax Ruling or entered into a
Closing Agreement with any taxing authority that would have a continuing
effect after the Closing Date.
(l) AVAILABILITY OF TAX RETURNS. As soon as practicable after the date
hereof, Iowa-Illinois and its subsidiaries will make available to Resources
and Midwest Power complete and accurate copies, covering all years ending on
or after December 31, 1989, of (i) all Tax Returns, and any amendments
thereto, filed by Iowa-Illinois or any of its subsidiaries, (ii) all audit
reports received from any taxing authority relating to any Tax Return filed
by Iowa-Illinois or any of its subsidiaries and (iii) any Tax Ruling or
request for a Tax Ruling applicable to Iowa-Illinois or any of its
subsidiaries and any Closing Agreements entered into by Iowa-Illinois or any
of its subsidiaries.
(m) TAX SHARING AGREEMENTS. Except as disclosed in Section 5.9(m) of
the Iowa-Illinois Disclosure Schedule, no agreements relating to allocating
or sharing of Taxes exist between or among Iowa-Illinois and any of its
subsidiaries.
(n) CODE SECTION 341(F). Neither Iowa-Illinois nor any of its
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 Iowa-Illinois or any of its
subsidiaries.
(o) CODE SECTION 168. Except as set forth in Section 5.9(o) of the
Iowa-Illinois Disclosure Schedule, no property of Iowa-Illinois or any of
its subsidiaries is property that Iowa-Illinois or any such
I-22
<PAGE>
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).
(p) CODE SECTION 481 ADJUSTMENTS. Except as set forth in Section
5.9(p) of the Iowa-Illinois Disclosure Schedule, neither Iowa-Illinois nor
any of its 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
Iowa-Illinois or any of its subsidiaries, and to the knowledge of
Iowa-Illinois, the IRS has not proposed any such adjustment or change in
accounting method.
(q) ACQUISITION INDEBTEDNESS. Except as set forth in Section 5.9(q) of
the Iowa-Illinois Disclosure Schedule, no indebtedness of Iowa-Illinois or
any of its subsidiaries is "corporate acquisition indebtedness" within the
meaning of Code Section 279(b).
(r) INTERCOMPANY TRANSACTIONS. Except as set forth in Section 5.9(r)
of the Iowa-Illinois Disclosure Schedule, neither Iowa-Illinois nor any of
its subsidiaries has engaged in any intercompany transactions within the
meaning of Treasury Regulations Section 1.1502-13 or -14 or Temporary
Treasury Regulation Section 1.502-13T or -14T for which any income or gain
remains unrecognized as of the close of the last taxable year prior to the
Closing Date and no excess loss account within the meaning of Treasury
Regulation Section 1.502-14, -19 or -32 exists with respect to Iowa-Illinois
or any of its subsidiaries.
(s) CODE SECTION 280G. Except as set forth in Section 5.9(s) of the
Iowa-Illinois Disclosure Schedule, neither Iowa-Illinois nor any of its
subsidiaries is a party to any agreement, contract, or arrangement that
could result, on account of the transactions contemplated hereunder,
separately or in the aggregate, in the payment of any "excess parachute
payments" within the meaning of the Code Section 280G.
(t) CONSOLIDATED TAX RETURNS. Neither Iowa-Illinois nor any of its
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 Iowa-Illinois is the common parent.
(u) NOLS. As of December 31, 1992, Iowa-Illinois and its subsidiaries
had net operating loss carryovers available to offset future income as set
forth in Section 5.9(u) of the Iowa-Illinois Disclosure Schedule. Section
5.9(u) of the Iowa-Illinois Disclosure Schedule sets forth the amount of and
year of expiration of each company's net operating loss carryovers.
(v) CREDIT CARRYOVERS. As of December 31, 1992, Iowa-Illinois and its
subsidiaries had tax credit carryovers available to offset future tax
liability as set forth in Section 5.9(v) of the Iowa-Illinois Disclosure
Schedule. Section 5.9(v) of the Iowa-Illinois Disclosure Schedule sets forth
the amount and year of expiration of each company's tax credit carryovers.
(w) CODE SECTION 338 ELECTIONS. Except as set forth in Section 5.9(w)
of the Iowa-Illinois Disclosure Schedule, no election under Code Section 338
(or any predecessor provision) has been made by or with respect to
Iowa-Illinois or any of its subsidiaries or any of their respective assets
or properties.
SECTION 5.10 EMPLOYEE MATTERS; ERISA.
(a) BENEFIT PLANS. As used in this Section 5.10, "Plan" shall mean any
employee plan, practice, arrangement (including, without limitation, any
employee benefit plan within the meaning of ERISA Section 3(3), employee
pension benefit plan, program, arrangement or agreement, any health,
medical, welfare, disability, life insurance, bonus, severance pay, and
other employee benefit or fringe benefit plan) maintained by or with respect
to which Iowa-Illinois has any fixed or contingent, direct or indirect
liability; and "Iowa-Illinois Benefit Plan" shall mean any Plan
I-23
<PAGE>
that provides benefits with respect to employees or former employees of
Iowa-Illinois or any of its subsidiaries. Section 5.10(a) of the
Iowa-Illinois Disclosure Schedule contains a true and complete list of all
Plans.
(b) CONTRIBUTIONS. Except as set forth in Section 5.10(b) of the
Iowa-Illinois Disclosure Schedule, all material contributions and other
payments required to be made by Iowa-Illinois or any of its subsidiaries to
any Iowa-Illinois Benefit Plan (or to any person pursuant to the terms
thereof) have been made or the amount of such contribution obligation has
been reflected in the Iowa-Illinois Financial Statements. Except as set
forth in Section 5.10(b) of the Iowa-Illinois Disclosure Schedule, the
current value of all accrued benefits under any Iowa-Illinois 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. Neither Iowa-Illinois nor any entity which is or ever has been
considered as a single employer together with Iowa-Illinois pursuant to
Section 414 of the Code contributes or has ever contributed 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 5.10(c)
of the Iowa-Illinois Disclosure Schedule, each of the Iowa-Illinois Benefit
Plans intended to be "qualified" within the meaning of Code Section 401(a)
has been determined by the IRS to be so qualified, and, to the knowledge of
Iowa-Illinois and any of its subsidiaries, no circumstances exist that are
reasonably expected by Iowa-Illinois or any of its subsidiaries to result in
the revocation of any such determination. Iowa-Illinois and each of its
subsidiaries is in compliance in all respects with, and each Iowa-Illinois
Benefit Plan is and has been operated in all respects in compliance with the
terms thereof and all applicable laws, rules and regulations governing such
plan, including, without limitation, ERISA and the Code, except for any
violations that would not, or insofar as can reasonably be foreseen, could
not give rise to an Iowa-Illinois Material Adverse Effect. Except as set
forth in Section 5.10(c) of the Iowa-Illinois Disclosure Schedule, each
Iowa-Illinois Benefit Plan intended to provide for the deferral of income or
the reduction of salary or other compensation is effective to provide such
deferral or reduction.
(d) LIABILITIES. Except with respect to the Iowa-Illinois Severance
Plan, the Iowa-Illinois Supplemental Retirement Plan for Designated
Officers, the Iowa-Illinois Key Employee Sustained Performance Plan, the
Iowa-Illinois Compensation Deferral Plan for Designated Officers and the
Iowa-Illinois Compensation Deferral Plan for Key Executives, there are no
actions, suits or claims pending or, to the knowledge of Iowa-Illinois,
threatened (other than routine claims for benefits) and no event has
occurred with respect to the Plans individually and in the aggregate, and,
to the knowledge of Iowa-Illinois and any of its subsidiaries, as of the
date hereof there exists no condition or set of circumstances, that could
subject Iowa-Illinois or any of its 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 PBGC),
or under any indemnity agreement to which Iowa-Illinois or any of its
subsidiaries is subject, which liability, excluding liability for benefit
claims and funding obligations payable in the ordinary course, would have,
or insofar as reasonably can be foreseen, could have, an Iowa-Illinois
Material Adverse Effect.
(e) WELFARE PLANS. Except as set forth in Section 5.10(e) of the
Iowa-Illinois Disclosure Schedule, none of the Iowa-Illinois 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, and each such plan that is a "group health plan" (as defined
I-24
<PAGE>
in Code Section 4980B(g)) has been operated in compliance with Code Section
4980B at all times, except for any non-compliance that would not, or insofar
as reasonably can be determined could not, give rise to an Iowa-Illinois
Material Adverse Effect.
(f) DOCUMENTS MADE AVAILABLE. Iowa-Illinois has made available to
Resources a true and correct copy of each collective bargaining agreement to
which Iowa-Illinois or any of its subsidiaries is a party or under which
Iowa-Illinois or any of its subsidiaries has obligations, and with respect
to each Iowa-Illinois 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, (v) the most recent actuarial report or valuation and
(vi) all material employee communications.
(g) PAYMENTS RESULTING FROM MERGERS. Except as set forth in Section
5.10(g) of the Iowa-Illinois Disclosure Schedule, (i) 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) result in any (A) payment (whether of severance pay or otherwise)
becoming due from Iowa-Illinois or any of its subsidiaries to any officer,
employee, former employee or director thereof or to the trustee under any
"rabbi trust" or similar arrangement that would not have been paid without
regard to such announcement or consummation or (B) benefit established or
becoming accelerated, vested or payable under any Iowa-Illinois Benefit Plan
and (ii) neither Iowa-Illinois nor any of its subsidiaries is a party to (A)
any management, employment, deferred compensation, severance (including any
payment, right or benefit resulting from a change in control), bonus or
other contract for personal services with any officer, director or employee,
(B) any consulting contract with any person who prior to entering into such
contract was a director or officer of Iowa-Illinois or any of its
subsidiaries or (C) any material plan, agreement, arrangement or
understanding similar to any of the foregoing.
(h) LABOR AGREEMENTS. As of the date hereof, except as set forth in
Section 5.10(h) of the Iowa-Illinois Disclosure Schedule, neither
Iowa-Illinois nor any of its subsidiaries is a party to any collective
bargaining agreement or other labor agreement with any union or labor
organization. To the knowledge of Iowa-Illinois and any of its subsidiaries,
as of the date hereof, except as set forth in Section 5.10(h) of the
Iowa-Illinois Disclosure Statement, there is no current union representation
question involving employees of Iowa-Illinois or any of its subsidiaries,
nor does Iowa-Illinois know of any activity or proceeding of any labor
organization (or representative thereof) or employee group to organize any
such employees. Except as disclosed in the Iowa-Illinois SEC Reports or in
Section 5.10(h) of the Iowa-Illinois Disclosure Schedule, (i) there is no
unfair labor practice, employment discrimination or other complaint against
Iowa-Illinois or any of its subsidiaries pending, or, to the knowledge of
Iowa-Illinois or any of its subsidiaries, threatened, which has or
reasonably may be expected by Iowa-Illinois or any of its subsidiaries to
have an Iowa-Illinois Material Adverse Effect, (ii) there is no strike,
dispute, slowdown, work stoppage or lockout or other significant labor
controversy, pending, or, to the knowledge of Iowa-Illinois or any of its
subsidiaries, threatened, against or involving Iowa-Illinois or any of its
subsidiaries which has or, insofar as reasonably can be foreseen, could
have, an Iowa-Illinois Material Adverse Effect and (iii) there is no
proceeding, claim, suit, action or governmental investigation pending or, to
the knowledge of Iowa-Illinois or any of its subsidiaries, threatened, in
respect of which any director, officer, employee or agent of Iowa-Illinois
or any of its subsidiaries is or may be entitled to claim indemnification
from Iowa-Illinois or any of its subsidiaries pursuant to their respective
charters or by-laws. Except as set forth in Section 5.10(h) of the Iowa-
Illinois Disclosure Schedule, Iowa-Illinois and its subsidiaries have, to
the knowledge of Iowa-Illinois and its subsidiaries, 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
I-25
<PAGE>
the knowledge of Iowa-Illinois or any of its subsidiaries, asserted that
Iowa-Illinois or any of its 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.
SECTION 5.11 ENVIRONMENTAL PROTECTION.
(a) COMPLIANCE. Except as set forth in Section 5.11(a) of the
Iowa-Illinois Disclosure Schedule, Iowa-Illinois and each of its
subsidiaries is in compliance with all applicable Environmental Laws, except
where the failure to be in compliance would not have an Iowa-Illinois
Material Adverse Effect. Except as set forth in Section 5.11(a) of the
Iowa-Illinois Disclosure Schedule, neither Iowa-Illinois nor any of its
subsidiaries has received any communication (written or oral) from any
person or Governmental Authority, that alleges that Iowa-Illinois or any of
its subsidiaries is not in such compliance with applicable Environmental
Laws, except where the failure to be in compliance would not have an
Iowa-Illinois Material Adverse Effect.
(b) ENVIRONMENTAL PERMITS. Except as set forth in Section 5.11(b) of
the Iowa-Illinois Disclosure Schedule, Iowa-Illinois and each of its
subsidiaries has obtained or has applied for all Environmental Permits
necessary for the construction of its facilities or the conduct of its
operations, and all such permits are in good standing or, where applicable,
a renewal application has been timely filed and is pending agency approval,
and Iowa-Illinois and its subsidiaries are in material compliance with all
terms and conditions of the Environmental Permits, except where the failure
to obtain or be in compliance with the Environmental Permit would not have
an Iowa-Illinois Material Adverse Effect.
(c) ENVIRONMENTAL CLAIMS. Except as set forth in Section 5.11(c) of
the Iowa-Illinois Disclosure Schedule, to the best knowledge of
Iowa-Illinois and each of its subsidiaries upon diligent review, there is no
Environmental Claim pending or threatened (i) against Iowa-Illinois or any
of its subsidiaries or any of their joint ventures, (ii) against any person
or entity whose liability for any Environmental Claim Iowa-Illinois or any
of its subsidiaries or any of their joint ventures has or may have retained
or assumed either contractually or by operation of law or (iii) against any
real or personal property or operations which Iowa-Illinois or any of its
subsidiaries or any of their joint ventures owns, leases or manages, in
whole or in part, which if adversely determined, would have in the aggregate
an Iowa-Illinois Material Adverse Effect.
(d) RELEASES. Except as set forth in Section 5.11(c) of the
Iowa-Illinois Disclosure Schedule or Section 5.11(d) of the Iowa-Illinois
Disclosure Schedule, Iowa-Illinois and each of its subsidiaries has no
knowledge of any Releases of any Hazardous Material that would be reasonably
likely to form the basis of any Environmental Claim against Iowa-Illinois or
any of its subsidiaries or any of their joint ventures, or against any
person or entity whose liability for any Environmental Claim Iowa-Illinois
or any of its subsidiaries or any of their joint ventures has or may have
retained or assumed either contractually or by operation of law, except for
Releases of Hazardous Materials, the liability for which would not have, in
the aggregate, an Iowa-Illinois Material Adverse Effect.
(e) PREDECESSORS. Except as set forth in Section 5.11(e) of the
Iowa-Illinois Disclosure Schedule, neither Iowa-Illinois nor any of its
subsidiaries has knowledge, with respect to any predecessor of Iowa-Illinois
or any of its subsidiaries or any of their 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 would have, or which Iowa-Illinois or any of its
subsidiaries reasonably believes would have, an Iowa-Illinois Material
Adverse Effect.
(f) DISCLOSURE. Iowa-Illinois has disclosed to Resources all material
facts which Iowa-Illinois reasonably believes form the basis of an
Iowa-Illinois Material Adverse Effect arising from (i) the cost of
Iowa-Illinois pollution control equipment (including, without limitation,
upgrades and other modifications to existing equipment) currently required
or known to be required in the
I-26
<PAGE>
future; (ii) current Iowa-Illinois remediation costs or Iowa-Illinois
remediation costs known to be required in the future; or (iii) any other
environmental matter affecting Iowa-Illinois which would have, or which
Iowa-Illinois or any of its subsidiaries reasonably believes would have, an
Iowa-Illinois Material Adverse Effect.
SECTION 5.12 REGULATION AS A UTILITY. Iowa-Illinois is regulated as a
public utility in the States of Iowa and Illinois and in no other state.
Neither Iowa-Illinois nor any "subsidiary company" or "affiliate" of
Iowa-Illinois is subject to regulation as a public utility or public service
company (or similar designation) by any other state in the United States or
any foreign country. Iowa-Illinois is not a holding company under the 1935
Act.
SECTION 5.13 VOTE REQUIRED. The approval by the holders of two-thirds
of the votes entitled to be cast by all holders of outstanding shares of (i)
Iowa-Illinois Preference Stock, voting as a single class, (ii) Iowa-Illinois
Common Stock, voting as a single class, and (iii) Iowa-Illinois Preference
Stock and Iowa-Illinois Common Stock, voting together as a single class
(collectively, "Iowa-Illinois Shareholders' Approval") are the only votes of
holders of any class or series of the capital stock of Iowa-Illinois
required to approve this Agreement and the transactions contemplated hereby
assuming the redemption or purchase of the Iowa-Illinois Preferred Stock in
accordance with Section 7.6.
SECTION 5.14 ACCOUNTING MATTERS. Neither Iowa-Illinois nor, to its
knowledge, any of its affiliates has taken or agreed to take any action that
would prevent the Company from accounting for the Merger as a pooling of
interests in accordance with GAAP and applicable SEC regulations.
SECTION 5.15 OPINION OF FINANCIAL ADVISOR. Iowa-Illinois has received
the opinion of Dillon, Read & Co. Inc. on July 26, 1994, to the effect that,
as of July 26, 1994, the Iowa-Illinois Conversion Ratio and consideration to
be received by the holders of the Iowa-Illinois Common Stock is fair from a
financial point of view to the holders of Iowa-Illinois Common Stock.
SECTION 5.16 INSURANCE. Except as set forth on Section 5.16 of the
Iowa-Illinois Disclosure Schedule, Iowa-Illinois and each of its
subsidiaries is, and has been continuously since January 1, 1989, insured
with financially responsible insurers in such amounts and against such risks
and losses as are customary for companies conducting the business as
conducted by Iowa-Illinois and its subsidiaries during such time period.
Except as set forth on Schedule 5.16 of the Iowa-Illinois Disclosure
Schedule, neither Iowa-Illinois nor any of its subsidiaries has received any
notice of cancellation or termination with respect to any material insurance
policy of Iowa-Illinois or any of its subsidiaries. The insurance policies
of Iowa-Illinois and each of its subsidiaries are valid and enforceable
policies.
SECTION 5.17 OWNERSHIP OF RESOURCES COMMON STOCK. Iowa-Illinois does
not "beneficially own" (as such term is defined in Rule 13d-3 under the
Exchange Act) any shares of Resources Common Stock.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 6.1 COVENANTS OF THE PARTIES. From and after the date hereof, and
prior to the Effective Time or earlier termination of this Agreement, Resources
and Iowa-Illinois each agrees as to itself and its subsidiaries, except as
expressly contemplated or permitted in this Agreement, or to the extent the
other parties hereto shall otherwise consent in writing:
(a) ORDINARY COURSE OF BUSINESS. Each party hereto shall, and shall
cause its respective subsidiaries to, carry on their respective businesses
in the usual, regular and ordinary course in substantially the same manner
as heretofore conducted and use all 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
I-27
<PAGE>
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.
(b) DIVIDENDS. No party shall, nor shall any party permit any of its
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
such party or its wholly-owned subsidiaries, (B) dividends on Midwest Power
Common Stock held by Resources, (C) dividends required to be paid on any
series of Iowa-Illinois Preferred Stock, Iowa-Illinois Preference Stock or
Midwest Power Preferred Stock in accordance with the respective terms
thereof, (D) regular quarterly dividends on Resources Common Stock with
usual record and payment dates not in excess of 100% of the average
quarterly dividend for the four quarterly dividend payments immediately
preceding the date hereof with respect thereto and (E) regular quarterly
dividends on Iowa-Illinois Common Stock with usual record and payment dates
not in excess of 100% of the average quarterly dividend for the four
quarterly dividend payments immediately preceding the date hereof with
respect thereto; (ii) split, combine or reclassify 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 its capital
stock; or (iii) redeem, repurchase or otherwise acquire any shares of their
capital stock other than redemptions, repurchases and other acquisitions of
shares of capital stock in the ordinary course of business including,
without limitation, repurchases, redemptions and other acquisitions in
connection with employee benefit plans or in accordance with the terms of
securities issued and outstanding on the date hereof or hereafter issued in
accordance with Section 6.1(c).
(c) ISSUANCE OF SECURITIES. Except as described on Schedule 6.1(c) of
the Resources and Iowa-Illinois Disclosure Schedules, no party shall, nor
shall any party permit any of its subsidiaries to, issue, deliver or sell,
or authorize or propose the issuance, delivery or sale 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) the
issuance of common stock or stock appreciation or similar rights, as the
case may be, pursuant to (x) the Iowa-Illinois Dividend Reinvestment and
Share Purchase Plan, the Iowa-Illinois Key Employee Sustained Performance
Plan or the Iowa-Illinois Shareholders Rights Plan, and (y) Resources
Dividend Reinvestment and Stock Purchase Plan, Resources Employee Stock
Purchase Plan, Midwest Power 401(k) Plan for Salaried Employees or Midwest
Power 401(k) Plan for Bargaining Employees, in each case consistent in kind
and amount with past practice and in the ordinary course of business under
such plans in accordance with their present terms, (ii) issuances by a
wholly-owned subsidiary of its capital stock to its parent, (iii) issuance
and reservation of the Iowa-Illinois Common Stock pursuant to the
Iowa-Illinois Shareholders Rights Plan, and (iv) issuance and reservation of
Resources Common Stock pursuant to any rights plan adopted pursuant to
Section 6.1(i).
(d) CHARTER DOCUMENTS. Except as set forth in Section 6.1(d) of the
Resources Disclosure Schedule or the Iowa-Illinois Disclosure Schedule, no
party shall amend or propose to amend its respective articles of
incorporation or by-laws, except as contemplated herein, in any way adverse
to the other party.
(e) ACQUISITIONS. Except (i) as set forth in Section 6.1(e) of the
Resources Disclosure Schedule or the Iowa-Illinois Disclosure Schedule, and
(ii) acquisitions not exceeding $15 million in the aggregate in the case of,
on the one hand, Resources and Midwest Power and, on the other hand,
Iowa-Illinois, no party shall, nor shall any party permit any of its
subsidiaries to, acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial equity interest in or a substantial
portion of the assets of, or by any other manner, any business or any
corporation, partnership, association or other business organization or
division thereof or otherwise acquire or agree to acquire any assets in each
case which are material, individually or in the aggregate, to such party and
its subsidiaries taken as a whole.
I-28
<PAGE>
(f) NO DISPOSITIONS. Except as disclosed on Schedule 6.1(f) to the
Resources or Iowa-Illinois Disclosure Schedule and other than (i)
dispositions not exceeding $15 million in the aggregate, in the case of, on
the one hand, Resources and Midwest Power and, on the other hand,
Iowa-Illinois, which dispositions do not, individually or in the aggregate,
have a Resources Material Adverse Effect or an Iowa-Illinois Material
Adverse Effect, as the case may be, (ii) as may be required by law to
consummate the transactions contemplated hereby or (iii) in the ordinary
course of business consistent with prior practice, no party shall, nor shall
any party permit any of its subsidiaries to, sell, lease, license, encumber
or otherwise dispose of, any of its assets which are material, individually
or in the aggregate, to such party and its subsidiaries taken as a whole.
(g) INDEBTEDNESS. Except as disclosed in Section 6.1(g) of the
Resources Disclosure Schedule and the Iowa-Illinois Disclosure Schedule and
as otherwise contemplated by this Agreement, no party shall, nor shall any
party permit any of its 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) other than (i) short-term and long-term indebtedness and
guarantees incurred in the ordinary course of business consistent with past
practice (such as refinancings, the issuance of commercial paper or the use
of existing credit facilities); (ii) long-term indebtedness not aggregating
more than (x) in the case of Resources and its subsidiaries, $60 million and
(y) in the case of Iowa-Illinois and its subsidiaries, $60 million.
(h) RIGHTS PLANS. Nothing contained herein shall be deemed to prohibit
Resources from adopting a shareholder rights plan, provided that (i) no such
plan shall prohibit the transactions contemplated hereby, be "triggered" by
the transactions contemplated hereby, or otherwise have an Iowa-Illinois
Material Adverse Effect or a Resources Material Adverse Effect or materially
change the number of outstanding equity securities of Resources at the
Effective Time and (ii) any such rights plan shall provide that any rights
or other securities issued thereunder or pursuant thereto shall, at the
Effective Time and without further action by any of the parties or any
affiliates thereof, be redeemed at an aggregate redemption price not in
excess of $600,000 and shall thereafter not be outstanding. If any such
rights plan is adopted, nothing herein shall be deemed to prohibit Resources
from redeeming the rights issued thereunder.
(i) COMPENSATION, BENEFITS. Except as disclosed in Section 6.1(i) of
the Resources Disclosure Schedule and Iowa-Illinois Disclosure Schedule, no
party shall, nor shall any party permit any of its subsidiaries to, (i)
enter into, adopt or amend (except as may be required by applicable law), 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 or policy maintained by,
contributed to or entered into by such party or any of its subsidiaries, 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 such party or any of
its subsidiaries, except pursuant to binding legal commitments and except
for normal or promotional 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 to such party or any
of its subsidiaries or (ii) enter into or amend any employment, severance,
special pay arrangement with respect to termination of employment or other
similar contract, agreement or arrangement with any director or officer
other than in the ordinary course of business consistent with past practice.
(j) 1935 ACT. No party shall, nor shall any party permit any of its
subsidiaries to, except as required or contemplated by this Agreement,
engage in any activities which would cause a change in its status, or that
of its subsidiaries, under the 1935 Act, or that would impair the ability of
Resources or Iowa-Illinois, respectively, to claim an exemption as of right
under Rule 2 under the 1935 Act.
I-29
<PAGE>
(k) ACCOUNTING. No party shall, nor shall any party permit any of its
subsidiaries to, make any changes in their accounting methods, except as
required by law, rule, regulation or GAAP.
(l) POOLING. No party shall, nor shall any party permit any of its
subsidiaries to, take any actions which would, or would be reasonably likely
to, prevent the Company from accounting for the Merger as a pooling of
interests in accordance with GAAP and applicable SEC regulations.
(m) TAX-FREE STATUS. No party shall, nor shall any party permit any of
its subsidiaries to, take any actions which would, or would be reasonably
likely to, adversely affect the status of the Merger as a reorganization
under Code Section 368.
(n) COOPERATION, NOTIFICATION. Each party shall: (i) confer on a
regular and frequent basis with one or more representatives of each other
party to discuss the general status of its ongoing operations; (ii) promptly
notify each other party of any significant changes in its business,
properties, assets, condition (financial or other) or results of operations;
(iii) advise each other party of any change or event which has had or,
insofar as reasonably can be foreseen, is reasonably likely to result in, a
Resources Material Adverse Effect or an Iowa-Illinois Material Adverse
Effect, as the case may be; and (iv) promptly provide each 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 connection with this Agreement and the
transactions contemplated hereby.
(o) RATE MATTERS. Other than currently pending rate filings, each
party shall, and shall cause its subsidiaries to, discuss with each other
party any changes in its or its subsidiaries' regulated rates or charges
(other than pass-through fuel and gas rates or charges), standards of
service or accounting from those in effect on the date hereof and consult
with the other parties prior to making any filing (or any amendment
thereto), or effecting any agreement, commitment, arrangement or consent,
whether written or oral, formal or informal, with respect thereto, and no
party will make any filing to change its rates on file with the public
utility commission of any state or FERC that would have a material adverse
effect on the benefits associated with the business combination provided
herein.
(p) THIRD-PARTY CONSENTS. Resources shall, and shall cause its
subsidiaries to, use all commercially reasonable efforts to obtain all
Resources Required Consents. Resources shall promptly notify Iowa-Illinois
of any failure or anticipated failure to obtain any such consents and, if
requested by Iowa-Illinois, shall provide copies of all Resources Required
Consents obtained by Resources to Iowa-Illinois. Iowa-Illinois shall, and
shall cause its subsidiaries to, use all commercially reasonable efforts to
obtain all Iowa-Illinois Required Consents. Iowa-Illinois shall promptly
notify Resources of any failure or anticipated failure to obtain any such
consents and, if requested by Resources, shall provide copies of all
Iowa-Illinois Required Consents obtained by Iowa-Illinois to Resources.
(q) NO BREACH, ETC. No party shall, nor shall any party 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.
(r) TAX-EXEMPT STATUS. No party shall, nor shall any party permit any
subsidiary to, take any action that would likely jeopardize the
qualification of the outstanding revenue bonds issued for the benefit of
Iowa-Illinois or for the benefit of Midwest Power which qualify on the date
hereof under Code Section 142(a) 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.
(s) TRANSITION MANAGEMENT. The parties shall create two special
transition management task forces ("Task Forces"), a "Diversified Industries
Task Force" and a "Corporate/Utility Task Force". The composition of the
Task Forces shall be as indicated on Exhibit D attached hereto.
I-30
<PAGE>
The Task Forces shall examine various alternatives regarding the manner in
which to best organize and manage the business of the Company after the
Effective Time. Don Heppermann will manage and be responsible for the
day-to-day activities and operations of the Diversified Industries Task
Force and Richard Engle shall manage and be responsible for the day-to-day
activities and operations of the Corporate/Utility Task Force.
(t) INSURANCE. Each party shall, and shall cause its subsidiaries to,
maintain with financially responsible insurance companies insurance in such
amounts and against such risks and losses as are customary for companies
engaged in the electric and gas utility industry and employing methods of
generating electric power and fuel sources similar to those methods employed
and fuels used by such party or such party's subsidiaries.
(u) PERMITS. Each party shall, and shall cause its subsidiaries to,
use reasonable efforts to maintain in effect all existing Permits pursuant
to which such party or such party's subsidiaries operate.
(v) CERTAIN INFORMATION RELATING TO COMMERCIAL AND INDUSTRIAL
CUSTOMERS. No party shall, nor shall any party permit any of its
subsidiaries to, use any Evaluation Material (as defined in the
Confidentiality and Standstill Agreement, effective June 5, 1994, between
Resources and Iowa-Illinois ("Confidentiality Agreement")) in connection
with any solicitation, inquiry, proposal, arrangement, understanding or
agreement with any person relating to the provision of electric or gas
utility service by Iowa-Illinois or any of its subsidiaries, on the one
hand, or Resources or any of its subsidiaries, on the other hand, to
commercial and industrial customers in the service territory of the other
party.
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.1 ACCESS TO INFORMATION. Upon reasonable notice, each party
shall, and shall cause its subsidiaries to, afford to the officers, directors,
employees, accountants, counsel, investment bankers, financial advisors and
other representatives of the other (collectively, "Representatives") reasonable
access, during normal business hours throughout the period prior to the
Effective Time, to all of its properties, books, contracts, commitments,
forecasts, plans and records (including, but not limited to, Tax Returns) and,
during such period, each party shall, and shall cause its subsidiaries to,
furnish promptly to the other (i) a copy of each 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 the SEC, the
FERC, the public utility commission of any State, the Nuclear Regulatory
Commission, the Department of Justice, the Federal Trade Commission, or any
other federal or state regulatory agency or commission, and (ii) all information
concerning themselves, their subsidiaries, directors, officers and shareholders
and such other matters as may be reasonably requested by the other party in
connection with any filings, applications or approvals required or contemplated
by this Agreement. Each party shall, and shall cause its subsidiaries and
Representatives to, hold in strict confidence all documents and information
concerning the other furnished to it in connection with the transactions
contemplated by this Agreement in accordance with the Confidentiality Agreement.
SECTION 7.2 JOINT PROXY STATEMENT AND REGISTRATION STATEMENT.
(a) PREPARATION AND FILING. The parties will prepare and file with the SEC
as soon as reasonably practicable after the date hereof the Registration
Statement and the Joint Proxy Statement (together, the "Joint Proxy/Registration
Statement"). The parties hereto shall each use reasonable efforts to cause the
Registration Statement to be declared effective under the Securities Act as
promptly as practicable after such filing. The Company shall also take such
action as may be reasonably required to cause the shares of the Company
Preferred Stock and the Company Common Stock issuable in connection with the
Merger to be registered or to obtain an exemption from registration under
applicable state "blue sky" or securities laws; PROVIDED, HOWEVER, that the
Company shall not be
I-31
<PAGE>
required to register or qualify as a foreign corporation or to take other action
which would subject it to service of process in any jurisdiction where it will
not be, following the Merger, so subject. Each of the parties hereto shall
furnish all information concerning itself which is required or customary for
inclusion in the Joint Proxy/Registration Statement. The Company shall use its
best efforts to cause the shares of the Company Common Stock and the $1.7375
Series of Company Preferred Stock issuable in the Merger to be approved for
listing on the NYSE upon official notice of issuance. The information provided
by or on behalf of any party hereto for use in the Joint Proxy/Registration
Statement shall be true and correct in all material respects without omission of
any material fact which is required to make such information not false or
misleading. No representation, covenant or agreement is made by any party hereto
with respect to information supplied by any other party for inclusion in the
Joint Proxy/Registration Statement.
(b) LETTER OF ACCOUNTANTS FOR IOWA-ILLINOIS. Iowa-Illinois shall use best
efforts to cause to be delivered to Resources a letter of Deloitte & Touche,
dated a date within two business days before the date of the Joint
Proxy/Registration Statement, and addressed to Resources, in form and substance
reasonably satisfactory to Resources and customary in scope and substance for
"cold comfort" letters delivered by independent public accountants in connection
with registration statements on Form S-4.
(c) LETTER OF ACCOUNTANTS FOR RESOURCES. Resources shall use best efforts
to cause to be delivered to Iowa-Illinois a letter of Arthur Andersen & Co.,
dated a date within two business days before the date of the Joint
Proxy/Registration Statement, and addressed to Iowa-Illinois, in form and
substance reasonably satisfactory to Iowa-Illinois and customary in scope and
substance for "cold comfort" letters delivered by independent public accountants
in connection with registration statements on Form S-4.
(d) FAIRNESS OPINIONS. It shall be a condition to the mailing of the Joint
Proxy Statement to the shareholders of Iowa-Illinois, Midwest Power and
Resources that (i) Iowa-Illinois shall have received an opinion from Dillon,
Read & Co. Inc., dated the date of the Joint Proxy Statement, to the effect
that, as of the date thereof, the Iowa-Illinois Conversion Ratio and the
consideration to be received by the holders of Iowa-Illinois Common Stock is
fair from a financial point of view to the holders of Iowa-Illinois Common Stock
and (ii) Resources shall have received an opinion from PaineWebber Incorporated,
dated the date of the Joint Proxy Statement, to the effect that, as of the date
thereof, the Resources Conversion Ratio and the consideration to be received by
the holders of Resources Common Stock is fair from a financial point of view to
the holders of Resources Common Stock.
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 ("HSR Act"), and the rules and regulations promulgated
thereunder with respect to the transactions contemplated hereby. Such parties
will use all commercially reasonable efforts to make such filings promptly and
to respond promptly to any requests for additional information made by either of
such Governmental Authorities.
(b) OTHER APPROVALS. Each party hereto shall cooperate and use its best
efforts to promptly prepare and file all necessary documentation, to effect all
necessary applications, notices, petitions, filings and other documents, and to
use all commercially 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
by this Agreement, including, without limitation, the Iowa-Illinois Required
Statutory Approvals, the Iowa-Illinois Required Consents, the Resources Required
Statutory Approvals and the Resources Required Consents. Iowa-Illinois shall
have the right to review and approve in advance all characterizations of the
information relating to Iowa-Illinois, on the one hand, and Resources shall have
the right to review and approve in advance all characterizations of the
information relating to Resources and Midwest Power, on the
I-32
<PAGE>
other hand, in either case, which appear in any filing made in connection with
the transactions contemplated by this Agreement or the Merger. Iowa-Illinois,
Midwest Power and Resources 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.
SECTION 7.4 SHAREHOLDER APPROVAL.
(a) APPROVAL OF RESOURCES SHAREHOLDERS. Resources shall, as soon as
reasonably practicable after the date hereof, (i) take all steps necessary duly
to call, give notice of, convene and hold a special meeting of its shareholders
("Resources Special Meeting") for the purpose of securing the Resources
Shareholders' Approval, (ii) distribute to its shareholders the Joint 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
the Board of Directors of Resources, recommend to its shareholders the approval
of this Agreement, and (iv) cooperate and consult with Iowa-Illinois with
respect to each of the foregoing matters.
(b) APPROVAL OF IOWA-ILLINOIS SHAREHOLDERS. Iowa-Illinois shall, as soon
as reasonably practicable after the date hereof, (i) take all steps necessary to
call, give notice of, convene and hold a special meeting of its shareholders
("Iowa-Illinois Special Meeting") for the purpose of securing the Iowa-Illinois
Shareholders' Approval, (ii) distribute to its shareholders the Joint Proxy
Statement in accordance with applicable federal and state law and its Articles
of Incorporation and by-laws, (iii) subject to the fiduciary duties of the Board
of Directors of Iowa-Illinois, recommend to its shareholders the approval of
this Agreement and (iv) cooperate and consult with Resources with respect to
each of the foregoing matters.
(c) APPROVAL OF MIDWEST POWER SHAREHOLDERS. Midwest Power shall, as soon
as reasonably practicable after the date hereof, (i) take all steps necessary to
call, give notice of, convene and hold a special meeting of its shareholders
("Midwest Power Special Meeting") for the purpose of securing the Midwest Power
Shareholders' Approval, (ii) distribute to its shareholders the Joint Proxy
Statement in accordance with applicable federal and state law and its Articles
of Incorporation and by-laws, (iii) subject to the fiduciary duties of the Board
of Directors of Midwest Power, recommend to its shareholders the approval of
this Agreement and (iv) cooperate and consult with Iowa-Illinois with respect to
each of the foregoing matters.
(d) MEETING DATE. The Resources Special Meeting for the purpose of
securing the Resources Shareholders' approval, the Iowa-Illinois Special Meeting
for the purpose of securing the Iowa-Illinois Shareholders' Approval, and the
Midwest Power Special Meeting for the purpose of securing the Midwest Power
Shareholders' Approval, shall be held on or before such date or dates as
Resources and Iowa-Illinois shall jointly determine.
SECTION 7.5 DIRECTORS' AND OFFICERS' INDEMNIFICATION.
(a) INDEMNIFICATION. From and after the Effective Time, the Company shall,
to the fullest extent not prohibited by applicable law, indemnify, defend and
hold harmless the present and former officers and directors of Iowa-Illinois,
Resources and Midwest Power (each an "Indemnified Party" and collectively, the
"Indemnified Parties") against all losses, expenses (including reasonable
attorney's fees), 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 are in whole or in
part based on, or arising out of the fact that such person is or was a director
or officer of Iowa-Illinois, Midwest Power or Resources arising out of or
pertaining to the transactions contemplated by this Agreement. In the event of
any such loss, expense, claim, damage or liability (whether or not arising
before the Effective Time), (i) the Company shall pay the reasonable fees and
expenses of counsel selected by the Indemnified Parties, which counsel shall be
reasonably satisfactory to the Company (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
or the Illinois Act, (ii) the Company will cooperate in the defense of any such
I-33
<PAGE>
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 or the Illinois Act and the Company's Articles of Incorporation or
by-Laws shall be made by independent counsel mutually acceptable to the Company
and the Indemnified Party; PROVIDED, HOWEVER, that the Company 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 sole opinion of counsel to an Indemnified Party, under
applicable standards of professional conduct, a conflict on any significant
issue between positions of any two or more Indemnified Parties.
(b) INSURANCE. For a period of six (6) years after the Effective Time, the
Company shall cause to be maintained in effect the policies of directors' and
officers' liability insurance maintained by Iowa-Illinois, Resources and Midwest
Power; PROVIDED that the Company 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 Company not greater than
150 percent of the respective current annual premiums for their directors' and
officers' liability insurance; PROVIDED, FURTHER, that if such insurance cannot
be so maintained or obtained at such cost, the Company shall maintain or obtain
as much of such insurance for each of Iowa-Illinois, Resources and Midwest Power
as can be so maintained or obtained at a cost equal to 150 percent of the
respective current annual premiums of each of Iowa-Illinois, Midwest Power and
Resources for their directors' and officers' liability insurance.
(c) SUCCESSORS. In the event that the Company or any of its successors or
assigns (i) consolidates with or merges into any other person 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, then and in either such case, proper provision shall be made so
that the successors and assigns of the Company 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 or officers of
Iowa-Illinois and its subsidiaries and Resources and its subsidiaries with
respect to their respective activities as such prior to the Effective Time, as
provided in their respective articles of incorporation or by-laws, in effect on
the date thereof or otherwise in effect on the date hereof, shall survive the
Merger and shall continue in full force and effect for a period of not less than
six (6) years from the Effective Time.
SECTION 7.6 DISCLOSURE SCHEDULES.
(a) Within ten days following the date of execution of this Agreement, (i)
Resources shall deliver to Iowa-Illinois a schedule ("Resources Disclosure
Schedule"), which shall be accompanied by a certificate signed by the chief
financial officer of Resources stating that the Resources Disclosure Schedule is
being delivered pursuant to this Section 7.6(a)(i) and (ii) Iowa-Illinois shall
deliver to Resources a schedule ("Iowa-Illinois Disclosure Schedule"), which
shall be accompanied by a certificate signed by the chief financial officer of
Iowa-Illinois stating that the Iowa-Illinois Disclosure Schedule is being
delivered pursuant to this Section 7.6(a)(ii). The Resources Disclosure Schedule
and the Iowa-Illinois Disclosure Schedule are collectively referred to herein as
the "Disclosure Schedules." The Disclosure Schedules, when so delivered, 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 shall be deemed to have been made on and as of the date
hereof.
I-34
<PAGE>
(b) For the period of 20 days (or, if extended pursuant to the following
sentence, 40 days) following the date of the execution of this Agreement (the
"Due Diligence Period"), each of Resources and Iowa-Illinois shall provide the
other party and its representatives access pursuant to Section 7.1 in order for
the other party to complete its due diligence investigation of the party
providing access pursuant to Section 7.1. Upon the expiration of the Due
Diligence Period, either Resources or Iowa-Illinois may terminate this Agreement
pursuant to and in accordance with Section 9.1(i) (in the case of a termination
by Resources) or Section 9.1(j) (in the case of a termination by Iowa-Illinois);
PROVIDED, HOWEVER, that it is expressly understood and agreed that, if neither
Resources nor Iowa-Illinois terminates this Agreement pursuant to and in
accordance with Section 9.1(i) or 9.1(j), as the case may be, then neither
Resources nor Iowa-Illinois may thereafter assert a failure of the condition set
forth in Section 8.2(b) or in Section 8.3(b), as the case may be, based on any
information provided to it during the Due Diligence Period. Either Iowa-Illinois
or Resources may extend the Due Diligence Period until 40 days after the date of
execution hereof by delivering written notice to Resources or Iowa-Illinois, as
the case may be, before 5:00 p.m. Central Time on the 20th day following the
date of execution of this Agreement if it determines in good faith that it will
be unable to complete its due diligence investigation of the other party and its
subsidiaries by the conclusion of such 20th day.
SECTION 7.7 PUBLIC ANNOUNCEMENTS. Subject to each party's disclosure
obligations imposed by law, Midwest Power, Resources and Iowa-Illinois 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 prior to consultation with the other party.
SECTION 7.8 RULE 145 AFFILIATES. Iowa-Illinois and Resources shall each
identify in a letter to the Company all persons who are, at the Closing Date,
"affiliates" of Iowa-Illinois or of Resources, as the case may be, as such term
is used in Rule 145 under the Securities Act. Iowa-Illinois and Resources shall
each use their best efforts to cause their respective affiliates to deliver to
the Company on or prior to the Closing Date a written certificate substantially
in the form described in Section 8.2(g) and Section 8.3(g).
SECTION 7.9 NO SOLICITATIONS. No party hereto shall, and each such party
shall cause its subsidiaries not to, permit any of its Representatives to, and
shall use its best efforts to cause such persons not to, directly or indirectly:
initiate, solicit or encourage, or take any action to facilitate the making of
any offer or proposal which constitutes or is reasonably likely to lead to any
Takeover Proposal (as defined below), or, in the event of any unsolicited
Takeover Proposal, engage in negotiations or provide any confidential
information or data to any person relating to any Takeover Proposal. Each party
hereto shall notify the other party orally and in writing of any such inquiries,
offers or proposals (including, without limitation, the terms and conditions of
any such proposal and the identity of the person making it), within 24 hours of
the receipt thereof and shall give the other party five days' advance notice of
any agreement to be entered into with or any information to be supplied to any
person making such inquiry, offer or proposal in accordance with the last
sentence of this Section 7.9. Each party hereto shall immediately cease and
cause to be terminated all existing discussions and negotiations, if any, with
any parties conducted heretofore with respect to any Takeover Proposal. As used
in this Section 7.9, "Takeover Proposal" shall mean any tender or exchange
offer, proposal for a merger, consolidation or other business combination
involving Midwest Power, Resources or Iowa-Illinois, or any proposal or offer to
acquire in any manner a substantial equity interest in, or a substantial portion
of the assets of Midwest Power, Resources or Iowa-Illinois, other than pursuant
to the transactions contemplated by this Agreement. Notwithstanding anything in
this Section 7.9 to the contrary, unless the Resources Shareholders' Approval,
the Midwest Power Shareholders' Approval and the Iowa-Illinois Shareholders'
Approval have all been obtained, any party hereto may, to the extent required by
the fiduciary duties of the Board of Directors of such party under applicable
law (as determined in good faith by the Board of Directors of such party based
on the advice of outside counsel), participate in discussions or negotiations
with, furnish information to, and afford access to the properties, books and
records of such party and its subsidiaries to any person in connection with a
possible Takeover Proposal with respect to such party by such person.
I-35
<PAGE>
SECTION 7.10 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, except that those
expenses incurred in connection with printing the Joint Proxy/ Registration
Statement, as well as the filing fee relating thereto, shall be paid 50% by
Resources and 50% by Iowa-Illinois.
SECTION 7.11 BOARD OF DIRECTORS.
(a) INITIAL COMPOSITION. The initial number of directors comprising the
Board of Directors of the Company at the Effective Time shall be nineteen (19)
persons, eleven (11) of whom shall be designated by Resources prior to the
Effective Time and eight (8) of whom shall be designated by Iowa-Illinois prior
to the Effective Time; provided, however, that if prior to the Effective Time
any of such designees shall decline or otherwise be unable to serve, the party
which designated such person shall be entitled to designate a replacement.
(b) INITIAL BOARD COMMITTEES. The committees of the Board of Directors of
the Company at the Effective Time shall consist of an equal number of Resources
Designees and Iowa-Illinois Designees. The initial Board committees and their
respective chair and vice-chair designations shall be as set forth on Exhibit E.
(c) COMPOSITION AFTER TRANSITION. The parties recognize the desirability
of an objective of reducing the size of the Board of Directors of the Company in
an orderly manner, while preserving the benefits associated with the familiarity
of management, policies, and operations derived from the ratio of Iowa-Illinois
Designees (as defined in Section 10.8) to Resources Designees (as defined in
Section 10.8) established in Section 7.11(a). Toward that objective, the Board
of Directors, after the Effective Time, shall implement a plan to reduce the
number of outside directors to no more than 14 by June 1, 1997. The Nominating
Committee of the Board shall be responsible for the initial preparation of the
plan. The plan, as implemented, shall contain at least the following three
features:
(i) until June 1, 1997 the mandatory retirement age of seventy (70) for
directors shall be waived to the extent necessary to maintain the ratio of
Iowa-Illinois Designees to Resources Designees established in Section
7.11(a);
(ii) any nomination of persons for election to the Board of Directors of
the Company or designation of persons for the filling of vacancies on the
Board (other than vacancies resulting from a reduction in the size of the
Board in accordance with this Section 7.11(c)) shall be effectuated by
nominating or selecting, as the case may be, Iowa-Illinois Designees or
Resources Designees so as to maintain the ratio of Iowa-Illinois Designees
to Resources Designees established in Section 7.11(a); and
(iii) any reduction in the number of directors prior to June 1, 1997
shall be accomplished so as to maintain the ratio of Iowa-Illinois Designees
to Resources Designees established in Section 7.11(a) until June 1, 1997.
SECTION 7.12 OFFICERS. On or prior to the Effective Time, the Company
shall enter into employment agreements ("Employment Agreements") with Russell
Christiansen and Stanley Bright, respectively, substantially in the form of
Exhibits F-1 and F-2, attached hereto. From and after the Effective Time,
pursuant to the Employment Agreements and the terms hereof, Mr. Christiansen and
Mr. Bright shall hold the respective positions and perform the duties set forth
in Exhibit F-3. The terms and provisions of the Employment Agreements, this
Section 7.12 and Exhibit F-3 shall not be modified prior to December 31, 1999,
unless and until the terms of such modification are approved by (i) Mr.
Christiansen, in the case of a proposed modification to his Employment
Agreement, or Mr. Bright, in the case of a proposed modification to his
Employment Agreement, and (ii) a vote of sixty-six and two-thirds percent
(66 2/3%) of the members of the Board of Directors of the Company.
SECTION 7.13 EMPLOYMENT AGREEMENTS AND WORKFORCE MATTERS.
CERTAIN EMPLOYEE AGREEMENTS. The Company shall after the Effective Time
honor, without modification, all contracts, agreements, collective bargaining
agreements and commitments of the
I-36
<PAGE>
parties prior to the date hereof which apply to any current or former employee
or current or former director of any of the parties hereto; PROVIDED, HOWEVER,
that this undertaking is not intended to prevent the Company from enforcing such
contracts, agreements, collective bargaining agreements and commitments in
accordance with their terms, including, without limitation, any reserved right
to amend, modify, suspend, revoke or terminate any such contract, agreement,
collective bargaining agreement or commitment.
SECTION 7.14 SEVERANCE PLAN. At the Effective Time the Severance Plan
attached hereto as Exhibit G shall become effective.
SECTION 7.15 POST-MERGER OPERATIONS.
(a) Following the Effective Time, the Company shall maintain (i) its
corporate headquarters, the principal office of the Chief Executive Officer and
the corporate functions (without limitation) of finance, treasury, secretary,
shareholder services, human resources and general counsel in Des Moines, Iowa;
(ii) the headquarters of the electric division and the office of the most senior
executive of such division in Davenport, Iowa; and (iii) the headquarters of the
gas division and the office of the most senior executive of such division in
Sioux City, Iowa. This provision shall not be modified prior to June 1, 1997,
unless and until the terms of such modification are approved by a vote of
sixty-six an two-thirds percent (66 2/3%) of the members of the Board of
Directors of the Company.
(b) During the period from the Effective Time until June 1, 1997, the
Company's name, as agreed upon by the Resources board of directors and the
Iowa-Illinois board of directors prior to the Effective Time, shall not be
modified unless and until the terms of such modification are approved by a vote
of sixty-six and two-thirds percent (66 2/3%) of the members of the Board of
Directors of the Company and any required vote of the shareholders of the
Company under applicable law.
SECTION 7.16 PURCHASE OR REDEMPTION OF IOWA-ILLINOIS PREFERRED
STOCK. Iowa-Illinois shall purchase or call for redemption all issued and
outstanding shares of Iowa-Illinois Preferred Stock in accordance with the terms
of the Iowa-Illinois Articles of Incorporation such that at the date of the
Iowa-Illinois Special Meeting no such shares shall be outstanding or entitled to
vote on the approval of this Agreement and the transactions contemplated hereby.
ARTICLE VIII
CONDITIONS
SECTION 8.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS 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 APPROVALS. The Resources Shareholders' Approval, the
Midwest Power Shareholders' Approval and the Iowa-Illinois 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 shall have been issued and 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.
(c) REGISTRATION STATEMENT. The Registration Statement shall have
become effective in accordance with the provisions of the Securities Act,
and no stop order suspending such effectiveness shall have been issued and
remain in effect.
(d) LISTING OF SHARES. The shares of Company Common Stock and the
shares of $1.7375 Series of Company Preferred Stock issuable in the Merger
shall have been approved for listing on the NYSE upon official notice of
issuance.
I-37
<PAGE>
(e) STATUTORY APPROVALS. The Iowa-Illinois Required Statutory
Approvals and the Resources Required Statutory Approvals shall have been
obtained at or prior to the Effective Time, such approvals shall have become
Final Orders (as hereinafter defined) and such Final Orders shall not impose
terms or conditions which, in the aggregate, would have, or insofar as
reasonably can be foreseen, could have, a material adverse effect on the
business, operations, properties, assets, condition (financial or other),
prospects or the results of operations of Iowa-Illinois as if it were
organized as a separate division of the Company or a material adverse effect
on the business, operations, properties, assets, condition (financial or
other), prospects or the results of operations of Midwest Power as if it
were organized as a separate division of the Company, or which would be
inconsistent with the agreements of the parties contained herein. A "Final
Order" means 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.
(f) POOLING. Each of Iowa-Illinois and Resources shall have received a
letter of its independent public accountants, dated the Closing Date, in
form and substance reasonably satisfactory to Iowa-Illinois and Resources,
as the case may be, stating that the Merger will qualify as a pooling of
interests transaction under GAAP and applicable SEC regulations.
(g) All applicable waiting periods under the HSR Act shall have expired
or been terminated.
SECTION 8.2 CONDITIONS TO OBLIGATIONS OF RESOURCES AND MIDWEST POWER TO
EFFECT THE MERGER. The obligations of Resources and Midwest Power 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 Resources and
Midwest Power in writing pursuant to Section 9.5:
(a) PERFORMANCE OF OBLIGATIONS OF IOWA-ILLINOIS. Iowa-Illinois shall
have performed in all material respects its agreements and covenants
contained in or contemplated by this Agreement required to be performed by
it at or prior to the Effective Time.
(b) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Iowa-Illinois set forth in this Agreement shall be true and correct in
all material respects (or where any statement in a representation or
warranty expressly includes a standard of materiality, such statement shall
be true and correct in all respects) as of the date hereof (except to the
extent such representations and warranties speak as of an earlier or later
date) and as of the Closing Date as if made on and as of the Closing Date,
except as otherwise contemplated by this Agreement.
(c) IOWA-ILLINOIS MATERIAL ADVERSE EFFECT. No Iowa-Illinois Material
Adverse Effect shall have occurred and there shall exist no fact or
circumstance which would, or insofar as reasonably can be foreseen, could,
have an Iowa-Illinois Material Adverse Effect.
(d) RESOURCES REQUIRED CONSENTS. The material Resources Required
Consents shall have been obtained.
(e) CLOSING CERTIFICATE. Midwest Power and Resources shall have
received a certificate on behalf of Iowa-Illinois signed by the chief
executive officer and the chief financial officer of Iowa-Illinois, dated
the Closing Date, to the effect that, to the best of each such officer's
knowledge, the conditions set forth in Sections 8.2(a), 8.2(b), 8.2(c) and
8.2(d) have been satisfied.
(f) TAX OPINION. Resources shall have received an opinion of its
special tax counsel, Sidley & Austin, in form and substance satisfactory to
Resources, dated the Effective Time, or a ruling from the IRS, in form and
substance satisfactory to Resources, to the effect that Resources and
Midwest Power and their respective shareholders (except to the extent any
Resources or Midwest Power shareholders receive cash in the Merger) will
recognize no gain or loss for federal
I-38
<PAGE>
income tax purposes as a result of consummation of the Merger and in
connection with the delivery of its opinion pursuant to this Section 8.2(f),
Sidley & Austin may request certificates of officers of Resources and
Midwest Power.
(g) AFFILIATE CERTIFICATES. The Company shall have received a
certificate dated the Closing Date from each person who is an affiliate of
Iowa-Illinois to the effect that: (i) such person has no present plan or
intention to transfer, sell or otherwise dispose of any Company Common Stock
such person may receive as a result of the Merger; (ii) until such time as
financial results covering at least thirty (30) days of post-closing
combined operations of Iowa-Illinois, Resources, Midwest Power and the
Company have been published, such person shall not sell such Company Common
Stock in any transaction, private or public, or in any other way reduce such
person's risk relative to any Company Common Stock that such person receives
as a result of the Merger; (iii) any future disposition by such person of
any Company Common Stock such person receives as the result of the Merger
will be accomplished in accordance with Rule 145(d) under the Securities
Act; and (iv) such person agrees that the following legend be placed upon
the certificates evidencing ownership of the Company Common Stock that such
person receives as a result of the Merger:
THESE SHARES ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER APPLICABLE
TO AFFILIATES OF THE ISSUER AS SET FORTH IN RULES 144 AND 145 PROMULGATED
UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, HYPOTHECATED, PLEDGED
OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO THE PROCEDURES DESCRIBED
THEREIN.
(h) FAIRNESS OPINION. The fairness opinion letter from PaineWebber
Incorporated to Resources referred to in Section 7.2(d)(ii) shall not, in
good faith, have been withdrawn by PaineWebber Incorporated as of the date
it issued such opinion letter based upon its having obtained information
material to its opinions set forth in such letter, which information was in
existence but unavailable to it at the time it issued such opinion letter
and which, had such existing information been in its possession at such
time, would have caused it not to have issued such opinion letter.
(i) The Company shall have duly executed and delivered to Russell
Christiansen an employment agreement substantially in the form of Exhibit
F-1 attached hereto, and such agreement shall be in full force and effect.
SECTION 8.3 CONDITIONS TO OBLIGATIONS OF IOWA-ILLINOIS TO EFFECT THE
MERGER. The obligations of Iowa-Illinois to effect the Merger shall be further
subject to the satisfaction, prior to the Closing Date, of the following
conditions, except as may be waived by Iowa-Illinois in writing pursuant to
Section 9.5:
(a) PERFORMANCE OF OBLIGATIONS OF RESOURCES AND MIDWEST POWER. Each of
Resources and Midwest Power shall have performed in all material respects
its agreements and covenants contained in or contemplated by this Agreement
required to be performed by each of them at or prior to the Effective Time.
(b) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of each of Resources and Midwest Power set forth in this Agreement shall be
true and correct in all material respects (or where any statement in a
representation and warranty expressly includes a standard of materiality,
such statement shall be true and correct in all respects) as of the date
hereof (except to the extent such representations and warranties speak as of
an earlier or later date) and as of the Closing Date as if made on and as of
the Closing Date, except as otherwise contemplated by this Agreement.
(c) RESOURCES MATERIAL ADVERSE EFFECT. No Resources Material Adverse
Effect shall have occurred and there shall exist no fact or circumstance
which would, or insofar as reasonably can be foreseen, could, have a
Resources Material Adverse Effect.
I-39
<PAGE>
(d) IOWA-ILLINOIS REQUIRED CONSENTS. The material Iowa-Illinois
Required Consents shall have been obtained.
(e) CLOSING CERTIFICATE. Iowa-Illinois shall have received a
certificate on behalf of Midwest Power and Resources signed by their
respective chief executive officers and chief financial officers, dated the
Closing Date, to the effect that, to the best of each such officer's
knowledge, the conditions set forth in Sections 8.3(a), 8.3(b), 8.3(c) and
8.3(d) have been satisfied.
(f) TAX OPINION. Iowa-Illinois shall have received an opinion of its
special tax counsel, LeBoeuf, Lamb, Greene & MacRae, in form and substance
satisfactory to Iowa-Illinois, dated the Effective Time, or a ruling from
the IRS, in form and substance satisfactory to Iowa-Illinois, to the effect
that Iowa-Illinois and its shareholders (except to the extent any
Iowa-Illinois shareholders receive cash in the Merger) will recognize no
gain or loss for federal income tax purposes as a result of consummation of
the Merger and in connection with the delivery of its opinion pursuant to
this Section 8.3(f), LeBoeuf, Lamb, Greene & MacRae may request certificates
of officers of Iowa-Illinois;
(g) AFFILIATE CERTIFICATES. The Company shall have received a
certificate dated the Closing Date from each person who is an affiliate of
Resources to the effect that: (i) such person has no present plan or
intention to transfer, sell or otherwise dispose of any Company Common Stock
such person may receive as a result of the Merger; (ii) until such time as
financial results covering at least thirty (30) days of post-closing
combined operations of Iowa-Illinois, Resources, Midwest Power and the
Company have been published, such person shall not sell such Company Common
Stock in any transaction, private or public, or in any other way reduce such
person's risk relative to any Company Common Stock that such person receives
as a result of the Merger; (iii) any future disposition by such person of
any Company Common Stock such person receives as the result of the Merger
will be accomplished in accordance with Rule 145(d) under the Securities
Act; and (iv) such person agrees that the following legend be placed upon
the certificate evidencing ownership of the Company Common Stock that such
person receives as a result of the Merger:
THESE SHARES ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER APPLICABLE
TO AFFILIATES OF THE ISSUER AS SET FORTH IN RULES 144 AND 145 PROMULGATED
UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, HYPOTHECATED, PLEDGED
OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO THE PROCEDURES DESCRIBED
THEREIN.
(h) FAIRNESS OPINION. The fairness opinion letter from Dillon, Read &
Co. Inc. to Iowa-Illinois referred to in Section 7.2(d)(i) shall not, in
good faith, have been withdrawn by Dillon, Read & Co. Inc. as of the date it
issued such opinion letter based upon its having obtained information
material to its opinion set forth in such letter, which information was in
existence but unavailable to it at the time it issued such opinion letter
and which, had such existing information been in its possession at such
time, would have caused it not to have issued such opinion letter.
(i) The Company shall have duly executed and delivered to Stanley Bright
an employment agreement substantially in the form of Exhibit F-2 attached
hereto, and such agreement shall be in full force and effect.
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 approval by the shareholders
of the respective parties hereto contemplated by this Agreement:
(a) by mutual written consent of the Boards of Directors of Midwest
Power, Resources and Iowa-Illinois;
I-40
<PAGE>
(b) by any party hereto, by written notice to the other, if the
Effective Time shall not have occurred on or before December 31, 1995;
PROVIDED that such date shall automatically be changed to June 30, 1996 if
on December 31, 1995 the condition set forth in Section 8.1(e) has 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(e) 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
Iowa-Illinois Shareholders' Approval shall not have been obtained at a duly
held Iowa-Illinois Special Meeting, including any adjournments thereof; the
Resources Shareholders' Approval shall not have been obtained at a duly held
Resources Special Meeting, including any adjournments thereof; or the
Midwest Power Shareholders' Approval shall not have been obtained at a duly
held Midwest Power Special Meeting, including any adjournments thereof;
(d) by any party hereto, if any state or federal law, order, rule or
regulation is adopted or issued, which has the effect, as supported by the
written opinion of outside counsel for such party, 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, judgement or decree shall have become final and
nonappealable;
(e) by Iowa-Illinois, upon two days' prior notice to Resources, if, as a
result of a tender offer by a party other than Resources or any of its
affiliates or any written offer or proposal with respect to a merger, sale
of a material portion of its assets or other business combination (each, a
"Business Combination") by a party other than Resources or any of its
affiliates, the Board of Directors of Iowa-Illinois determines in good faith
that their fiduciary obligations under applicable law require that such
tender offer or other written offer or proposal be accepted; PROVIDED,
HOWEVER, that (i) the Board of Directors of Iowa-Illinois shall have been
advised in writing by outside counsel that notwithstanding a binding
commitment to consummate an agreement of the nature of this Agreement
entered into in the proper exercise of their applicable fiduciary duties,
such fiduciary duties would also require the directors to reconsider such
commitment as a result of such tender offer or other written offer or
proposal; and, (ii) prior to any such termination, Iowa-Illinois shall, and
shall cause its respective financial and legal advisors to, negotiate with
Resources to make such adjustments in the terms and conditions of this
Agreement as would enable Iowa-Illinois to proceed with the transactions
contemplated herein; PROVIDED, FURTHER, that Iowa-Illinois and Resources
acknowledge and affirm that notwithstanding anything in this Section 9.1(e)
to the contrary, the parties hereto intend this Agreement to be an exclusive
agreement and, accordingly, nothing in this Agreement is intended to
constitute a solicitation of an offer or proposal for a Business
Combination, it being acknowledged and agreed that any such offer or
proposal would interfere with the strategic advantages and benefits which
the parties expect to derive from the Merger.
(f) by Resources, upon two days' prior notice to Iowa-Illinois if, as a
result of a tender offer by a party other than Iowa-Illinois or any of its
affiliates or any written offer or proposal with respect to a Business
Combination by a party other than Iowa-Illinois or any of its affiliates,
the Board of Directors of Resources determines in good faith that their
fiduciary obligations under applicable law require that such tender offer or
other written offer or proposal be accepted; PROVIDED, HOWEVER, that (i) the
Board of Directors of Resources shall have been advised in writing by
outside counsel that notwithstanding a binding commitment to consummate an
agreement of the nature of this Agreement entered into in the proper
exercise of their applicable fiduciary duties, such fiduciary duties would
also require the directors to reconsider such commitment as a
I-41
<PAGE>
result of such tender offer or other written offer or proposal; and (ii)
prior to any such termination, Resources shall, and shall cause its
respective financial and legal advisors to, negotiate with Iowa-Illinois to
make such adjustments in the terms and conditions of this Agreement as would
enable Resources to proceed with the transactions contemplated herein;
PROVIDED, FURTHER, that Iowa-Illinois and Resources acknowledge and affirm
that notwithstanding anything in this Section 9.1(f) to the contrary, the
parties hereto intend this Agreement to be an exclusive agreement and,
accordingly, nothing in this Agreement is intended to constitute a
solicitation of an offer or proposal for a Business Combination, it being
acknowledged and agreed that any such offer or proposal would interfere with
the strategic advantages and benefits which the parties expect to derive
from the Merger.
(g) by Iowa-Illinois, by written notice to Resources, if (i) there shall
have been any material breach of any representation or warranty, or any
material breach of any covenant or agreement of Resources or Midwest Power,
hereunder, and such breach shall not have been remedied within twenty days
after receipt by Resources of notice in writing from Iowa-Illinois,
specifying the nature of such breach and requesting that it be remedied; or
(ii) the Board of Directors of Resources (A) shall withdraw or modify in any
manner adverse to Iowa-Illinois 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 upon the request of Iowa-Illinois, (C) shall
approve or recommend any acquisition by a third party of Resources or a
material portion of its assets or any tender offer for the Resources Common
Stock, or (D) shall resolve to take any of the actions specified in clause
(A), (B) or (C); PROVIDED, HOWEVER, that Iowa-Illinois and Resources
acknowledge and affirm that notwithstanding anything in this Section
9.1(g)(ii) to the contrary, the parties hereto intend this Agreement to be
an exclusive agreement and, accordingly, nothing in this Agreement is
intended to constitute a solicitation of an offer or proposal for a Business
Combination, it being acknowledged and agreed that any such offer or
proposal would interfere with the strategic advantages and benefits which
the parties expect to derive from the Merger.
(h) by Resources, by written notice to Iowa-Illinois, if (i) there shall
have been any material breach of any representation or warranty, or any
material breach of any covenant or agreement of Iowa-Illinois, hereunder,
and such breach shall not have been remedied within twenty days after
receipt by Iowa-Illinois of notice in writing from Resources, specifying the
nature of such breach and requesting that it be remedied; or (ii) the Board
of Directors of Iowa-Illinois (A) shall withdraw or modify in any manner
adverse to Resources 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 upon the request of Resources, (C) shall approve or recommend
any acquisition by a third party of Iowa-Illinois or a material portion of
its assets or any tender offer for the Iowa-Illinois Common Stock, or (D)
shall resolve to take any of the actions specified in clause (A), (B) or
(C); PROVIDED, HOWEVER, that Iowa-Illinois and Resources acknowledge and
affirm that notwithstanding anything in this Section 9.1(h)(ii) to the
contrary, the parties hereto intend this Agreement to be an exclusive
agreement and, accordingly, nothing in this Agreement is intended to
constitute a solicitation of an offer or proposal for a Business
Combination, it being acknowledged and agreed that any such offer or
proposal would interfere with the strategic advantages and benefits which
the parties expect to derive from the Merger.
(i) by Resources by written notice delivered to Iowa-Illinois prior to
5:00 p.m. Central Time on September 4, 1994, if Resources reasonably
determines that its due diligence investigation of Iowa-Illinois and its
subsidiaries uncovered information or matters which are (i) reasonably
likely to have a material adverse effect on the business, operations,
properties, assets, condition (financial or other), prospects or the results
of operations of Iowa-Illinois as if it were organized as a separate
division of the Company (an "Iowa-Illinois Divisional Adverse Effect") or a
material adverse effect on the business, operations, properties, assets,
condition (financial or other),
I-42
<PAGE>
prospects or the results of operations of Resources as if it were organized
as a separate division of the Company (a "Resources Divisional Adverse
Effect") or (ii) in the event the Merger is consummated, reasonably likely
to have a material adverse effect on the holders of Resources Common Stock.
(j) by Iowa-Illinois by written notice delivered to Resources prior to
5:00 p.m. Central Time on September 4, 1994, if Iowa-Illinois reasonably
determines that its due diligence investigation of Resources and its
subsidiaries uncovered information or matters which are (i) reasonably
likely to have a Iowa-Illinois Divisional Adverse Effect or a Resources
Divisional Adverse Effect or (ii) in the event the Merger is consummated,
reasonably likely to have a material adverse effect on the holders of
Iowa-Illinois Common Stock.
SECTION 9.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement by either Resources or Iowa-Illinois pursuant to Section 9.1, there
shall be no liability on the part of either Iowa-Illinois, Resources or Midwest
Power or their respective officers or directors hereunder, except Section 7.10
and 9.3 and the agreement contained in Section 6.1(v) and in the last sentence
of Section 7.1 shall survive the termination.
SECTION 9.3 TERMINATION FEE; EXPENSES.
(a) TERMINATION FEE. If this Agreement is terminated (i) at such time that
this Agreement is terminable pursuant to one of Section 9.1(g)(i) or Section
9.1(h)(i) (other than solely pursuant to a noncurable breach of a representation
or warranty unless such breach was willful) but not the other, or (ii) is
terminated pursuant to Section 9.1(e) or Section 9.1(f), then (A) in the event
of a termination pursuant to Section 9.1(f) or Section 9.1(g)(i), Midwest Power
shall pay to Iowa-Illinois, and (B) in the event of a termination pursuant to
Section 9.1(e) or Section 9.1(h)(i), Iowa-Illinois shall pay to Midwest Power,
promptly (but not later than five business days after such notice is received
pursuant to Section 9.1(g)(i) or Section 9.1(h)(i) or is given pursuant to
Section 9.1(e) or Section 9.1(f)) an amount equal to $15 million in cash if
required to be paid by Iowa-Illinois and $15 million in cash if required to be
paid by Midwest Power, plus in each case cash in an amount equal to all
documented out-of-pocket expenses and fees incurred by the other party
(including, without limitation, fees and expenses payable to all legal,
accounting, financial, public relations and other professional advisors arising
out of, in connection with or related to the Merger or the transactions
contemplated by this Agreement) not in excess of $6 million.
(b) ADDITIONAL TERMINATION FEE AND SUBSEQUENT TRANSACTION FEE. If (i) this
Agreement (x) is terminated by any party pursuant to Section 9.1(e) or Section
9.1(f), (y) is terminated following a failure of the shareholders of Midwest
Power or Resources or Iowa-Illinois to grant the necessary approvals described
in Section 4.13 or Section 5.13 or (z) is terminated as a result of such party's
material breach of Section 7.4, and (ii) at the time of such termination or
prior to the meeting of such party's shareholders there shall have been a
third-party tender offer for shares of, or a third-party offer or proposal with
respect to a Business Combination involving, such party or its affiliates which
at the time of such termination or of the meeting of such party's shareholders
shall not have been (x) rejected by such party and its Board of Directors and
(y) withdrawn by the third-party and (iii) within 2 years of any such
termination described in clause (i) above, the party or its affiliate which is
the subject of the tender offer or offer or proposal with respect to a Business
Combination ("Target Party") becomes a subsidiary of such offeror or a
subsidiary of an affiliate of such offeror, or merges with and into the offeror
or a subsidiary or affiliate of the offeror or enters into a definitive
agreement to consummate a Business Combination with such offeror or affiliate
thereof, then (A) in the event Resources or one of its affiliates is the Target
Party, Midwest Power shall pay to Iowa-Illinois and (B) in the event
Iowa-Illinois or one of its affiliates is the Target Party, Iowa-Illinois shall
pay to Midwest Power, at the closing of the transaction (and as a condition to
the closing) in which such Target Party becomes a subsidiary or such Business
Combination occurs ("Subsequent Transaction"), (1) a termination fee equal to
$30 million in cash if required to be paid by Iowa-Illinois and $30 million in
cash if required to be paid by Midwest Power plus (2) a Subsequent Transaction
fee payable in cash equal to
I-43
<PAGE>
20% of the difference between (I) $815,376,077 (if Resources or any of its
affiliates is the Target Party), or $637,751,871 (if Iowa-Illinois or any of its
affiliates is the Target Party) and (II) the number of shares of Target Party
common stock outstanding at the time of the closing of the Subsequent
Transaction multiplied by the higher of (a) the average daily closing price of
Target Party common stock on the NYSE, or if such common stock is not admitted
to trading on the NYSE, on the market on which such common stock is traded which
has the highest volume of trades, on the ten NYSE trading days immediately
preceding the date of such closing, or (b) the amount of cash plus the fair
market value on the day prior to such closing of any non-cash consideration to
be received for each share of Target Party common stock by the holder thereof in
the Subsequent Transaction (including in such fair market value the fair market
value of any Target Party common stock retained by such holder as a result of
the Subsequent Transaction). The fair market value of any such non cash
consideration shall be determined by a nationally recognized accounting firm
selected jointly by Resources and Iowa-Illinois at least 60 days prior to the
date of such closing. The Target Party shall pay all of the fees and expenses of
such accounting firm for making such determination. The Target Party shall agree
to indemnify such accounting firm against any and all liabilities, costs and
expenses of whatever nature such accounting firm may incur in connection with
its determination of such fair market value. The Target Party shall provide to
such accounting firm such security for the fee and expense payment and
indemnification obligations of the Target Party to such accounting firm as it
may request and the other party shall have no liability for any of such fees and
expenses nor shall it have any obligation to indemnify such accounting firm for
anything.
(c) EXPENSES. The parties agree that the agreements contained in this
Section 9.3 are an integral part of the transactions contemplated by the
Agreement and constitute liquidated damages and not a penalty. If one party
fails to pay promptly to the other any expense and/or fee due hereunder, 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,
the aggregate amount payable by Resources and its affiliates pursuant to Section
9.3(a) and Section 9.3(b) shall not exceed $51 million and the aggregate amount
payable by Iowa-Illinois and its affiliates pursuant to Section 9.3(a) and
Section 9.3(b) shall not exceed $51 million.
SECTION 9.4 AMENDMENT. This Agreement may be amended by the directors of
the parties hereto, at any time before or after approval hereof by the
shareholders of Iowa-Illinois, Midwest Power and Resources and prior to the
Effective Time, but after such approvals, no such amendment shall (i) alter or
change the amount or kind of shares, rights or any of the proceeds of the
conversion under Article II, or (ii) 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
Iowa-Illinois Common Stock, Iowa-Illinois Preferred Stock, Iowa-Illinois
Preference Stock, Midwest Power Preferred Stock or Resources 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. 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.
I-44
<PAGE>
ARTICLE X
GENERAL PROVISIONS
SECTION 10.1 NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS. No representations, warranties and agreements in this Agreement
shall survive the Merger, except as otherwise provided in this Agreement and
except for the agreements contained in this Section 10.1 and in Article II,
Section 6.1(v), the last sentence of Section 7.1, Section 7.5, Section 7.10,
Section 7.11, Section 7.12, Section 7.13, Section 7.14, Section 7.15, Section
9.3 and Section 10.8.
SECTION 10.2 BROKERS. Except as previously disclosed to Iowa-Illinois,
Resources and Midwest Power represent and warrant that, except for PaineWebber
Incorporated, their investment banking firm, no broker, finder or investment
banker is entitled to any brokerage, finder's or other fee or commission in
connection with the Merger or the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of Resources or Midwest Power.
Except as previously disclosed to Resources and Midwest Power, Iowa-Illinois
represents and warrants that, except for Dillon, Read & Co. Inc., its investment
banking firm, no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the Merger or
the transactions contemplated by this Agreement based upon arrangements made by
or on behalf of Iowa-Illinois.
SECTION 10.3 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given if (i) delivered personally, or (ii)
sent by reputable overnight courier service, or (iii) telecopied (which is
confirmed), or (iv) five days after being mailed by registered or certified mail
(return receipt requested) to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice):
(a) If to Resources and/or Midwest Power, to:
Midwest Resources Inc.
Midwest Power Systems Inc.
666 Grand Avenue
P.O. Box 657
Des Moines, Iowa 50303
Attention: Chief Executive Officer
Telephone: 515-242-4300
Telecopy: 515-281-2981
with a concurrent copy to:
Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
Attention: R. Todd Vieregg, P.C.
Telephone: 312-853-7470
Telecopy: 312-853-7036
(b) If to Iowa-Illinois, to:
Iowa-Illinois Gas and Electric Company
206 E. Second Street
Davenport, Iowa 52801
Attention: Chief Executive Officer
Telephone: 319-326-7243
Telecopy: 319-326-7670
I-45
<PAGE>
with a concurrent copy to:
LeBoeuf, Lamb, Greene & MacRae
125 West 55th Street
New York, New York 10019
Attention: Douglas W. Hawes
Telephone: 212-424-8000
Telecopy: 212-424-8500
SECTION 10.4 MISCELLANEOUS. This Agreement (including the documents and
instruments referred to herein) (i) 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; (ii) shall not be assigned by
operation of law or otherwise; and (iii) shall be governed by and construed in
accordance with the Illinois Act, the Iowa Act and otherwise in accordance with
the laws of the State of Iowa applicable to contracts executed in and to be
fully performed in such State, without giving effect to its conflicts of law,
rules or principles. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect. The parties
hereto agree that they will negotiate in good faith to replace any provision of
this Agreement so held invalid or unenforceable, with a valid provision that is
as similar as possible in substance to the invalid or unenforceable provision.
SECTION 10.5 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 10.6 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 10.7 SPECIFIC PERFORMANCE. The parties hereto 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 hereto will be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereof in any court of the
United States or any state having jurisdiction, this being in addition to any
other remedy to which they are entitled at law or in equity.
SECTION 10.8 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.
Notwithstanding the foregoing and any other provision of this Agreement, and in
addition to any other required action of the Board of Directors of the Company,
(i) a majority of the Iowa-Illinois Designees serving on the Board of Directors
of the Company shall be entitled during the five year period commencing at the
Effective Time (the "Five Year Period") to enforce the provisions of Sections
7.11, 7.12 and 7.14 on behalf of the Iowa-Illinois officers, directors and
employees, as the case may be, and (ii) a majority of the Resources Designees
serving on the Board of Directors of the Company shall be entitled during the
Five Year Period to enforce the provisions of Section 7.11, 7.12 and 7.14 on
behalf of the Resources officers, directors and employees, as the case may be.
Such directors' rights and remedies under the preceding sentence are cumulative
and are in addition to any other rights and remedies they may have at law or in
equity, but in no event shall this Section 10.8 be deemed to impose any
additional duties on any such directors. The Company shall pay, at the time they
are incurred, all costs, fees and expenses of such directors incurred in
connection with the assertion of any rights on behalf of the persons set
I-46
<PAGE>
forth above pursuant to this Section 10.8. For purposes of this Section 10.8 and
Section 7.11, a "Iowa-Illinois Designee" or "Resources Designee", as the case
may be, shall at any time mean a person who at such time is a member of the
Board of Directors of the Company who either (a) was designated a member of the
Board of Directors of the Company by Iowa-Illinois or by Resources, as the case
may be, pursuant to Section 7.11(a) or (b) was designated (before his or her
initial election as a member of the Board of Directors of the Company as
contemplated by Section 7.11(c)(ii)) as a "Iowa-Illinois Designee" or a
"Resources Designee" by a majority of the then Iowa-Illinois Designees or
Resources Designees, as the case may be.
SECTION 10.9 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. Iowa-Illinois, Resources and Midwest Power expressly
acknowledge that, although it is their current intention to effect a business
combination among themselves and the Company by means of the Merger, it may be
preferable for Iowa-Illinois, Resources and Midwest Power to effectuate such a
business combination by means of an alternative structure in light of the
conditions set forth in Sections 8.2(d) and 8.3(d). Accordingly, if the only
conditions to the parties' obligations to consummate the Merger which are not
satisfied or waived are receipt of Resources Required Consents, Resources
Required Statutory Approvals, Iowa-Illinois Required Consents and Iowa-Illinois
Required Statutory Approvals that, in the reasonable judgment of Iowa-Illinois
or Resources, would be rendered unnecessary by adoption of an alternative
structure that otherwise substantially preserves for Iowa-Illinois, Resources
and Midwest Power the economic benefits of the Merger, Iowa-Illinois or
Resources, as the case may be, shall notify the other of such judgment no later
than 5:00 p.m. Central Time on December 31, 1995 and thereafter the parties
shall use their best efforts to effect a business combination among themselves
by means of a structure other than the Merger that so preserves such benefits;
PROVIDED that all material third party and Governmental Authority declarations,
filings, registrations, notices, authorizations, consents or approvals necessary
for the effectuation of such alternative business combination shall have been
obtained and all other conditions to the parties' obligations to consummate the
Merger, as applied to such alternative business combination, shall have been
satisfied or waived.
I-47
<PAGE>
IN WITNESS WHEREOF, Midwest Resources Inc., Midwest Power Systems Inc.,
Iowa-Illinois Gas and Electric Company, and MidAmerican Energy Company have
caused this Agreement, as amended and restated as of September 27, 1994, to be
signed by their respective officers thereunto duly authorized.
MIDWEST RESOURCES INC.
By: /s/ RUSSELL E. CHRISTIANSEN
--------------------------------------
NAME: RUSSELL E. CHRISTIANSEN
TITLE: CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
MIDWEST POWER SYSTEMS INC.
By: /s/ RUSSELL E. CHRISTIANSEN
--------------------------------------
NAME: RUSSELL E. CHRISTIANSEN
TITLE: CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
IOWA-ILLINOIS GAS AND ELECTRIC COMPANY
By: /s/ STANLEY J. BRIGHT
--------------------------------------
NAME: STANLEY J. BRIGHT
TITLE: CHAIRMAN AND CHIEF
EXECUTIVE OFFICER
MIDAMERICAN ENERGY COMPANY
By: /s/ STANLEY J. BRIGHT
--------------------------------------
NAME: STANLEY J. BRIGHT
TITLE: PRESIDENT, OFFICE OF
THE CHIEF EXECUTIVE OFFICER
I-48
<PAGE>
ANNEX II
RESTATED
ARTICLES OF INCORPORATION
OF
MIDAMERICAN ENERGY COMPANY
TO THE SECRETARY OF STATE
OF THE STATE OF IOWA:
Pursuant to the provisions of Sections 490.201 and 202 of the Iowa Business
Corporation Act, the undersigned incorporator hereby adopts the following
Restated Articles of Incorporation ("Articles of Incorporation"):
ARTICLE I
The name of the corporation is "MidAmerican Energy Company" (hereinafter
sometimes called the "Corporation") and its registered office shall be located
at 666 Grand Avenue, Des Moines, Iowa 50306 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 may, from time to time,
determine. The name of the Corporation's registered agent at such registered
office is Paul J.
Leighton, Vice President and Secretary.
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 Iowa Business Corporation Act.
ARTICLE III
A. The aggregate number of shares which the Corporation shall have
authority to issue is 350,000,000 shares of Common Stock, no par value ("Common
Stock"), and 100,000,000 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 unlimited and 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 treasury 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. The Board of Directors, at any time or from time to time may, and is
hereby authorized to, 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
II-1
<PAGE>
rights to vote at all, and to issue and dispose of any of such shares and any
treasury 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.
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 of the Corporation. 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 of the Corporation providing for the creation and issue of such
warrants, rights or options. The Board of Directors of the Corporation 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 of the
Corporation, 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 of the Corporation 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 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 by the Bylaws but shall be no less than ten (10) and no greater
than twenty-two (22), and such number may be increased or decreased 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 Corporation as specified herein and
in the Bylaws. Directors need not be shareholders.
B. Each director shall serve until his or her successor is elected and
qualified or until his or her prior death, retirement, resignation or removal.
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,
II-2
<PAGE>
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 serve for the remainder of the then present term
of office of the Board of Directors.
C. Any director or the entire Board of Directors may be removed for cause
as set forth in this paragraph C. Removal of a director for cause must be
approved by the affirmative vote of the holders of shares of capital stock of
the Corporation having at least 75% 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 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. Any action for
removal of a director must be taken within one year of such cause.
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 of the Corporation 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 the Chairman of the Board of Directors or by the President on at least
ten days' notice to each shareholder entitled to vote at the special meeting, by
mail at such shareholder's last known post office address, 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.
II-3
<PAGE>
ARTICLE VIII
A. In addition to any affirmative vote required by law or under any other
provision of these Articles of Incorporation:
(i) any merger or consolidation of the Corporation or any Subsidiary (as
hereinafter defined) with or into any Other Entity (as hereinafter defined);
or
(ii) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of related transactions) to or
with any Other Entity of any assets of the Corporation or any Subsidiary
having an aggregate Fair Market Value (as hereinafter defined) of
$25,000,000 or more; or
(iii) the issuance or transfer by the Corporation or any Subsidiary (in
one transaction or a series of related transactions) of any securities of
the Corporation or any Subsidiary to any Other Entity in exchange for cash,
securities or other property (or a combination thereof) having an aggregate
Fair Market Value of $25,000,000 or more; or
(iv) the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation; or
(v) any reclassification of securities (including any reverse stock
split), recapitalization, reorganization, merger or consolidation of the
Corporation with any of its Subsidiaries or any similar transaction (whether
or not with or into or otherwise involving any Other Entity) which has the
effect, directly or indirectly, of increasing the proportionate share of the
outstanding shares of any class of equity or convertible securities of the
Corporation or any Subsidiary which is directly or indirectly owned by any
Other Entity; or
(vi) any direct or indirect purchase or other acquisition by the
Corporation of any equity security (as defined in Rule 3a11-1 of the General
Rules and Regulations under the Securities Exchange Act of 1934, as in
effect on June 30, 1994) of any class from any Interested Security-holder
(as hereinafter defined) who has beneficially owned such securities for less
than two years prior to the date of such purchase or any agreement in
respect thereof,
shall require the affirmative vote of the holders of shares of capital stock of
the Corporation having at least 75% (excluding, in the case of (i) through (v)
above, shares beneficially owned by a 25% Shareholder (as hereinafter defined),
and, in the case of (vi) above, shares beneficially owned by such Interested
Securityholder) of the votes of all outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors, considered
for the purpose of this Article VIII as one class ("Voting Shares"). Such
affirmative vote shall be required notwithstanding the fact that no vote may be
required, or that some lesser percentage vote may be specified, by law or in any
agreement with any national securities exchange or otherwise.
B. The provisions of paragraph A of this Article VIII shall not be
applicable to any particular Business Combination (as hereinafter defined), and
such Business Combination shall require only such affirmative vote as is
required by law and any other provision of these Articles of Incorporation, if
all of the conditions specified in either of the following subparagraphs 1 and 2
shall have been satisfied.
1. A majority of the Continuing Directors (as hereinafter defined)
shall have approved the Business Combination (but only if a majority of the
Board of Directors are Continuing Directors); or
II-4
<PAGE>
2. All of the following conditions shall have been met:
a. The ratio of:
(i) the aggregate amount of the cash and the Fair Market Value as
of the date of consummation of the Business Combination of other
consideration to be received per share by holders of a particular
class or series of Voting Shares in such Business Combination
to
(ii) the Fair Market Value per share of such class or series of
Voting Shares on the date of the first public announcement of such
Business Combination or the date on which any 25% Shareholder became
a 25% Shareholder, whichever is higher
is at least as great as the ratio (which ratio shall equal the number one
in the event that such 25% Shareholder has never beneficially owned any
shares of such class or series of Voting Shares) of
(x) the highest per share price (including brokerage commissions,
transfer taxes and soliciting dealers' fees) which such 25%
Shareholder has theretofore paid for any share of such class or
series of Voting Shares acquired by it
to
(y) the Fair Market Value per share of such class or series of
Voting Shares on the date of the initial acquisition by such 25%
Shareholder of any share of such class or series of Voting Shares;
b. The aggregate amount of the cash and Fair Market Value as of the
date of consummation of the Business Combination of other consideration
to be received per share by holders of each class or series of Preferred
Stock in such Business Combination is not less than the highest
preferential amount per share to which holders of shares of such class or
series of Preferred Stock would, respectively, be entitled in the event
of any voluntary or involuntary liquidation, dissolution or winding up of
the Corporation, regardless of whether the Business Combination to be
consummated constitutes such an event;
c. The consideration to be received by holders of a particular class
or series of Voting Shares in such Business Combination shall be in cash
or in the same form and of the same kind as the consideration paid by the
25% Shareholder in acquiring the shares of such class or series of Voting
Shares already owned by it;
d. After such 25% Shareholder has acquired ownership of not less
than 25% of the then outstanding Voting Shares (a "25% Interest") and
prior to the consummation of such Business Combination:
(i) the 25% Shareholder shall have taken steps to ensure that the
Corporation's Board of Directors includes at all times representation
by Continuing Director(s) proportionate to the ratio that the Voting
Shares which from time to time are owned by persons who are not 25%
Shareholders ("Public Holders") bear to all Voting Shares outstanding
at such respective times (with a Continuing Director to occupy any
resulting fractional board position):
(ii) there shall have been no reduction in the rate of
distributions ("Dividends") payable on the Common Stock except as may
have been approved by a majority vote of the Continuing Directors;
II-5
<PAGE>
(iii) such 25% Shareholder shall not have acquired any newly
issued shares of stock, directly or indirectly, from the Corporation
(except upon conversion of convertible securities acquired by it
prior to obtaining a 25% Interest or as a result of a pro rata stock
Dividend or stock split); and
(iv) such 25% Shareholder shall not have acquired any additional
Voting Shares or securities convertible into or exchangeable for
Voting Shares except as a part of the transaction which resulted in
such 25% Shareholder acquiring its 25% Interest;
e. Prior to or upon the consummation of such Business Combination,
such 25% Shareholder shall not have (i) received the benefit, directly or
indirectly (except proportionately as a shareholder), of any loans,
advances, guarantees, pledges or other financial assistance or tax
credits provided by the Corporation, or (ii) made any major change in the
Corporation's business or equity capital structure without the unanimous
approval of the entire Board of Directors; and
f. A proxy statement responsive to the requirements of the
Securities Exchange Act of 1934 and the General Rules and Regulations
promulgated thereunder shall have been mailed to all holders of Voting
Shares for the purpose of soliciting shareholders' approval of such
Business Combination. Such proxy statement shall contain at the front
thereof in a prominent place, any recommendations as to the advisability
(or inadvisability) of the Business Combination which the Continuing
Directors, or any of them, may have furnished in writing and, if deemed
advisable by a majority of the Continuing Directors, an opinion of a
reputable investment banking firm as to the, fairness (or lack of
fairness) of the terms of such Business Combination, from a financial
point of view, to the holders of Voting Shares other than any 25%
Shareholder (such investment banking firm to be selected by a majority of
the Continuing Directors, to be furnished with all information it
reasonably requests and to be paid a reasonable fee for its services upon
receipt by the Corporation of such opinion).
C. For the purposes of this Article VIII:
1. The term "Business Combination" shall mean any transaction which is
referred to in any one or more of clauses (i) through (v) of paragraph A of
this Article VIII;
2. The term "Other Entity" shall include (a) any 25% Shareholder and
(b) any other person (whether or not itself a 25% Shareholder) which after
any Business Combination, would be an Affiliate (as hereinafter defined) of
any 25% Shareholder;
3. The term "person" shall mean any individual, firm, trust,
partnership, association, corporation or other entity;
4. The term "25% Shareholder" shall mean, in respect to any Business
Combination, any person (other than the Corporation or any Subsidiary) who
or which, as of the record date for the determination of shareholders
entitled to notice of and to vote on such Business Combination, or
immediately prior to the consummation of any such transactions,
(a) is the beneficial owner, directly or indirectly, of not less than
25% of the Voting Shares, or
(b) is an Affiliate of the Corporation and at any time within five
years prior thereto was the beneficial owner, directly or indirectly, of
not less than 25% of the then outstanding Voting Shares, or
(c) is an assignee of or has otherwise succeeded to any shares of
capital stock of the Corporation which were at any time within five years
prior thereto beneficially owned by any 25% Shareholder, and such
assignment or succession shall have occurred in the course of a
transaction or series of transactions not involving a public offering
within the meaning of the Securities Act of 1933;
II-6
<PAGE>
5. A person shall be the beneficial owner of any Voting Shares
(a) which such person or any of its Affiliates and Associates (as
hereinafter defined) beneficially own, directly or indirectly, or
(b) which such person or any of its Affiliates or Associates has (i)
the right to acquire (whether such right is exercisable immediately or
only after the passage of time), pursuant to any agreement, arrangement
or understanding or upon the exercise of conversion rights, exchange
rights, warrants or options, or otherwise, or (ii) the right to vote
pursuant to any agreement, arrangement or understanding, or
(c) which are beneficially owned, directly or indirectly, by any
other person with which such first mentioned person or any of its
Affiliates or Associates has any agreement, arrangement or understanding
for the purpose of acquiring, holding, voting or disposing of any shares
of capital stock of the Corporation;
6. The outstanding Voting Shares shall include shares deemed owned
through application of subparagraph 5 of this paragraph C above but shall
not include any other Voting Shares which may be issuable pursuant to any
agreement or upon exercise of conversion rights, warrants or options, or
otherwise;
7. The term "Continuing Director" shall mean (a) a person who was a
member of the Board of Directors of the Corporation elected by the Public
Holders prior to the date as of which any 25% Shareholder acquired in excess
of 10% of the then outstanding Voting Shares or (b) a person designated
(before his or her initial election as a director) as a Continuing Director
by a majority of the then Continuing Directors;
8. The term "other consideration to be received" shall include, without
limitation, Voting Shares retained by Public Holders in the event of a
Business Combination in which the Corporation is the surviving corporation;
9. The terms "Affiliate" and "Associate" shall have the respective
meanings given those terms in Rule 12b-2, of the General Rules and
Regulations under the Securities Exchange Act of 1934, as in effect on June
30, 1994;
10. The term "Subsidiary" shall mean any corporation or other entity of
which a majority of the outstanding voting securities or other equity
interests having the power, under ordinary circumstances, to elect a
majority of the directors, or otherwise to direct the management and
policies, of such corporation or other entity, is owned, directly or
indirectly, by the Corporation.
11. The term "Interested Securityholder" shall mean, with respect to any
transaction which is referred to in Clause (vi) of paragraph A of this
Article VIII, any person (other than the Corporation or any Subsidiary) who
or which, as of the record date for the determination of shareholders
entitled to notice of and to vote on such transaction, or immediately prior
to the consummation of any such transaction,
(a) is the beneficial owner, directly or indirectly, of not less than
five percent of the Voting Shares, or
(b) is an Affiliate of the Corporation and at any time within two
years prior thereto was the beneficial owner, directly or indirectly, of
not less than five percent of the then outstanding Voting Shares, or
(c) is an assignee of or has otherwise succeeded to any shares of the
class of securities to be acquired which were at any time within two
years prior thereto beneficially owned by an Interested Securityholder,
and such assignment or succession shall have occurred in the course of a
transaction or series of transactions not involving a public offering
within the meaning of the Securities Act of 1933; and
II-7
<PAGE>
12. The term "Fair Market Value" shall mean (i) in the case of capital
stock, the highest closing sale price during the 30-day period immediately
preceding the date in question of a share of such capital stock on the
Composite Tape for New York Stock Exchange-Listed Stocks, or, if such
capital stock is not quoted on the Composite Tape, on the New York Stock
Exchange, or, if such capital stock is not listed on such exchange, on the
principal United States securities exchange registered under the Securities
Exchange Act of 1934 on which such capital stock is listed, or, if such
capital stock is not listed on any such exchange, the highest closing bid
quotation with respect to a share of such capital stock during the 30-day
period preceding the date in question on the National Association of
Securities Dealers, Inc. Automated Quotations System or any system then in
use, or if no such quotations are available the fair market value on the
date in question of a share of such capital stock as determined by a
majority of the Continuing Directors in good faith; and (ii) in the case of
property other than cash or capital stock, the fair market value of such
property on the date in question as determined in good faith by a majority
of the Continuing Directors; provided that any such determination by the
Continuing Directors shall only be effective if made at a meeting at which a
majority of Continuing Directors is present.
D. A majority of the Continuing Directors shall have the power and duty
to determine for purposes of this Article VIII, on the basis of information
known to them, (i) the number of Voting Shares beneficially owned by any
person, (ii) whether a person is an Affiliate or Associate of another, (iii)
whether a person has an agreement, arrangement or understanding with another
as to the matters referred to in subparagraph 4 of paragraph C, (iv) whether
the assets subject to any Business Combination have an aggregate Fair Market
Value of $25,000,000 or more, and (v) such other matters with respect to
which a determination is required under this Article VIII.
E. Nothing contained in this Article VIII shall be construed to relieve
any 25% Shareholder from any fiduciary obligation imposed by law.
ARTICLE IX
Any amendment, alteration, change or repeal of Article VA, VB and VC,
Article VIII or this Article IX of these Articles of Incorporation shall require
the affirmative vote of the holders of shares of capital stock of the
Corporation having at least 75% of the votes of all outstanding Voting Shares
(as defined in Article VIII), excluding from such affirmative vote shares
beneficially owned by any 25% Shareholder or by any Interested Securityholder in
the case of an amendment of the provisions of paragraph A of Article VIII that
exclude from an affirmative vote required pursuant to such paragraph A shares
beneficially owned by 25% Shareholders or shares beneficially owned by
Interested Securityholders, as the case may be.
ARTICLE X
The Board of Directors may make Bylaws, and from time to time may alter,
amend or repeal any Bylaws; but any Bylaws made by the Board of Directors may be
altered or repealed by the shareholders entitled to vote generally 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 XI
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
II-8
<PAGE>
(iv) under Section 490.833, or a successor provision, of the Iowa
Business Corporation Act.
B. If, after the date these Articles of Incorporation are filed with the
Iowa Secretary of State, the Iowa Business Corporation 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
Iowa Business Corporation Act, as so amended. Any repeal or modification of
Section A, or this Section B of this Article XI, 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 XII
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, employee or
agent, of the Corporation or is or was serving at the request of the Corporation
as a director, officer, employee or agent 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,
employee or agent or in any other capacity while serving as a director, officer,
employee or agent, shall be indemnified and held harmless by the Corporation to
the fullest extent authorized by the Iowa Business Corporation Act (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, employee or agent in
his or her capacity as a director, officer, employee or agent (and not in any
other capacity in which service was or is rendered by such person while a
director, officer, employee or agent 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, employee or agent, to
repay all amounts so advanced if it should be determined ultimately that such
director, officer, employee or agent is not entitled to be indemnified under
this Article XII or otherwise, or (ii) a written affirmation by or on behalf of
such director, officer, employee or agent that, in such person's good faith
belief, such person has met the standards of conduct set forth in the Act.
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.
II-9
<PAGE>
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 XII shall not affect the
validity or enforceability of any other provision of this Article XII.
D. Any action taken or omitted to be taken by (i) any director, officer,
employee or agent 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 or (ii) by any director of the Corporation pursuant to
Section D of Article VIII 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, in the case of clause (i), 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 XII 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.
II-10
<PAGE>
ARTICLES OF AMENDMENT
TO
RESTATED
ARTICLES OF INCORPORATION
OF
MIDAMERICAN ENERGY COMPANY
To the Secretary of State
of the State of Iowa:
These Articles of Amendment are delivered to you for filing pursuant to the
provisions of Section 490.601, and in accordance with Section 490.602(4), of the
Iowa Business Corporation Act.
(a) The name of the Corporation is:
MidAmerican Energy Company
(b) As of , 199 , the Board of Directors of MidAmerican Energy
Company, an Iowa corporation ("Corporation"), duly adopted the following
Articles of Amendment to the Restated Articles of Incorporation ("Articles of
Incorporation") of the Corporation, determining certain terms of its class of
shares designated in Article III of its Articles of Incorporation as Preferred
Stock, no par value ("Preferred Stock"), and creating and determining the terms
of the ten series of Preferred Stock (collectively, the "Merger Series") to be
issued on the date on which the merger ("Merger") of Midwest Resources Inc., an
Iowa corporation, Midwest Power Systems Inc., an Iowa corporation ("Midwest
Power"), and Iowa-Illinois Gas and Electric Company, an Illinois corporation
("Iowa-Illinois"), with and into the Corporation becomes effective ("Effective
Date of the Merger"), upon the conversion of (i) all shares of each series of
Midwest Power Preferred Stock, no par value ("Midwest Power Preferred Stock"),
into shares of a particular series of Preferred Stock, and (ii) all shares of
each series of Iowa-Illinois Preference Shares, without par value
("Iowa-Illinois Preference Stock"), into shares of a particular series of
Preferred Stock, including the certain preferences, limitations and relative
rights of holders of shares of Preferred Stock, and the designation,
preferences, limitations and relative rights of each Merger Series.
(c) The text of the Amendment determining the terms of the Preferred Stock
and the terms of each Merger Series, is as follows:
(A) DESIGNATIONS. Each Merger Series is given one of the following
distinguishing designations:
<TABLE>
<S> <C>
$1.7375 Series
$3.30 Series
$3.75 Series
$3.90 Series
$4.20 Series
$4.35 Series
$4.40 Series
$4.80 Series
$5.25 Series
$7.80 Series
</TABLE>
II-11
<PAGE>
(B) NUMBER OF SHARES. Each Merger Series shall consist of the following
number of shares of Preferred Stock:
<TABLE>
<CAPTION>
SERIES NUMBER OF SHARES
- ----------------- -----------------
<S> <C>
$1.7375 Series 2,400,000
$3.30 Series 49,632
$3.75 Series 38,320
$3.90 Series 32,636
$4.20 Series 47,369
$4.35 Series 49,950
$4.40 Series 50,000
$4.80 Series 49,898
$5.25 Series 100,000
$7.80 Series 400,000
</TABLE>
(C) DISTRIBUTIONS ("DIVIDENDS").
(1) The holders of the shares of each Merger Series in preference to the
holders of Common Stock and the holders of any other shares of the Corporation
which rank junior to the Preferred Stock, shall be entitled to receive, but only
when and as declared by the Board of Directors, out of any assets legally
available therefor, Dividends in lawful money of the United States of America,
in the amount per annum set forth in the designation of such Merger Series in
these Articles of Amendment creating such Merger Series, and no more.
(2) Dividends on the Merger Series shares shall be payable quarterly on the
first day of each of the months of March, June, September and December
("Dividend Payment Date") with respect to the quarterly Dividend period ending
on the date preceding each such Dividend Payment Date, to shareholders of record
as of a date to be fixed by the Board of Directors, not exceeding thirty (30)
days and not less than ten (10) days preceding such Dividend Payment Dates;
provided, however, that the first Dividend payable on the $5.25 Series and the
$7.80 Series shall be paid as follows:
(a) if a regular Dividend payment date for the shares of Iowa-Illinois
Preference Stock which were converted into shares of such Merger Series in
the merger of Midwest Resources Inc., Midwest Power and Iowa-Illinois with
and into the Corporation ("Iowa-Illinois Payment Date"), occurs after the
Effective Date of the Merger but before the first Dividend Payment Date
after the Effective Date of the Merger ("First Dividend Payment Date"), then
(i) a Dividend shall be paid on the shares of such Merger Series on the
Iowa-Illinois Payment Date in the regular quarterly amount, and
(ii) a Dividend shall be paid on the shares of such Merger Series on the
First Dividend Payment Date, but only in the amount obtained by multiplying
the regular quarterly amount of such Dividend by a fraction (A) the
numerator of which is the number of days in the period commencing on the
Iowa-Illinois Payment Date and ending on and including the day prior to the
First Dividend Payment Date, and (B) the denominator of which is the number
of days in the period commencing on the Dividend Payment Date preceding the
Effective Date of the Merger and ending on and including the day prior to
the First Dividend Payment Date; or
(b) if the First Dividend Payment Date occurs before an Iowa-Illinois
Payment Date, a Dividend shall be paid on the shares of such Merger Series
on the First Dividend Payment Date, but only in the amount obtained by
multiplying the regular quarterly amount of such Dividend by a fraction (i)
the numerator of which is the number of days in the period commencing on the
Iowa-Illinois Payment Date preceding the Effective Date of the Merger and
ending on and including the day prior to the First Dividend Payment Date,
and (ii) the denominator of which is the number of days in the period
commencing on the Dividend Payment Date preceding the Effective Date of the
Merger and ending on and including the day prior to the First Dividend
Payment Date.
II-12
<PAGE>
(3) Except as provided in Section (C)(2), Dividends on each Merger Series
share shall be cumulative from the Dividend Payment Date preceding the Effective
Date of the Merger. Accumulations of Dividends shall not bear interest.
(4) Except as provided in Section (C)(2), no Dividend shall be paid upon, or
declared and set apart for, any Merger Series share for any quarterly period or
portion thereof unless (i) at the same time a like proportionate Dividend for
the same quarterly period or portion thereof shall be paid upon, or declared and
set aside, for all Merger Series shares and all other shares of Preferred Stock
on which Dividends are payable on a Dividend Payment Date and (ii) no Dividends
on any other shares of Preferred Stock are accrued and unpaid.
(5) So long as any Merger Series shares are outstanding, the Corporation
shall not (i) pay or declare or set aside any Dividend or other distribution on
any shares of Common Stock or on any other junior shares of the Corporation
which rank below the Preferred Stock with respect to any assets, Dividends or
other distributions or upon Liquidation or (ii) purchase, redeem or otherwise
acquire for value any shares of Common Stock or such junior shares, in each case
unless and until full Dividends have been declared and paid upon or set apart
for payment on all shares of Preferred Stock, with respect to all Dividend
periods and the Dividend period which includes the date of such Dividend or
distribution on Common Stock or such junior shares; provided, however, that the
foregoing terms of this Section (C)(5) shall not apply to the declaration and
payment of Dividends or other distributions on any shares of Common Stock or
such junior shares if payable solely in shares of Common Stock or such junior
shares, nor to the acquisition of shares of Common Stock or such junior shares
in exchange for, or through the application of the proceeds of the sale of, any
shares of Common Stock or such junior shares.
(D) REDEMPTION.
(1) Subject to the limitations set forth in Section (F), the outstanding
shares of each Merger Series may be redeemed by the Corporation, at its option,
by action of its Board of Directors, as a whole at any time or in part from time
to time, by paying in cash on a redemption date specified by the Board of
Directors, the following redemption prices, in each case plus an amount equal to
accrued and unpaid Dividends thereon to such redemption date:
$1.7375 Series:
$26.7375 per share through November 30, 1994
$26.3900 per share on December 1, 1994 through November 30, 1995
$26.0425 per share on December 1, 1995 through November 30, 1996
$25.6950 per share on December 1, 1996 through November 30, 1997
$25.3475 per share on December 1, 1997 through November 30, 1998
$25.0000 per share on or after December 1, 1998
$3.30 Series:
$101.50 per share
$3.75 Series:
$102.75 per share
$3.90 Series:
$105.00 per share
$4.20 Series:
$103.439 per share
$4.35 Series:
$102.00 per share
$4.40 Series:
$101.50 per share
$4.80 Series:
$102.70 per share
II-13
<PAGE>
$5.25 Series:
$101.97 per share on November 1, 1998 through October 31, 1999
$101.31 per share on November 1, 1999 through October 31, 2000
$100.66 per share on November 1, 2000 through October 31, 2001
$100.00 per share on or after November 1, 2001
$7.80 Series:
$107.80 per share on May 1, 1996 through April 30, 2001
$103.90 per share on May 1, 2001 through April 30, 2002
$101.95 per share on or after May 1, 2002
provided, however, that (i) prior to December 1, 1998, no shares of the $1.7375
Series may be redeemed through a refunding, directly or indirectly, by or in
anticipation of the incurring of any debt which has an interest cost, or the
issuance of stock ranking equally with or prior to the $1.7375 Series as to
Dividends or assets which has a Dividend cost to the Corporation (computed in
accordance with generally accepted financial practice), of less than 7.15% per
annum, (ii) prior to November 1, 1998, no shares of the $5.25 Series may be
redeemed at the option of the Corporation, and (iii) prior to May 1, 1996, no
shares of the $7.80 Series may be redeemed at the option of the Corporation.
(2) Subject to the limitations set forth in Section (F), the Corporation
shall on November 1, 2003 redeem all shares of the $5.25 Series then outstanding
at $100.00 per share, plus accrued and unpaid Dividends thereon through October
31, 2003.
(3) "Accrued and unpaid Dividends" as used in this Amendment with respect to
any Merger Series share means the amount, if any, by which the applicable amount
of Dividend per annum from the date after which Dividends on such share become
cumulative to the date in question, exceeds the Dividends actually paid or
declared and set aside for payment thereon.
(4) Notice of any proposed redemption of any Merger Series shares shall be
given by the Corporation by mailing a copy of such notice not more than sixty
(60) nor less than thirty (30) days prior to the date fixed for such redemption
to the holders of record of such shares to be redeemed, at their respective
addresses then appearing on the books of the Corporation; but no failure to mail
such notice or any defect therein, or in the mailing thereof, shall affect the
validity of the proceedings for the redemption of any Merger Series shares so to
be redeemed.
(5) In case of redemption of only a part of the shares of any Merger Series
at the time outstanding, the shares of such Merger Series to be redeemed shall
be selected by lot in such manner as the Board of Directors may determine.
(6) On the redemption date specified in the notice of such redemption the
Corporation shall, and at any time within sixty (60) days prior to such
redemption date may, deposit in trust, for the account of the holders of the
Merger Series shares to be redeemed, funds necessary for such redemption with a
bank or trust company in good standing, organized under the laws of the United
States of America or of the State of Iowa, doing business in the City of Des
Moines, Iowa, having combined capital, surplus and undivided profits of at least
$2,500,000 and designated in such notice of redemption.
(7) Notice having been given and funds necessary for such redemption having
been deposited, all as provided in this Section (D), all Merger Series with
respect to the redemption of which such notice shall be given and deposit made,
shall thenceforth, whether or not the date fixed for such redemption shall have
yet occurred, or the certificates for such shares shall have been surrendered
for cancellation, be deemed no longer to be outstanding for any purpose, and all
rights with respect to such shares shall thereupon cease and terminate except
only the right of the holders of the certificates for such shares to receive,
out of the funds so deposited in trust, upon or after the redemption date
(unless an earlier date is fixed by the Board of Directors of the Corporation),
the redemption funds, without interest, to which they are entitled upon
endorsement, if required, and surrender of their certificates for such shares.
II-14
<PAGE>
(8) At the expiration of six (6) years after the redemption date such trust
shall terminate and any such moneys then remaining on deposit with such bank or
trust company which are unclaimed by the holders of the certificates for the
Merger Series which have been so redeemed, plus interest thereon, if any, shall
be paid by such bank or trust company to the Corporation, free of trust, and
thereafter the holders of the certificates for such shares shall have no claim
against such bank or trust company but only claims as unsecured creditors
against the Corporation for the amount payable upon the redemption thereof,
without interest.
(9) Any interest on or other accretions to funds deposited with such bank or
trust company pursuant to this Section (D) shall belong to the Corporation.
(E) SINKING FUND. Subject to the limitations set forth in Section (F),
while any shares of the $7.80 Series shall remain outstanding, the Corporation
shall on or before May 1, 2001, and on or before May 1 of each year thereafter
to and including May 1, 2005 (each such May 1 being hereinafter in this Section
(E) called a "Sinking Fund Redemption Date"), set aside, separate and apart from
its other funds, an amount equal to $6,660,000 (or such lesser amount as may be
sufficient to redeem all of the shares of the $7.80 Series then outstanding) as
a mandatory sinking fund payment for the exclusive benefit of shares of the
$7.80 Series, plus such further amount as shall equal the accrued and unpaid
Dividends on the shares of the $7.80 Series to be redeemed out of such payment
(as hereinafter in this Section (E) provided) through the day preceeding the
applicable Sinking Fund Redemption Date. The obligation of the Corporation to
make such payments shall be cumulative, so that if for any reason the full
amount thereof shall not be set aside for any year, the amount of the deficiency
from time to time shall be added to the amount due from the Corporation on
subsequent Sinking Fund Redemption Dates until the deficiency shall have been
fully satisfied. The Corporation shall be entitled to credit against any such
mandatory sinking fund payment shares of the $7.80 Series redeemed, purchased or
otherwise acquired by the Corporation, except through application of any sinking
fund payment (whether mandatory or optional), and not theretofore so credited,
at the sinking fund redemption price hereinafter specified in this Section (E).
In addition to the mandatory sinking fund payments required by the
immediately preceding paragraph, the Corporation may at its option, in respect
of any Sinking Fund Redemption Date, set aside, separate and apart from its
other funds, an amount not in excess of $6,660,000 as an optional sinking fund
payment for the exclusive benefit of shares of the $7.80 Series, plus further
amount as shall equal the accrued and unpaid Dividends on the shares of the
$7.80 Series to be redeemed out of such payment (as hereinafter in this Section
(E) provided) through the day preceding the applicable Sinking Fund Redemption
Date. The privilege of making such payments shall not be cumulative, and no such
payment shall relieve the Corporation to any extent from its obligation to make
any subsequent mandatory sinking fund payment.
Any amounts set aside by the Corporation pursuant to this Section (E) shall
be applied on the date of such setting aside if a Sinking Fund Redemption Date
or otherwise on the first Sinking Fund Redemption Date occurring thereafter to
the redemption of shares of the $7.80 Series at $100.00 per share, plus accrued
and unpaid Dividends through the day preceding the applicable Sinking Fund
Redemption Date, in the manner and upon the notice provided in Section (D). If
any Sinking Fund Redemption Date shall be a Saturday, Sunday or other day on
which banking institutions in Chicago, Illinois or New York, New York are
authorized or obligated to remain closed, such term shall be construed to refer
to the next preceding business day.
Subject to the limitations stated in Section (F), the Corporation shall on
May 1, 2006 redeem any shares of the $7.80 Series then outstanding at $100.00
per share, plus accrued and unpaid Dividends through April 30, 2006.
II-15
<PAGE>
(F) REPURCHASE.
(1) The Corporation may from time to time purchase or otherwise acquire
Merger Series shares at a price not exceeding the amount at the time payable in
the event of redemption thereof otherwise than through the operation of the
applicable sinking fund, if any.
(2) If and so long as the Corporation shall be in default in the payment of
any quarterly Dividend on any Merger Series shares, or shall be in default in
the payment of funds into or the setting aside of funds for any sinking fund
created for any Merger Series shares, the Corporation shall not (other than by
the use of unapplied funds, if any, paid into or set aside for a sinking fund or
funds prior to such default):
(a) redeem any Merger Series shares, unless all Merger Series shares are
redeemed, or
(b) purchase or otherwise acquire for a valuable consideration any
Merger Series shares, except pursuant to offers of sale made by the holders
of Merger Series shares in response to an invitation for tenders given by
mail by the Corporation simultaneously to the holders of record of all
Merger Series shares then outstanding, at their respective addresses then
appearing on the books of the Corporation.
(G) PREFERENCE ON LIQUIDATION.
(1) Before any distribution of any assets of the Corporation shall be made
to the holders of any Common Stock or any other junior shares of the Corporation
which rank below the Preferred Stock with respect to any assets, Dividends or
other distributions:
(a) in the event of any liquidation, dissolution or winding up
("Liquidation") of the Corporation which is voluntary:
(i) the holders of the shares of the $1.7375 Series, $3.30 Series,
$3.75 Series, $4.35 Series, $4.40 Series, $4.80 Series, $5.25 Series and
$7.80 Series shall be entitled to receive an amount per share equal to
the amount which would then be payable upon such share in the event of
redemption thereof in accordance with Section (D) (1), except that prior
to November 1, 1998, the holders of the shares of the $5.25 Series shall
be entitled to receive $105.25 per share and prior to May 1, 2001, the
holders of the shares of the $7.80 Series shall be entitled to receive
$107.80 per share, and no more; and
(ii) the holders of the shares of the $3.90 Series and $4.20 Series
shall be entitled to receive the amount of one hundred dollars ($100) per
share plus accrued and unpaid Dividends to the date of payment of such
amount, and no more.
(b) in the event of any Liquidation of the Corporation which is
involuntary:
(i) the holders of the shares of the $3.30 Series, $3.75 Series,
$3.90 Series, $4.20 Series, $4.35 Series, $4.40 Series, $4.80 Series,
$5.25 Series and $7.80 Series shall be entitled to receive the amount of
one hundred dollars ($100) per share plus accrued and unpaid Dividends to
the date of payment of such amount, and no more; and
(ii) the holders of the shares of the $1.7375 Series shall be
entitled to receive the amount of twenty-five dollars ($25.00) per share
plus accrued and unpaid Dividends to the date of payment of such amount,
and no more.
(2) If upon any Liquidation the assets distributable among the holders of
the shares of Preferred Stock shall be insufficient to permit the payment of the
full preferential amounts to which they shall be entitled, then the entire
assets of the Corporation to be distributed shall be distributed among the
holders of the shares of Preferred Stock then outstanding ratably in proportion
to the amounts to which such holders are respectively entitled.
II-16
<PAGE>
(3) If upon any Liquidation the holders of the shares of Preferred Stock
shall receive the full preferential amounts to which they shall be entitled, the
remaining assets and funds of the Corporation shall be distributed among the
holders of the shares of Common Stock and of any other junior shares of the
Corporation which rank below the Preferred Stock with respect to any assets, or
Dividends or other distributions, according to their respective rights and
preferences and according to their respective shares.
(4) Neither a consolidation nor a merger of the Corporation, nor a sale or
transfer of substantially all its assets as an entirety, nor a redemption or a
purchase or other acquisition by the Corporation of less than all of its shares
of any class at the time outstanding, shall be regarded as a Liquidation within
the meaning of this Section (G).
(H) VOTING RIGHTS.
(1) Except to the extent required by law or as permitted by this Section
(H), the holders of Merger Series shares shall have no voting rights.
(2) If at any time Dividends on any Preferred Stock shall be accrued and
unpaid in an amount equivalent to six or more full quarterly Dividends, the
holders of all shares of Preferred Stock, voting together as a single class for
such purpose, shall be entitled until, but only until, all Dividends accrued and
unpaid on all shares of Preferred Stock shall have been paid (or deposited in
trust for payment on or before the next succeeding Dividend Payment Date with
respect to Merger Series shares, and on or before the next succeeding date or
dates upon which Dividends are payable on other series of Preferred Stock), to
elect two (2) Directors of the Corporation.
(3) While the holders of the shares of Preferred Stock remain entitled to
elect two Directors of the Corporation, the payment of Dividends on Preferred
Stock, including accrued and unpaid Dividends, shall not be unreasonably
withheld if the financial condition of the Corporation permits payment thereof.
(4) The right of the holders of the shares of Preferred Stock under this
Section (H) to elect two Directors of the Corporation may be exercised at any
annual meeting of shareholders or, within the limitations of this Section (H),
at a special meeting of shareholders held for such purpose; whenever such right
shall have become vested, upon request signed by any holder of record of shares
of Preferred Stock and delivered to the Corporation at its principal office not
less than ninety (90) days prior to the date for the annual meeting next
following the date of such vesting, the President of the Corporation shall call
a special meeting of shareholders, to be held within sixty (60) days after the
receipt of such request, for the purpose of electing a new Board of Directors,
of which two shall, subject to the provisions of this Section (H), be elected by
a vote of the holders of the Preferred Stock to serve until the next annual
meeting or until their successors shall be elected and shall qualify.
(5) No such special meeting shall be required to be held within 120 days
after such a prior special meeting, and the term of office of each Director of
the Corporation shall terminate at the time of any such special meeting or
adjournment thereof, notwithstanding that the term for which such Director had
been elected shall not then have expired, and provided that the successor of
such Director is duly elected and qualified.
(6) In the event that at any special meeting at which the holders of the
shares of Preferred Stock shall be entitled to elect two Directors of the
Corporation, a quorum of the holders of the shares of Preferred Stock shall not
be present in person or by proxy, the holders of Common Stock, if a quorum
thereof be present in person or by proxy, shall temporarily elect the Directors
of the Corporation, which holders of the shares of Preferred Stock were entitled
but failed to elect, such Directors to be designated as having been so elected
and their respective terms of office to expire at such times thereafter as their
successors shall be elected by holders of the shares of Preferred Stock as
provided in this Section (H).
II-17
<PAGE>
(7) Whenever the holders of the shares of Preferred Stock shall be entitled
to elect two Directors, any holder of record of a share of Preferred Stock shall
have the right, during regular business hours, in person or by a duly authorized
representative, to examine the Corporation stock records of the Preferred Stock
for the purpose of communicating with other holders of Preferred Stock with
respect to the exercise of such right of election, and to make a list of such
holders.
(8) Whenever, under the terms of this Section (H), the holders of the shares
of Preferred Stock shall be divested of the right to elect two Directors, upon
request signed by any holder of record of Common Stock and delivered to the
Corporation at its principal office not less than ninety (90) days prior to the
date for the annual meeting next following the date of such divesting, the
President of the Corporation shall call a special meeting of the holders of
Common Stock to be held within sixty (60) days after the receipt of such request
for the purpose of electing a new Board of Directors to serve until the next
annual meeting or until their respective successors shall be elected and shall
qualify.
(9) The term of office of each Director of the Corporation shall terminate
at the time of any such special meeting or adjournment thereof at which a quorum
of holders of Common Stock shall be present in person or by proxy,
notwithstanding that the term for which such Director had been elected shall not
then have expired, and provided that the successor to such Director is duly
elected and qualified.
(10) If, during any interval between annual meetings of shareholders for the
election of Directors and while the holders of the shares of Preferred Stock
shall be entitled to elect two Directors, a Director in office who has been
elected by the holders of the shares of Preferred Stock, shall, by reason of
resignation, death or removal, cease to be a Director, (a) the vacancy or
vacancies shall be filled by vote of the remaining Director then in office who
was elected by the holders of the shares of Preferred Stock or who succeeded to
a Director so elected, and (b) if any vacancy which occurred more than six
months prior to the date of the next ensuing annual meeting is not so filled
within forty (40) days after the occurrence thereof, the President of the
Corporation shall call a special meeting of the holders of the shares of
Preferred Stock and such vacancy shall be filled at such special meeting.
(11) A Director elected by holders of the shares of Preferred Stock may be
removed from office only by vote of the holders of a majority of the votes of
the outstanding shares of Preferred Stock.
(12) At any annual or special meeting of the shareholders held for any
purpose including the purpose of electing Directors when the holders of the
shares of Preferred Stock shall be entitled to elect two Directors, the presence
in person or by proxy of holders of a majority of the votes of the outstanding
shares of Preferred Stock shall be required to constitute a quorum of the
holders of the shares of Preferred Stock.
(13) At any meeting of shareholders at which the holders of the shares of
Preferred Stock are required to vote by law or are permitted to vote by any
articles of amendment to the Articles of Incorporation, each holder of Merger
Series shares shall have one vote for each such Merger Series share except the
holders of $1.7375 Series shares, which shall have 1/4 vote for each such
$1.7375 Series share, and each holder of shares of each other series of
Preferred Stock shall have the number or fraction of votes set forth for each
such share in the articles of amendment to the Articles of Incorporation in
which the terms of such series are determined, in each case standing in the name
of such holder on the books of the Corporation on the record date fixed for such
purpose, or, if no record date is fixed, on the date on which such vote is
taken.
(14) The holders of shares of Preferred Stock shall not be entitled to
receive notice of any meeting at which they are not entitled to vote.
(I) NO PREEMPTIVE RIGHTS. No holder of Merger Series shares as such shall
have any preemptive or preferential right to purchase or subscribe for any
shares of stock or rights or options to purchase stock or any other securities
of the Corporation of any kind whatsoever whether now or hereafter authorized.
II-18
<PAGE>
ANNEX III
FAIRNESS OPINION OF DILLON, READ & CO. INC.
November 3, 1994
The Board of Directors
Iowa-Illinois Gas and Electric Company
206 East Second Street
Davenport, Iowa 52808
Dear Gentlemen and Madam:
We understand that Iowa-Illinois Gas and Electric Company (the "Company")
has entered into an Agreement and Plan of Merger, dated as of July 26, 1994, as
amended and restated as of September 27, 1994 (the "Merger Agreement"), pursuant
to which the Company will be merged (the "Merger"), together with Midwest
Resources Inc. ("Midwest") and Midwest Power Systems Inc., a subsidiary of
Midwest, into a newly created corporation, MidAmerican Energy Company
("MidAmerican"), upon consummation of which each share of common stock, par
value $1.00 per share (the "Common Stock"), of the Company, other than shares of
Common Stock to be canceled pursuant to the Merger Agreement, will be converted
into the right to receive 1.47 shares (the "Conversion Ratio") of common stock,
no par value, of MidAmerican (the "MidAmerican Stock") and each share of Midwest
common stock, other than shares of Midwest common stock to be canceled pursuant
to the Merger Agreement, shall be converted into the right to receive 1.0 shares
of MidAmerican Stock.
You have requested our opinion as to whether the Conversion Ratio and the
consideration to be received by holders of the Common Stock (the "Shareholders")
are fair to such Shareholders, from a financial point of view.
In arriving at our opinion, we have, among other things: (i) reviewed
certain publicly available business and financial information relating to the
Company and Midwest, (ii) reviewed certain financial forecasts and other data
provided to us by the Company and Midwest relating to the business and prospects
of the Company and Midwest, (iii) conducted discussions with members of the
senior management of the Company and Midwest with respect to the business and
prospects of each company, (iv) 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 and Midwest, (v)
reviewed the historical market prices and trading volumes of the Company Common
Stock and the common stock of Midwest, (vi) compared the proposed financial
terms of the Merger with the financial terms of certain other mergers which we
believe to be generally comparable to the Merger, (vii) analyzed the respective
contributions in terms of certain items including revenue, earnings, cash flow
and common equity of the Company and Midwest to the combined company, and the
relative ownership of MidAmerican after the Merger by the current holders of the
Company Common Stock and Midwest common stock, (viii) considered the pro forma
effect of the Merger on the Company's capitalization ratios, earnings, cash flow
and book value per share, (ix) reviewed the Merger Agreement and the joint proxy
for Midwest and the Company relating to the Merger, (x) reviewed and discussed
with senior management and the Company's outside accounting consultants the
magnitude and timing of the realization of certain anticipated operating and
financial efficiencies, (xi) considered the anticipated annual dividend per
share of MidAmerican and the resulting dividend payout ratio, and (xii)
conducted such other financial studies, analyses and investigations, and
considered such other information, as we deemed necessary or appropriate.
III-1
<PAGE>
In connection with our review, we have not independently verified any of the
foregoing information and have, with your consent, relied on its being complete
and accurate in all material respects. In addition, we have not made any
independent evaluation or appraisal of any of the assets or liabilities
(contingent or otherwise) of the Company or Midwest or any of their respective
subsidiaries, nor have we been furnished with any such evaluation or appraisal.
With respect to the financial forecasts and operating and financial efficiencies
referred to above, we have assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
Company's and Midwest's management as to the future financial performance of
each company. Further, our opinion is based on economic, monetary, market and
regulatory conditions existing on the date hereof.
Dillon, Read & Co. Inc. has acted as financial advisor to the Board of
Directors of the Company in connection with the Merger, for which we will
receive a fee. In the ordinary course of business, we have traded the debt and
equity securities of the Company and Midwest 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.
In rendering this opinion, we express no view as to the range of values at
which the MidAmerican Stock may trade following consummation of the Merger, and
we are not making any recommendation to the Shareholders with respect to the
advisability of disposing of or retaining such MidAmerican Stock following the
Merger.
Based upon and subject to the foregoing, we are of the opinion, as of the
date hereof, that the Conversion Ratio and the consideration to be received by
the Shareholders pursuant to the Merger are fair, from a financial point of
view, to the Shareholders.
Very truly yours,
DILLON, READ & CO. INC.
III-2
<PAGE>
ANNEX IV
FAIRNESS OPINION OF PAINEWEBBER INCORPORATED
November 3, 1994
Board of Directors
Midwest Resources Inc.
666 Grand Avenue
Des Moines, IA 50306-9244
Dear Members of the Board of Directors:
You have requested our opinion as to the fairness from a financial point of
view, to the shareholders of Midwest Resources Inc. ("Resources" or the
"Company"), of the conversion ratios provided for in the Agreement and Plan of
Merger (the "Agreement"), dated July 26, 1994, as amended and restated as of
September 27, 1994, by and among the Company, Iowa-Illinois Gas and Electric
Company ("Iowa-Illinois"), Midwest Power Systems Inc. ("Midwest Power"), a
subsidiary of Resources, and MidAmerican Energy Company ("Newco"), a newly
formed Iowa corporation, 50% of whose outstanding capital stock is owned by
Iowa-Illinois and 50% of whose outstanding capital stock is owned by Resources.
The Agreement provides that the Company and Iowa-Illinois will engage in a
business combination as peer firms in a merger of equals whereby Iowa-Illinois,
Midwest Power and the Company will be merged with and into Newco (the "Merger"),
with the Company as the surviving corporation. In the Merger, each outstanding
share of the Company's common stock ("Resources Common") shall be converted into
and become 1.00 share of Newco common stock (the "Newco Common") and each
outstanding share of Iowa-Illinois's common stock ("Iowa-Illinois Common") shall
be converted into and become 1.47 shares of Newco Common (the "Conversion
Ratios").
The Merger is subject to, among other things, (a) approval of the Company's
and Iowa-Illinois's shareholders, and (b) the receipt by the Company and
Iowa-Illinois of all necessary governmental and regulatory approvals and
consents for the proposed Merger. The terms and conditions of the Merger are
more fully set forth in the Agreement.
In arriving at our opinion set forth below, we have, among other things:
(1) Reviewed the Company's and Iowa-Illinois's respective Annual Reports,
Form 10-Ks and related financial information for the five fiscal years
ended December 31, 1993, and the Company's and Iowa-Illinois's
respective Form 10-Qs and the related unaudited financial information
for the six months ended June 30, 1994;
(2) Reviewed certain information, including financial forecasts, relating to
the business, earnings, cash flow, assets, and prospects of the Company
and Iowa-Illinois, furnished to us by their respective managements;
(3) Discussed the past and current operations and financial condition and
the prospects of the Company and of Iowa-Illinois with senior executives
of the Company and Iowa-Illinois;
(4) Discussed with senior executives of the Company their rationale with
respect to the strategic aspects of the Merger;
(5) Reviewed the reported historical market prices and trading activity for
both the Resources Common and the Iowa-Illinois Common and compared them
with that of certain publicly traded companies which we deemed to be
reasonably similar to the Company and Iowa-Illinois, respectively;
IV-1
<PAGE>
(6) Compared the results of operations of the Company and Iowa-Illinois with
that of certain companies which we deemed to be reasonably similar to
the Company and Iowa-Illinois, respectively;
(7) Compared the proposed financial terms of the transactions contemplated
by the Agreement with the financial terms of certain other mergers and
acquisitions which we deemed to be relevant;
(8) Reviewed and discussed with senior executives of the Company and
Iowa-Illinois preliminary estimates regarding the amounts and timing of
the operating synergies available as a result of the Merger, which
estimates were provided to us by the Company;
(9) Considered the pro forma impact of the Merger on the Company's
capitalization ratios, earnings, common dividends, and book value per
share;
(10) Reviewed the Agreement dated July 26, 1994, as amended and restated as
of September 27, 1994;
(11) Performed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we
deemed necessary; and
(12) Took into account our assessment of general economic, market, and
monetary conditions.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us by
the Company and Iowa-Illinois, and we have not independently verified such
information or undertaken an independent appraisal of the assets of the Company
or Iowa-Illinois. With respect to the projections, we have assumed that they
have been reasonably prepared reflecting the best currently available estimates
and judgments of the future financial performance of the Company. We have, with
your permission, relied on the preliminary estimates provided to us by the
Company with respect to the amount and timing of operating synergies achievable
as a result of the Merger. Our opinion is necessarily based on economic, market,
and other conditions as in effect on, and the information made available to us
as of, the date hereof.
This opinion does not constitute a recommendation to any shareholder of the
Company as to how any such shareholder should vote on the Merger. This opinion
does not address the relative merits of the Merger and any other transactions or
business strategies discussed by the Board of Directors of the Company as
alternatives to the Merger or the decision of the Board of Directors of the
Company to proceed with the Merger. No opinion is expressed herein as to the
price at which the securities to be issued in the Merger to the shareholders of
Resources and Iowa-Illinois may trade at any time.
In rendering this opinion, we have not been engaged to act as an agent or
fiduciary of, and the Board of Directors has expressly waived any duties or
liabilities we may otherwise be deemed to have had to, the Company's equity
holders or any other third party. In the past, PaineWebber Incorporated and its
affiliates have provided financial advisory services and financing services for
the Company and have received fees for the rendering of these services.
On the basis of, and subject to the foregoing, we are of the opinion that,
as of the date hereof, the proposed Conversion Ratios provided by the Agreement
are fair to the holders of the Resources Common from a financial point of view.
Very truly yours,
PAINEWEBBER INCORPORATED
IV-2
<PAGE>
ANNEX V
ILLINOIS BUSINESS CORPORATION ACT -- DISSENTERS' RIGHTS PROVISIONS
ARTICLE 11
MERGER AND CONSOLIDATION - DISSENTERS' RIGHTS
SECTION 11.65. RIGHT TO DISSENT.
(a) A shareholder of a corporation is entitled to dissent from, and obtain
payment for his or her shares in the event of any of the following corporate
actions:
(1) consummation of a plan of merger or consolidation or a plan of share
exchange to which the corporation is a party if
(i) shareholder authorization is required for the merger or
consolidation or the share exchange by Section 11.20 or the articles of
incorporation or
(ii) the corporation is a subsidiary that is merged with its parent
or another subsidiary under Section 11.30;
(2) consummation of sale, lease or exchange of all, or substantially
all, of the property and assets of the corporation other than in the usual
and regular course of business;
(3) an amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
(i) alters or abolishes a preferential right of such shares;
(ii) alters or abolishes a right in respect of redemption, including
a provision respecting a sinking fund for the redemption or repurchase,
of such shares;
(iii) in the case of a corporation incorporated prior to January 1,
1982, limits or eliminates cumulative voting rights with respect to such
shares; or
(4) any other corporate action taken pursuant to a shareholder vote if
the articles of incorporation, by-laws, or a resolution of the board of
Directors provide that shareholders are entitled to dissent and obtain
payment for their shares in accordance with the procedures set forth in
Section 11.70 or as may be otherwise provided in the articles, by-laws or
resolution.
(b) A shareholder entitled to dissent and obtain payment for his or her
shares under this Section may not challenge the corporate action creating his or
her entitlement unless the action is fraudulent with respect to the shareholder
or the corporation or constitutes a breach of a fiduciary duty owed to the
shareholder.
(c) A record owner of shares may assert dissenters' rights as to fewer than
all the shares recorded in such person's name only if such person 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 record owner asserts dissenters' rights. The rights of a partial dissenter
are determined as if the shares as to which dissent is made and the other shares
were recorded in the names of different shareholders. A beneficial owner of
shares who is not the record owner may assert dissenters' rights as to shares
held on such person's behalf only if the beneficial owner submits to the
corporation the record owner's written consent to the dissent before or at the
same time the beneficial owner asserts dissenters' rights. Amended by P.A.
85-1269, eff. Jan. 1, 1989.
SECTION 11.70. PROCEDURE TO DISSENT.
(a) If the corporate action giving rise to the right to dissent is to be
approved at a meeting of shareholders, the notice of meeting shall inform the
shareholders of their right to dissent and the procedure to dissent. If, prior
to the meeting, the corporation furnishes to the shareholders material
V-1
<PAGE>
information with respect to the transaction that will objectively enable a
shareholder to vote on the transaction and to determine whether or not to
exercise dissenters' rights, a shareholder may assert dissenters' rights only if
the shareholder delivers to the corporation before the vote is taken a written
demand for payment for his or her shares if the proposed action is consummated,
and the shareholder does not vote in favor of the proposed action.
(b) If the corporate action giving rise to the right to dissent is not to be
approved at a meeting of shareholders, the notice to shareholders describing the
action taken under Section 11.30 or Section 7.10 shall inform the shareholders
of their right to dissent and the procedure to dissent. If, prior to or
concurrently with the notice, the corporation furnishes to the shareholders
material information with respect to the transaction that will objectively
enable a shareholder to determine whether or not to exercise dissenters' rights,
a shareholder may assert dissenter's rights only if he or she delivers to the
corporation within 30 days from the date of mailing the notice a written demand
for payment for his or her shares.
(c) Within 10 days after the date on which the corporate action giving rise
to the right to dissent is effective or 30 days after the shareholder delivers
to the corporation the written demand for payment, whichever is later, the
corporation shall send each shareholder who has delivered a written demand for
payment a statement setting forth the opinion of the corporation as to the
estimated fair value of the shares, the corporation's latest balance sheet as of
the end of a fiscal year ending not earlier than 16 months before the delivery
of the statement, together with the statement of income for that year and the
latest available interim financial statements, and either a commitment to pay
for the shares of the dissenting shareholder at the estimated fair value thereof
upon transmittal to the corporation of the certificate or certificates, or other
evidence of ownership, with respect to the shares, or instructions to the
dissenting shareholder to sell his or her shares within 10 days after delivery
of the corporation's statement to the shareholder. The corporation may instruct
the shareholder to sell only if there is a public market for the shares at which
the shares may be readily sold. If the shareholder does not sell within that 10
day period after being so instructed by the corporation, for purposes of this
Section the shareholder shall be deemed to have sold his or her shares at the
average closing price of the shares, if listed on a national exchange, or the
average of the bid and asked price with respect to the shares quoted by a
principal market maker, if not listed on a national exchange, during that 10 day
period.
(d) A shareholder who makes written demand for payment under this Section
retains all other rights of a shareholder until those rights are cancelled or
modified by the consummation of the proposed corporate action. Upon consummation
of that action, the corporation shall pay to each dissenter who transmits to the
corporation the certificate or other evidence of ownership of the shares the
amount the corporation estimates to be the fair value of the shares, plus
accrued interest, accompanied by a written explanation of how the interest was
calculated.
(e) If the shareholder does not agree with the opinion of the corporation as
to the estimated fair value of the shares or the amount of interest due, the
shareholder, within 30 days from the delivery of the corporation's statement of
value, shall notify the corporation in writing of the shareholder's estimated
fair value and amount of interest due and demand payment for the difference
between the shareholder's estimate of fair value and interest due and the amount
of the payment by the corporation or the proceeds of sale by the shareholder,
whichever is applicable because of the procedure for which the corporation opted
pursuant to subsection (c).
(f) If, within 60 days from delivery to the corporation of the shareholder
notification of estimate of fair value of the shares and interest due, the
corporation and the dissenting shareholder have not agreed in writing upon the
fair value of the shares and interest due, the corporation shall either pay the
difference in value demanded by the shareholder, with interest, or file a
petition in the circuit court of the county in which either the registered
office or the principal office of the corporation is located, requesting the
court to determine the fair value of the shares and interest due. The
corporation shall make all dissenters, whether or not residents of this State,
whose demands remain unsettled parties to
V-2
<PAGE>
the proceeding as an action against their shares and all parties shall be served
with a copy of the petition. Nonresidents may be served by registered or
certified mail or by publication as provided by law. Failure of the corporation
to commence an action pursuant to this Section shall not limit or affect the
right of the dissenting shareholders to otherwise commence an action as
permitted by law.
(g) The jurisdiction of the court in which the proceeding is commenced under
subsection (f) by a corporation is plenary and exclusive. The court may appoint
one or more persons as appraisers to receive evidence and recommend decision of
the question of fair value. The appraisers have the power described in the order
appointing them, or in any amendment to it.
(h) Each dissenter made a party to the proceeding is entitled to judgment
for the amount, if any, by which the court finds that the fair value of his or
her shares, plus interest, exceeds the amount paid by the corporation or the
proceeds of sale by the shareholder, whichever amount is applicable.
(i) The court, in a proceeding commenced under subsection (f), shall
determine all costs of the proceeding, including the reasonable compensation and
expenses of the appraisers, if any, appointed by the court under subsection (g),
but shall exclude the fees and expenses of counsel and experts for the
respective parties. If the fair value of the shares as determined by the court
materially exceeds the amount which the corporation estimated to be the fair
value of the shares or if no estimate was made in accordance with subsection
(c), then all or any part of the costs may be assessed against the corporation.
If the amount which any dissenter estimated to be the fair value of the shares
materially exceeds the fair value of the shares as determined by the court, then
all or any part of the costs may be assessed against that dissenter. The court
may also assess the fees and expenses of counsel and experts for the respective
parties, in amounts the court finds equitable, as follows:
(1) Against the corporation and in favor of any or all dissenters if the
court finds that the corporation did not substantially comply with the
requirements of subsections (a), (b), (c), (d), or (f).
(2) Against either the corporation or a dissenter and 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 Section.
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 that counsel reasonable fees to be paid out of the amounts awarded to
the dissenters who are benefited. Except as otherwise provided in this Section,
the practice, procedure, judgment and costs shall be governed by the Code of
Civil Procedure.
(j) As used in this Section:
(1) "Fair Value", with respect to a dissenter's shares, means the value
of the shares immediately before the consummation of the corporation action
to which the dissenter objects excluding any appreciation or depreciation in
anticipation of the corporate action, unless exclusion would be inequitable.
(2) "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.
V-3
<PAGE>
ANNEX VI
IOWA BUSINESS CORPORATION ACT -- DISSENTERS' RIGHTS PROVISIONS
DIVISIONS 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.
VI-1
<PAGE>
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 an, 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.
VI-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 I, 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 dissenters' 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.
VI-3
<PAGE>
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.
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 sixty 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 was taken
without a vote of the shareholders and repeat the payment demand procedure.
493B.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
493B.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.
VI-4
<PAGE>
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.
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 493B.1327.
490.1331 COURT COSTS AND COUNSEL FEES.
1. The court in an appraisal proceeding commenced under section 493B.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.
VI-5
<PAGE>
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 tile 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.
VI-6
<PAGE>
ANNEX VII
July 26, 1994
Mr. Russell E. Christiansen
666 Grand Avenue
Des Moines, IA 50306-9244
Dear Mr. Christiansen:
Pursuant to the Agreement and Plan of Merger ("Merger Agreement") dated as
of July 26, 1994, by and among Midwest Resources Inc., Midwest Power Systems
Inc., Iowa-Illinois Gas and Electric Company and MidAmerican Energy Company
("Company"), Midwest Resources Inc., Midwest Power Inc. and Iowa-Illinois Gas
and Electric Company will be merged into the Company. In recognition of the
value of your past services to Midwest Resources Inc. and its subsidiaries, and
in anticipation of your contribution to the future growth and success of the
Company and its subsidiaries, the Company wishes to provide itself and its
subsidiaries the continuing benefits of your service as a senior executive
officer of the Company and its subsidiaries on the terms and conditions set
forth below.
This letter sets forth our agreement with respect to your employment with
the Company and its subsidiaries during the period commencing on the Effective
Time (as defined in the Merger Agreement) and ending on the date your employment
with the Company and its subsidiaries terminates (as defined herein, "Employment
Period") and beyond the Employment Period, with respect to your acting as a
consultant and advisor to the Company during the period commencing at the end of
the Employment Period and ending on the third anniversary of the retirement date
("Consulting Period") or until such earlier date as otherwise may be determined
hereunder.
1. (a) If the Effective Time occurs (i) on or before May 31, 1995, then
during the periods commencing on (x) the Effective Time and ending on May 31,
1996, you shall serve as Chairman of the Board of the Directors of the Company,
("Chairman") and Chairman, Office of the Chief Executive Officer of the Company,
performing those responsibilities set forth on Exhibit A attached hereto and (y)
June 1, 1996 and ending on May 31, 1997, you shall serve as Chairman, (ii)
between June 1, 1995 and May 31, 1996, then during the period commencing on (x)
the Effective Time and ending on the first anniversary of the Effective Time,
you shall serve as Chairman and Chairman, Office of the Chief Executive Officer
of the Company and (y) the first anniversary of the Effective Time and ending on
May 31, 1997, you shall serve as Chairman or (iii) after May 31, 1996, then
commencing on the Effective Time and ending on the first anniversary of the
Effective Time, you shall serve as Chairman and Chairman, Office of the Chief
Executive Officer of the Company, all of the foregoing shall constitute the
"Employment Period". During the Employment Period your duties and services
generally shall be performed by you on regular business days during normal
business hours, and you agree to be present as required and for as much time as
is necessary to perform your duties and services for the business of the Company
and its subsidiaries. You shall be entitled to vacation in accordance with the
policy from time to time in effect for senior executive officers of the Company
and its subsidiaries with credit for past service with Midwest Resources Inc.
and its subsidiaries and predecessors of each. During the Employment Period you
shall be reimbursed by the Company in accordance with the Company's policy from
time to time in effect for any expenses commensurate with your position which
you may reasonably incur in the performance of your duties and services
hereunder and which are properly substantiated.
(b) In consideration of and as compensation for your services hereunder and
your agreement not to compete with the Company as set forth herein, during the
Employment Period the Company will pay to you, in equal installments with the
same frequency as for other executives of the Company, but at least monthly, a
base salary at the annual rate of not less than $400,000, such base salary to be
subject to adjustment during the Employment Period in accordance with the
Company's policy for executives, and shall never be less than the base salary of
the Chief Executive Officer or President of the Company. In addition to such
salary, you shall be eligible to receive, as additional compensation,
VII-1
<PAGE>
appropriate management bonuses, long-term incentive awards and such other
compensation elements as are applicable, in amounts not less than those paid or
accrued for the Chief Executive Officer or President of the Company, in relation
to the achievement by the Company and its subsidiaries of corporate goals and
objectives and the Company will provide to you all other benefits accorded to
full-time senior executive employees of the Company from time to time, PROVIDED
that such benefits shall be not less in the aggregate than those in effect at
Midwest Resources Inc., Midwest Power Systems, Inc. and Iowa-Illinois Gas and
Electric Company as of the Effective Time. The Company's obligations to make the
salary payments and to provide the other benefits provided for by this paragraph
1(b) shall be expressly contingent upon, and subject to, your observance of, and
substantial compliance with, all of the terms and provisions hereof.
2. (a) During the Consulting Period, you shall serve as consultant and
advisor to the Company. You agree, in your capacity as consultant and advisor,
to hold yourself ready to and to render such advice and counsel to the Company
and any of its subsidiaries and affiliates as may be requested from time to time
with reasonable advance notice by the Board of Directors or Chief Executive
Officer of the Company; PROVIDED, that you shall not be required to devote in
excess of sixty (60) days in any twelve-month period to your duties as a
consultant hereunder, and PROVIDED FURTHER that telephonic consultation shall
not require advance notice. It is understood and agreed that such requests for
consultation shall not unreasonably interfere with your employment with any
other employer. You shall report during the Consulting Period directly to the
Chief Executive Officer of the Company, who shall represent the Company in all
matters relating to the performance of this Agreement. During the Consulting
Period, you shall be reimbursed for any expenses which you may reasonably incur
in the performance of your duties hereunder and which are properly
substantiated.
(b) In consideration of and as compensation for your services as a
consultant and advisor to the Company hereunder, and your agreement not to
compete with the Company as set forth herein, during the Consulting Period the
Company will pay to you in equal monthly installments a consulting fee at a rate
of $50,000 per annum. The Company shall not be obligated to make such payments
in respect of any period following the Employment Period if you continue to be
actively employed by the Company or any subsidiary or affiliate after the
Employment Period. During the Consulting Period the Company shall provide to you
the benefits described in paragraph 1 (other than the base salary, bonus,
long-term incentive and other cash compensation elements referred to therein),
including office space, equipment and furnishings and a full-time secretary,
selected by you, at the expense of the Company in quarters agreed upon by you
and the Company. The Company's obligations to pay the consulting fee and
benefits provided for by this paragraph 2(b) shall be expressly contingent upon,
and subject to, your observance of, and substantial compliance with, all of the
terms and provisions hereof.
3. You agree that during the Employment Period and the Consulting Period,
and any additional period during which you are employed by or act as a
consultant to the Company or any subsidiary or affiliate, except with the prior
written consent of the Company, you will not in any way, directly or indirectly,
own, manage, operate, control, accept employment or a consulting position with,
or otherwise advise or assist or be actively connected with or have any
financial interest in, directly or indirectly, any enterprise which engages in,
or otherwise carries on, any business activity in competition with the business
of the Company in any geographic area in which it engages in such business. You
further agree that during the Employment Period, the Consulting Period, and any
additional period during which you are employed by the Company or any subsidiary
or an affiliate and, in any event, until the sixth anniversary of the Effective
Time, subject to the foregoing, you will not take any action which might divert
from the Company or any of its subsidiaries or affiliates, successors or assigns
any opportunity which would be within the scope of its or their respective
present or future operations or business. It is understood that ownership of not
more than one percent (1%) of the equity securities of a public company shall in
no way be prohibited pursuant to the foregoing provisions.
4. Notwithstanding any of the foregoing provisions of this Agreement, the
Company may terminate your duties and services hereunder during the term hereof
and discharge you (i) in the
VII-2
<PAGE>
event of a breach of this Agreement by you in any material respect as determined
by the affirmative vote of two-thirds of the membership of the Company's Board
of Directors ("Board"), PROVIDED that the Board shall have given you written
notice of such breach, and you shall have failed to remedy such breach within
thirty (30) days of receipt of such notice, (ii) for cause, upon the affirmative
vote of two-thirds of the membership of the Board (cause, for purposes of this
Agreement, shall mean persistent incompetence, willful misconduct, dishonesty or
conviction of a felony), or (iii) upon the affirmative vote of two-thirds of the
membership of the Board, PROVIDED, in the case of (iii), the Company shall be
obligated to make the salary payments to and provide the other benefits provided
for by paragraph 1(b) through the remainder of the Employment Period and the
salary payments and other benefits provided for by paragraph 2(b) through the
remainder of the Consulting Period notwithstanding such termination. Your duties
and services hereunder shall terminate in the event of your death or your
physical inability to perform the services required to be performed by you
hereunder, PROVIDED such inability shall have persisted for a continuous period
of 270 days. Should your services be terminated by reason of your breach of this
Agreement, or for cause, the Company shall pay to you your salary or consulting
fee, as the case may be, only through the end of the calendar month in which
such termination occurs, and if your services are terminated by reason of your
death prior to the Retirement Date or your physical inability to perform the
services required to be performed by you hereunder, your salary hereunder shall
terminate on the date benefits in respect of your death or physical disability
are made available to your estate or personal representative under the Company's
benefit plans.
In the event of a breach of the Agreement by the Company in any material
respect, such breach shall be deemed to constitute a constructive termination of
your employment in contravention of this Agreement, qualifying you for payment
pursuant to paragraph 4(iii) above and such other remedies as are available in
law or in equity; PROVIDED, HOWEVER, that you shall have given the Board of the
Company written notice of such breach, and the Board shall have failed to cause
the Company to remedy such breach within thirty (30) days of receipt of such
notice.
5. It is understood and agreed that the services to be rendered under this
Agreement by you are special, unique and of an extraordinary character, and,
more particularly, that in the event of any breach or threatened breach by you
of the provisions of paragraph 3 hereof, the Company shall have no adequate
remedy in law. Consequently, in the event of a breach or threatened breach by
you of the provisions of paragraph 3 hereof, in addition to the Company's right
to terminate this Agreement pursuant to paragraph 4 hereof, the Company shall be
entitled to an injunction restraining you from any such breach or threatened
breach.
6. Any paragraph, sentence, phrase or other provision of this Agreement
which is in conflict with any applicable statute, rule or other law shall be
deemed, if possible, to be modified or altered to conform thereto or, if not
possible, to be omitted herefrom. The invalidity of any portion hereof shall not
affect the force and effect of the remaining valid portions hereof.
7. This Agreement is governed by and is to be construed in accordance with
the substantive law (and not the choice of law rules) of the State of Iowa. This
Agreement (and the Merger Agreement at Section 7.12 and Exhibit F-3) constitutes
the entire understanding between you and the Company with respect to the subject
matter contained herein and, except as otherwise set forth in this paragraph 7,
supersedes and cancels any and all prior written or oral understandings and
agreements with respect to such matters, including the employment agreement
dated March 15, 1990. It is understood and agreed that the Merger of Midwest
Resources Inc., Midwest Power Systems Inc. and Iowa-Illinois Gas and Electric
Company into the Company ("Merger") as contemplated in the Merger Agreement
shall not constitute a Change in Control for purposes of the Agreement between
you and Midwest Resources Inc., as successor to Midwest Energy Company, dated
April 19, 1989 ("MWE Agreement") only, and that notwithstanding the foregoing,
the MWE Agreement shall remain in full force and effect in accordance with the
terms thereof with respect to any event, transaction or circumstance other than
the Merger.
VII-3
<PAGE>
8. Any notice or other communication required or permitted under this
Agreement shall be effective only if it is in writing and delivered personally
or sent by registered or certified mail, postage prepaid, or sent by an
overnight delivery service, addressed as follows:
If to the Company:
MidAmerican Energy Company
666 Grand Avenue
Des Moines, IA 50306-9244
If to you:
Mr. Russell E. Christiansen
666 Grand Avenue
Des Moines, IA 50306-9244
or to such other address as either party may designate by notice to the other,
and shall be deemed to have been given upon receipt.
9. This Agreement may be amended only by an instrument in writing signed by
the parties hereto, and any provision hereof may be waived only by an instrument
in writing signed by the party or parties against whom or which enforcement of
such waiver is sought. The failure of either party hereto at any time to require
the performance by the other party hereto of any provision hereof shall in no
way affect the full right to require such performance at any time thereafter,
nor shall the waiver by either party hereto of a breach of any provision hereof
be taken or held to be a waiver of any succeeding breach of such provision or a
waiver of the provision itself or a waiver of any other provision of this
Agreement.
10. This Agreement is binding on and is for the benefit of the parties
hereto and their respective successors, heirs, executors, administrators and
other legal representatives. Neither this Agreement nor any right or obligation
hereunder may be assigned by the Company or by you.
11. This Agreement may be executed in several counterparts, each of which
shall be deemed an original, but all of which shall constitute one and the same
instrument.
12. This Agreement shall have no force and effect unless and until the
Effective Time.
Very truly yours,
MIDAMERICAN ENERGY COMPANY
By /s/ STANLEY J. BRIGHT
-----------------------------------
Stanley J. Bright
PRESIDENT, OFFICE OF THE
CHIEF EXECUTIVE OFFICER
Accepted and agreed to as
of the date first written
above.
/s/ RUSSELL E. CHRISTIANSEN
- --------------------------------------
Russell E. Christiansen
VII-4
<PAGE>
EXHIBIT A
RESPONSIBILITIES OF CHAIRMAN, OFFICE OF THE CEO
- Shareholder Meetings
- Meetings of the Board of Directors and Committees of the Board. (The
Chairman would preside and the President would have a principal
presentation role.)
- Agenda setting for board and board committee meetings to be done by the
Chairman, Office of the CEO, with concurrence of the President, Office of
the CEO.
- Committees of the Board
-Executive (Chairman, Office of the CEO, to serve as chairman; President,
Office of the CEO, to serve as vice chairman.)
-Nominating
-Finance (Chairman, Office of the CEO, and President, Office of the CEO,
to be members.)
-Audit
-Management Development and Compensation
-Strategic Planning (President, Office of the CEO, to serve as chairman)
- Corporate Charter and By Law Revisions
- Major Economic Development Initiatives
- Major Governmental or Regulatory Initiatives and programs undertaken by
the Company at the federal, state or local level.
- Major Industry Initiatives
VII-5
<PAGE>
ANNEX VIII
July 26, 1994
Mr. Stanley J. Bright
206 East Second Street
Davenport, IA 52801
Dear Mr. Bright:
Pursuant to the Agreement and Plan of Merger ("Merger Agreement") dated as
of July 26, 1994, by and among Midwest Resources Inc., Midwest Power Systems
Inc., Iowa-Illinois Gas and Electric Company and MidAmerican Energy Company
("Company"), Midwest Resources Inc., Midwest Power Systems Inc. and
Iowa-Illinois Gas and Electric Company will be merged into the Company. In
recognition of the value of your past services to Iowa-Illinois Gas and Electric
Company and its subsidiaries, and in anticipation of your contribution to the
future growth and success of the Company and its subsidiaries, the Company
wishes to provide itself and its subsidiaries the continuing benefits of your
services as a senior executive officer of the Company and its subsidiaries on
the terms and conditions set forth below.
This letter sets forth our agreement with respect to your employment with
the Company and its subsidiaries during the period commencing on the Effective
Time (as defined in the Merger Agreement) and ending on the fifth anniversary of
the Effective Time (such period herein referred to as the "Employment Period").
1. (a) If the Effective Time occurs (i) on or before May 31, 1995, then
during the periods commencing on (x) the Effective Time and ending on May 31,
1996, you shall serve as President of the Company ("President") and President,
Office of the Chief Executive Officer of the Company performing those
responsibilities set forth on Exhibit A attached hereto, (y) June 1, 1996 and
ending on May 31, 1997, you shall serve as President and Chief Executive Officer
of the Company and (z) June 1, 1997 and ending on the fifth anniversary of the
Effective Time, you shall serve as Chairman of the Board of Directors of the
Company ("Chairman") and Chief Executive Officer of the Company, (ii) between
June 1, 1995 and May 31, 1996, then during the periods commencing on (x) the
Effective Time and ending on the first anniversary of the Effective Time, you
shall serve as President and President, Office of the Chief Executive Officer of
the Company and (y) the first anniversary of the Effective Time and ending on
May 31, 1997, you shall serve as President and Chief Executive Officer of the
Company and (z) June 1, 1997 and ending on the fifth anniversary of the
Effective Time, you shall serve as Chairman and Chief Executive Officer of the
Company, or (iii) after May 31, 1996, then commencing on (x) the Effective Time
and ending on the first anniversary of the Effective Time, you shall serve as
President and President, Office of the Chief Executive Officer of the Company
and (y) the first anniversary of the Effective Time and ending on the fifth
anniversary of the Effective Time, you shall serve as Chairman and Chief
Executive Officer of the Company. Any service required to be performed by you
hereunder shall be of the type usually performed by the officer holding such
title at a major public company. Your duties and services generally shall be
performed by you on regular business days during normal business hours, and you
agree to be present in Des Moines, Iowa, as required and for as much time as is
necessary to perform your duties and services for the business of the Company
and its subsidiaries. You shall be entitled to vacation in accordance with the
policy from time to time in effect for senior executive officers of the Company
and its subsidiaries with credit for past service with Iowa-Illinois Gas and
Electric Company and its subsidiaries. During the Employment Period you shall be
reimbursed by the Company in accordance with the Company's policy from time to
time in effect for any expenses commensurate with your position which you may
reasonably incur in the performance of your duties and services hereunder and
which are properly substantiated.
(b) In consideration of and as compensation for your services hereunder and
your agreement not to compete with the Company as set forth herein, during the
Employment Period the Company will pay to you, while serving as President and
President, Office of the Chief Executive Officer, in equal installments with the
same frequency as for other executives of the Company, but at least monthly, a
VIII-1
<PAGE>
base salary at the annual rate of not less than $350,000, such base salary to be
subject to adjustment during the Employment Period in accordance with the
Company's policy for executives. At such time as you shall serve as President
and Chief Executive Officer of the Company in accordance with paragraph 1(a),
you will be paid a base salary not less than the base salary paid the Chairman.
In addition to such salary, you shall be eligible to receive, as additional
compensation, appropriate management bonuses, long-term incentive awards and
such other compensation elements as are applicable, in amounts not less than
those paid or accrued for the Chairman of the Company, in relation to the
achievement by the Company and its subsidiaries of corporate goals and
objectives and the Company will provide to you all other benefits accorded to
full-time senior executive employees of the Company from time to time, PROVIDED
that such benefits shall be not less in the aggregate than those in effect at
Midwest Resources Inc., Midwest Power Systems Inc. and Iowa-Illinois Gas and
Electric Company as of the Effective Time. The Company's obligations to make the
salary payments and to provide the other benefits provided for by this paragraph
1(b) shall be expressly contingent upon, and subject to, your observance of, and
substantial compliance with, all of the terms and provisions thereof.
2. You agree that during the Employment Period, and any additional period
during which you are employed by or act as a consultant to the Company or any
subsidiary or affiliate, except with the prior written consent of the Company,
you will not in any way, directly or indirectly, own, manage, operate, control,
accept employment or a consulting position with or otherwise advise or assist or
be actively connected with, or have any financial interest in , directly or
indirectly, any enterprise which engages in, or otherwise carries on, any
business activity in competition with the business of the Company in any
geographic area in which it engages in such business. You further agree that
during the Employment Period, and any additional period during which you are
employed by the Company or any subsidiary or an affiliate and, in any event,
until the sixth anniversary of the Effective Time, subject to the foregoing, you
will not take any action which might divert from the Company or any of its
subsidiaries or affiliates, successors or assigns any opportunity which would be
within the scope of its or their respective present or future operations or
business. It is understood that ownership of not more than one percent (1%) of
the equity securities of a public company shall in no way be prohibited pursuant
to the foregoing provisions.
3. Notwithstanding any of the foregoing provisions of this Agreement, the
Company may terminate your duties and services hereunder during the term hereof
and discharge you (i) in the event of a breach of this Agreement by you in any
material respect as determined by the affirmative vote of two-thirds of the
membership of the Company's Board of Directors ("Board"), PROVIDED that the
Board shall have given you written notice of such breach, and you shall have
failed to remedy such breach within thirty (30) days of receipt of such notice,
(ii) for cause, upon the affirmative vote of two-thirds of the membership of the
Board (cause, for purposes of this Agreement, shall mean persistent
incompetence, willful misconduct, dishonesty or conviction of a felony), or
(iii) upon the affirmative vote of two-thirds of the membership of the Board,
PROVIDED, in the case of (iii), the Company shall be obligated to make the
salary payments to and provide the other benefits provided for by paragraph 1(b)
through the remainder of the Employment Period notwithstanding such termination.
Your duties and services hereunder shall terminate in the event of your death or
your physical inability to perform the services required to be performed by you
hereunder, PROVIDED such inability shall have persisted for a continuous period
of 270 days. Should your services be terminated by reason of your breach of this
Agreement, or for cause, the Company shall pay to you your salary only through
the end of the calendar month in which such termination occurs, and if your
services are terminated by reason of your death or your physical inability to
perform the services required to be performed by you hereunder prior to the
Retirement Date, your salary hereunder shall terminate on the date benefits in
respect of your death or physical disability are made available to your estate
or personal representative under the Company's benefit plans.
In the event of a breach of this Agreement by the Company in any material
respect, such breach shall be deemed to constitute a constructive termination of
your employment in contravention of this
VIII-2
<PAGE>
Agreement, qualifying you for payment pursuant to paragraph 3(iii) above and
such other remedies as are available in law or in equity; provided, however,
that you shall have given the Board of the Company written notice of such
breach, and the Board shall have failed to cause the Company to remedy such
breach within thirty (30) days of receipt of such notice.
4. It is understood and agreed that the services to be rendered under this
Agreement by you are special, unique and of an extraordinary character, and,
more particularly, that in the event of any breach or threatened breach by you
of the provisions of paragraph 2 hereof, the Company shall have no adequate
remedy in law. Consequently, in the event of a breach or threatened breach by
you of the provisions of paragraph 2 hereof, in addition to the Company's right
to terminate this Agreement pursuant to paragraph 3 hereof, the Company shall be
entitled to an injunction restraining you from any such breach or threatened
breach.
5. Any paragraph, sentence, phrase or other provision of this Agreement
which is in conflict with any applicable statute, rule or other law shall be
deemed, if possible, to be modified or altered to conform thereto or, if not
possible, to be omitted herefrom. The invalidity of any portion hereof shall not
affect the force and effect of the remaining valid portions hereof.
6. This Agreement is governed by and is to be construed in accordance with
the substantive law (and not the choice of law rules) of the State of Iowa. This
Agreement (and the Merger Agreement at Section 7.12 and Exhibit F-3) constitutes
the entire understanding between you and the Company with respect to the subject
matter contained herein and, except as otherwise set forth in this paragraph 6,
supersedes and cancels any and all prior written or oral understandings and
agreements with respect to such matters.
7. Any notice or other communication required or permitted under this
Agreement shall be effective only if it is in writing and delivered personally
or sent by registered or certified mail, postage prepaid, or sent by an
overnight delivery service, addressed as follows:
If to the Company:
MidAmerican Energy Company
666 Grand Avenue
Des Moines, Iowa 50306-9244
If to you:
Mr. Stanley J. Bright
206 East Second Street
Davenport, IA 52808
or to such other address as either party may designate by notice to the other,
and shall be deemed to have been given upon receipt.
8. This Agreement may be amended only by an instrument in writing signed by
the parties hereto, and any provision hereof may be waived only by an instrument
in writing signed by the party or parties against whom or which enforcement of
such waiver is sought. The failure of either party hereto at any time to require
the performance by the other party hereto of any provision hereof shall in no
way affect the full right to require such performance at any time thereafter,
nor shall the waiver by either party hereto of a breach of any provision hereof
be taken or held to be a waiver of any succeeding breach of such provision or a
waiver of the provision itself or a waiver of any other provision of this
Agreement.
9. This Agreement is binding on and is for the benefit of the parties
hereto and their respective successors, heirs, executors, administrators and
other legal representatives. Neither this Agreement nor any right or obligation
hereunder may be assigned by the Company or by you.
10. This Agreement may be executed in several counterparts, each of which
shall be deemed an original, but all of which shall constitute one and the same
instrument.
VIII-3
<PAGE>
11. This Agreement shall have no force and effect unless and until the
Effective Time.
Very truly yours,
MIDAMERICAN ENERGY COMPANY
By s/ RUSSELL E. CHISTIANSEN
-----------------------------------
Russell E. Chistiansen
CHAIRMAN, OFFICE OF THE
CHIEF EXECUTIVE OFFICER
Accepted and agreed to as
of the date first written
above:
/s/ STANLEY J. BRIGHT
- ------------------------------------
Stanley J. Bright
VIII-4
<PAGE>
EXHIBIT A
RESPONSIBILITIES OF PRESIDENT, OFFICE OF THE CEO:
- Development of Strategic Alternatives and Merger Implementation
- All Operating Functions
- Financial Management
- Budgeting, Financial Planning and Financial Analysis
- Treasury Functions
- Finance, including relationships with Institutional Investors, Analysts
and other shareholders; Investment Banking Relationships and Dealing with
Credit Rating Agencies
- Dealings with External Auditors
- Accounting, Financial Reporting, and Taxation
- Legal Affairs
- Corporate Development
- Rates and Regulatory Matters
- Governmental Affairs
- Marketing and Economic Development
- Human Resources
- Other Administrative Functions (e.g., Purchasing and Management
Information Services)
VIII-5
<PAGE>
ANNEX IX
SEVERANCE PLAN FOR SPECIFIED OFFICERS
1. PURPOSE
The purpose of this Severance Plan is to encourage the continued attention
and dedication of the Specified Officers to their assigned duties, without
distraction, in the face of the potentially disruptive circumstances that
accompany a merger of companies.
2. QUALIFICATION FOR SEVERANCE BENEFITS
A Specified Officer shall be entitled to receive Severance Benefits if,
during the Term of the Severance Plan, such Specified Officer incurs a
Qualifying Termination. No Severance Benefits shall become due or payable unless
and until the occurrence of such Qualifying Termination. At the time of a
Qualifying Termination, a Specified Officer eligible for severance benefits
under both this Plan and the Severance Plan In The Event Of A Change In control
of Iowa-Illinois shall elect coverage under one of the two Plans, but not both.
3. SPECIFIED OFFICERS
The position titles of the persons who are potentially eligible to receive
benefits under this Severance Plan are set forth in Appendix I, attached hereto
and incorporated herein. Persons occupying these positions are herein referred
as "Specified Officers."
4. QUALIFYING TERMINATION
For the purpose of this Severance Plan, a "Qualifying Termination" shall
mean a termination of employment of a Specified Officer occurring within the
Term of this Severance Plan either (a) involuntarily for any reason (except in
the instance of a felony as provide in this Section) or (b) voluntarily if the
Specified Officer has furnished the President of the Company with six (6) months
prior written notice of the intent to voluntarily terminate employment.
Termination of employment due, in whole or in part, to the commission of a
felony by a Specified Officer shall not constitute a Qualifying Termination
under this Severance Plan. All Severance Benefits for a Specified Officer
charged with a felony shall be suspended until such time as the felony charge is
finally disposed. Conviction of a felony or a plea of no contest to a felony
charge shall be sufficient to disqualify the Specified Officer for Severance
Benefits.
5. SEVERANCE BENEFITS
For the purpose of this Severance Plan, "Severance Benefits" shall mean:
a. an amount equal to two (2) times the Specified Officer's highest Total
Cash Compensation, said amount to be paid in a lump sum on the effective
date of his/her Qualifying Termination (except in the circumstance of a
felony charge as provided above); and
b. the Specified Officer's accrued vacation pay through the effective date
of his/her Qualifying Termination, said amount to be paid in a lump sum
on the effective date of such Qualifying Termination (except in the
circumstance of a felony charge as provided above); and
c. a continuation of the welfare benefits of health insurance, disability
insurance, and group term life insurance for twenty-four (24) full
calendar months after the effective date of the Specified Officer's
Qualifying Termination, at the same premium cost and at the same
coverage level as in effect on such effective date; provided, however,
in the event the premium cost and/or coverage level shall change at any
time during the twenty-four (24) month period for all welfare benefit
participants, then the premium cost and/or coverage level likewise shall
change for such Specified Officer in a corresponding manner; and
d. standard outplacement services from a nationally recognized firm of the
Specified Officer's selection for a period up to twenty-four (24) full
calendar months after the effective date of
IX-1
<PAGE>
the Qualifying Termination or until such Specified Officer obtains
employment, whichever is less. The cost of such services shall not
exceed twenty percent (20%) of the Specified Officer's Total Cash
Compensation.
6. TERM
This Severance Plan shall be effective for a term commencing at the
Effective Time (as defined in the Agreement and Plan of Merger by and among
Midwest Resources Inc., Midwest Power Systems Inc., Iowa-Illinois Gas and
Electric Company and MidAmerican Energy Company ("Company")) and terminating two
(2) years thereafter. The Plan shall not be amended during its term except with
the written consent of all Specified Officers.
7. TOTAL CASH COMPENSATION
The term "Total Cash Compensation" shall mean the amount payable to a
Specified Officer by the Company or its predecessors as annual salary and Bonus,
without regard to deferrals. For the purpose of this Plan, "Bonus" shall mean
the larger of (i) the three-year average of bonuses actually paid to the
Specified Officer or (ii) the three-year average of accruals to the account of
the Specified Officer under any incentive compensation plan. In the event that
less than three years of payments or accruals have occurred, then the average of
any payments or accruals, respective, shall be used.
8. TAXES
A. The corporation paying the Severance Benefits shall be entitled to
withhold all Federal, state, city, or other taxes legally required,
subject to subparagraphs B, C and D hereof.
B. In the event any of the Severance Benefits payable to a Specified
Officer are subject to the tax ("Excise Tax") imposed by Section 4999 of
the Internal Revenue Code of 1986 (or any similar tax that may hereafter
be imposed) ("Code"), the corporation paying such Severance Benefits
shall pay to the Specified Officer in cash an additional amount
("Gross-Up Payment") such that the net amount retained by the Specified
Officer after deduction of any Excise Tax payable on the Severance
Benefits and any Federal, state, and local income tax and Excise Tax
payable upon the Gross-Up Payment shall be equal to the Severance
Benefits. Such Gross-Up Payment shall be made by the corporation to the
Specified Officer on the effective date of his/her Qualifying
Termination.
C. For the purpose of determining whether any of the Severance Benefits
will be subject to the Excise Tax and the amount of such Excise Tax:
(a) any other payments of benefits received or to be received by a
Specified Officer in connection with his/her termination of
employment (whether pursuant to the terms of this Plan or any other
plan, arrangement, or agreement) shall be treated as "parachute
payments" within the meaning of Section 280G(b)(2) of the Code, and
all "excess parachute payments" within the meaning of Section
280(G)(b)(1) shall be treated as subject to the Excise Tax, unless
in the opinion of tax counsel, selected by such Specified Officer,
such other payments or benefits (in whole or in part) do not
constitute parachute payments, or that such excess parachute
payments (in whole or in part) represent reasonable compensation for
services actually rendered within the meaning of Section 280G(b)(4)
in excess of the base amount within the meaning of Section
280G(b)(3), or are otherwise not subject to the Excise Tax; and
(b) the amount of Severance Benefits which shall be treated as subject
to the Excise Tax shall be equal to the lesser of: (i) the total
amount of Severance Benefits; or (ii) the amount of excess parachute
payments within the meaning of Section 280G(b)(1) of the Code (after
applying clause (a) above; and
(c) the value of any noncash benefits or any deferred payment or benefit
shall be determined by the independent auditors of the corporation
paying such Severance Benefits in accordance with the principles of
Sections 280G(d) of the Code and applicable regulations.
IX-2
<PAGE>
For the purpose of determining the amount of the Gross-Up
Payment, the Specified Officer shall be deemed to pay Federal income
taxes at the highest marginal rate of Federal income taxation in the
calendar year in which such Gross-Up Payment is to be made and state
and local income taxes at the highest marginal rate of taxation in
the state and locality of the Specified Officer's residence on the
effective date of his/her Qualifying Termination, net of the maximum
reduction in Federal income taxes which could be obtained from
deduction of such state and local taxes.
D. In the event the Internal Revenue Service adjusts the computations under
paragraph C hereof such that the Specified Officer does not receive the
maximum Severance Benefits (including Gross-Up Payment) permitted by this
Plan, the corporation paying such Severance Benefits shall reimburse the
Specified Officer for the full amount necessary to make him/her whole,
plus interest from the date such additional Severance Benefits became due
to the date of such payment at the prime rate as may be established by
The First National Bank of Chicago from time-to-time.
9. EMPLOYMENT STATUS
In no event shall any Specified Officer be obligated to seek other
employment or to take other action by way of mitigation of the amounts payable
to such Officer under the provisions of this Severance Plan, nor shall the
amount of any payment hereunder be reduced by any compensation earned by such
Specified Officer as a result of employment by another employer.
Nothing herein contained shall be deemed to create an employment agreement
with the Specified Officer providing for the employment of such Specified
Officer for any fixed period of time.
10. OTHER BENEFITS
Neither the provisions of this Severance Plan nor the right to receive
Severance Benefits shall reduce any amounts otherwise payable to any Specified
Officer or in any way diminish his/her rights under any benefit, bonus,
incentive, stock option, stock bonus or other stock purchase plan, or any
employee agreement, or any other plan, program, policy or practice for which the
Specified Officer may qualify. Vested benefits and other amounts which the
Specified Officer is otherwise entitled to receive under any plan, program,
policy or practice at or subsequent to the effective date of such Specified
Officer's Qualifying Termination shall be payable in accordance with such plan,
program, policy or practice.
11. CONTRACTUAL RIGHTS
This Plan establishes in each Specified Officer a right to the benefits to
which he or she is entitled hereunder. This Plan shall inure to the benefit of,
and be enforceable by, each Specified Officer's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If a Specified Officer dies while any Severance Benefits
would still be payable to him/her under this Severance Plan, all such unpaid
amounts shall be paid to such Specified Officer's designated beneficiaries or,
in the absence thereof, to such Specified Officer's estate.
12. NO SEPARATE FUND REQUIRED
Nothing herein contained shall require or be deemed to require, or prohibit
or be deemed to prohibit, that the Company segregate or otherwise set aside any
funds or other assets, in trust or otherwise, to provide for the payment of
Severance Benefits.
13. LEGAL REMEDIES
A. To the extent permitted by law, the corporation obligated to pay any
Severance Benefits shall pay all legal fees, cost of litigation,
prejudgment interest, and other expenses incurred in good faith by each
Specified Officer as a result of such corporation's refusal to provide
the Severance Benefits to which the Specified Officer becomes entitled
under this Plan, or as a result of such corporation's contesting the
validity, enforceability, or interpretation of this Plan, or as a result
of any conflict pertaining of this Plan.
IX-3
<PAGE>
B. Each Specified Officer shall have the right and option to elect (in lieu
of litigation) to have any dispute or controversy arising under or in
connection with this Plan settled by arbitration conducted by an
arbitrator in accordance with the rules of the American Arbitration
Association then in effect. A Specified Officer's election to arbitrate
and the decision of the arbitrator in that proceeding shall be binding
on the parties to such arbitration.
Judgement may be entered on the award of the arbitrator in any court
having jurisdiction. All expenses of such arbitration, including the fees
and expenses of the counsel for the Specified Officer, shall be borne by the
corporation which is the party to the arbitration.
14. SEVERABILITY
In the event any provision of this Severance Plan shall be held illegal or
invalid for any reason, such illegality or invalidity shall not effect the
remaining parts of this Plan, and this Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
15. CAPTIONS
The captions of this Severance Plan are not a part of the provisions hereof
and shall have no force and effect.
16. APPLICABLE LAW
This Severance Plan shall be interpreted in accordance with the laws of the
State of Iowa.
IX-4
<PAGE>
APPENDIX I
SPECIFIED OFFICERS
A. Specified Officers of Midwest Resources Inc. and Midwest Power Systems Inc.
1. Richard C. Engle
2. Lynn K. Vorbrich
3. Beverly A. Wharton
4. Philip G. Lindner
5. John A. Rasmussen
B. Specified Officers of Iowa-Illinois Gas and Electric Company.
1. Stephen E. Shelton
2. Ronald W. Stepien
3. Lance E. Cooper
4. Donald C. Heppermann
5. Brent E. Gale
IX-5
<PAGE>
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Sections 490.850-490.855 and 490.857 of the Iowa Business Corporation Act
("IBCA") permit corporations organized thereunder to indemnify directors,
officers, employees and agents against liability under certain circumstances.
The Articles of Incorporation and the By-Laws of the Company provide for
indemnification of directors, officers, employees and agents to the full extent
provided by the IBCA. The Articles of Incorporation and the By-Laws of the
Company state that the indemnification provided therein shall not be deemed
exclusive. The Company may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the Company or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Company would have
the power to indemnify such person against such expense, liability or loss under
the IBCA. Pursuant to Section 490.857 of the IBCA and its Articles of
Incorporation and By-Laws, the Company maintains directors' and officers'
liability insurance coverage. The Company has also entered into indemnification
agreements with certain directors and officers, and expects to enter into
similar agreements with future directors and officers, to further assure such
persons indemnification as permitted by Iowa law.
As permitted by Section 490.832 of the IBCA, the Articles of Incorporation
of the Company provide that no director shall be personally liable to the
Company 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 Company or its shareholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 490.833 of the IBCA (relating to certain unlawful
distributions to shareholders) or (iv) for any transaction from which the
director derived an improper personal benefit.
ITEM 21. EXHIBITS.
The following exhibits are being filed herewith:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------------- --------------------------------------------------------------------------------------------------------
<S> <C>
2(a) Agreement and Plan of Merger dated July 26, 1994, as amended and restated as of September 27, 1994
(attached as Annex I).
3(a) Restated Articles of Incorporation of MidAmerican Energy Company (attached as Annex II).
3(b) By-Laws of MidAmerican Energy Company.*
4 Rights of MidAmerican Energy Company Common and Preferred Shareholders (included in 3(a)).
5 Opinion re Legality, of Sidley & Austin.*
8(a) Opinion re Tax Matters, of Sidley & Austin.*
8(b) Opinion re Tax Matters, of Sidley & Austin.*
8(c) Opinion re Tax Matters, of LeBoeuf, Lamb, Greene & MacRae, L.L.P.*
10(a) Employment Agreement dated July 26, 1994 between MidAmerican Energy Company and Russell E. Christiansen
(attached as Annex VII).
10(b) Employment Agreement dated July 26, 1994 between MidAmerican Energy Company and Stanley J. Bright
(attached as Annex VIII).
10(c) Severance Plan for Specified Officers (attached as Annex IX).
23(a) Consents of Sidley & Austin (included in Exhibits 5, 8(a) and (8b)).
23(b) Consent of LeBoeuf, Lamb, Greene & MacRae, L.L.P. (included in Exhibit 8(c)).
23(c) Consents of Arthur Andersen LLP.*
23(d) Consent of Deloitte & Touche LLP.*
23(e) Consent of Dillon, Read & Co. Inc.*
23(f) Consent of PaineWebber Incorporated.*
99(a) Form of Proxy/Direction.*
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------------- --------------------------------------------------------------------------------------------------------
<S> <C>
99(b) Consents of Persons to be Directors of MidAmerican Energy Company at the Effective Time of the Merger.*
99(c) Report of Dillon, Read & Co. Inc. (attached as Annex III).
99(d) Report of PaineWebber Incorporated (attached as Annex IV).
99(e) Presentation Materials dated July 12, 1994 Provided by Dillon Read to the Iowa-Illinois Board.
99(f) Presentation Materials dated July 15, 1994 Provided by PaineWebber to the Resources Board. (Incorporated
by reference to Resources Current Report on Form 8-K dated November 3, 1994, Exhibit 99(a) (File No.
1-10654)).
99(g) Presentation Materials dated July 26, 1994 Provided by Dillon Read to the Iowa-Illinois Board.
99(h) Presentation Materials dated July 26, 1994 Provided by PaineWebber to the Resources Board. (Incorporated
by reference to Resources Current Report on Form 8-K dated November 3, 1994, Exhibit 99(b) (File No.
1-10654)).
<FN>
- ------------------------
*Previously filed
</TABLE>
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement.
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
PROVIDED, HOWEVER, that paragraphs (1)(i) and (1)(ii) do not apply if the
registration statement is on Form S-3 or Form S-8, and the information required
to be included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the registrant pursuant to Section 13 or Section 15(d)
of the Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to
section 13(a) or section 15(d) of the Securities Exchange Act of 1934 that
is incorporated by reference in the registration statement shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial BONA FIDE offering thereof.
(3) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this
form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request.
(4) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
(5) To remove from registration by means of a post-effective amendment
any shares of Company Common Stock and Company Preferred Stock which are not
issued in the Merger.
II-2
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to Directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 20, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Pre-Effective Amendment No. 1 to the Registration Statement
on Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Des Moines, State of Iowa on November 3, 1994.
MIDAMERICAN ENERGY COMPANY
By /s/ RUSSELL E. CHRISTIANSEN
-----------------------------------
Russell E. Christiansen
CHAIRMAN,
OFFICE OF THE CHIEF EXECUTIVE
OFFICER
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 1 to the Registration Statement on Form S-4 has been
signed below by the following persons in the capacities indicated, on November
3, 1994.
<TABLE>
<CAPTION>
SIGNATURE AND TITLE
- --------------------------------------------------------
<S> <C>
/s/ RUSSELL E. CHRISTIANSEN /s/ STANLEY J. BRIGHT
-------------------------------------------- --------------------------------------------
Russell E. Christiansen Stanley J. Bright
CHAIRMAN, OFFICE OF THE CHIEF EXECUTIVE OFFICER PRESIDENT, OFFICE OF THE CHIEF EXECUTIVE OFFICER
AND DIRECTOR (PRINCIPAL EXECUTIVE OFFICER) AND DIRECTOR
/s/ LANCE E. COOPER
--------------------------------------------
Lance E. Cooper
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
</TABLE>
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS PAGE
- ------------- ---------
<S> <C> <C>
2(a) Agreement and Plan of Merger dated July 26, 1994, as amended and restated as of September 27,
1994 (attached as Annex I).
3(a) Restated Articles of Incorporation of MidAmerican Energy Company (attached as Annex II).
3(b) By-Laws of MidAmerican Energy Company.*
4 Rights of MidAmerican Energy Company Common and Preferred Shareholders (included in 3(a)).
5 Opinion re Legality, of Sidley & Austin.*
8(a) Opinion re Tax Matters, of Sidley & Austin.*
8(b) Opinion re Tax Matters, of Sidley & Austin.*
8(c) Opinion re Tax Matters, of LeBoeuf, Lamb, Greene & MacRae, L.L.P.*
10(a) Employment Agreement dated July 26, 1994 between MidAmerican Energy Company and Russell E.
Christiansen (attached as Annex VII).
10(b) Employment Agreement dated July 26, 1994 between MidAmerican Energy Company and Stanley J.
Bright (attached as Annex VIII).
10(c) Severance Plan for Specified Officers (attached as Annex IX).
23(a) Consents of Sidley & Austin (included in Exhibits 5, 8(a) and 8(b)).
23(b) Consent of LeBoeuf, Lamb, Greene & MacRae, L.L.P. (included in Exhibit 8(c)).
23(c) Consents of Arthur Andersen LLP.*
23(d) Consent of Deloitte & Touche LLP.*
23(e) Consent of Dillon, Read & Co. Inc.*
23(f) Consent of PaineWebber Incorporated.*
99(a) Form of Proxy/Direction.*
99(b) Consents of Persons to be Directors of MidAmerican Energy Company at the Effective Time of the
Merger.*
99(c) Report of Dillon, Read & Co. Inc. (attached as Annex III).
99(d) Report of PaineWebber Incorporated (attached as Annex IV).
99(e) Presentation Materials dated July 12, 1994 Provided by Dillon Read to the Iowa-Illinois Board.
99(f) Presentation Materials dated July 15, 1994 Provided by PaineWebber to the Resources Board.
(Incorporated by reference to Resources Current Report on Form 8-K dated November 3, 1994,
Exhibit 99(a) (File No. 1-10654)).
99(g) Presentation Materials dated July 26, 1994 Provided by Dillon Read to the Iowa-Illinois Board.
99(h) Presentation Materials dated July 26, 1994 Provided by PaineWebber to the Resources Board.
(Incorporated by reference to Resources Current Report on Form 8-K dated November 3, 1994,
Exhibit 99(b) (File No. 1-10654)).
<FN>
- ------------------------
*Previously filed
</TABLE>
<PAGE>
APPENDIX OF GRAPHIC DIFFERENCES
DESCRIPTION OF SERVICE TERRITORY MAP
The service territory map (the "Map") indicates by shading the respective
service territories of Resources/Midwest Power and Iowa-Illinois which, after
the Merger, will comprise the service territory of the Company. The Map shows
the outline of the State of Iowa and identifies the bordering States of Illinois
and Wisconsin to the East and South Dakota and Nebraska to the West. The Map
shows that Resources/Midwest Power's service territory is in the States of Iowa,
Nebraska and South Dakota while Iowa-Illinois' service territory is in the
States of Illinois and Iowa. Resources/Midwest Power is shown as serving the
cities of Waterloo, Council Bluffs and Sioux City, Iowa and Sioux Falls, South
Dakota. Iowa-Illinois is shown as serving the cities of Davenport, Cedar Rapids,
Iowa City and Ottumwa, Iowa and Moline, Illinois. The Map shows
Resources/Midwest Power serving substantially all of Des Moines, Iowa with
Iowa-Illinois serving five distinct outlying areas or communities outside of Des
Moines. The Map shows that Resources/Midwest Power and Iowa-Illinois both serve
Fort Dodge, Iowa. In addition, the Map shows that Resources/Midwest Power serves
bands of communities between Fort Dodge and Waterloo, Sioux City and Council
Bluffs and scattered areas in Nebraska near Sioux City, Iowa and in South Dakota
near the borders of South Dakota and Nebraska and South Dakota and Iowa.
<PAGE>
EX 99 (e)
The accompanying material was compiled on a confidential basis by Dillon,
Read & Co. ("Dillon Read") for use solely by the Board of Directors of Iowa-
Illinois Gas and Electric Company ("Iowa-Illinois") in evaluating the merger
proposal described in the joint proxy statement/prospectus included in the
Registration Statement to which the accompanying material has been filed as an
exhibit. This material was not prepared with a view to public disclosure,
filing under the Securities Act of 1933, as amended, or the Securities Exchange
Act of 1934, as amended (together, the "Securities Laws"), or conforming with
any disclosure standards under the Securities Laws. This material was prepared
solely for use by the Board of Directors of Iowa-Illinois in July 1994 to
consider in connection with a potential merger as described in such joint proxy
statement/prospectus. NEITHER IOWA-ILLINOIS OR DILLON READ, NOR ANY OF THEIR
RESPECTIVE DIRECTORS, EMPLOYEES, AFFILIATES, ADVISORS, AGENTS OR
REPRESENTATIVES, MAKES ANY REPRESENTATION WITH RESPECT TO THE ACCURACY OR
COMPLETENESS OF ANY OF THE ACCOMPANYING MATERIAL. NOTHING CONTAINED IN SUCH
MATERIAL IS, OR SHOULD BE RELIED UPON AS, A REPRESENTATION OR WARRANTY AS TO
THE PAST, PRESENT OR FUTURE RESULTS OF OPERATIONS OR FINANCIAL CONDITION OF
IOWA-ILLINOIS, MIDWEST RESOURCES INC. ("MIDWEST") OR MIDAMERICAN ENERGY COMPANY
("MIDAMERICAN") OR ANY OF THEIR SUBSIDIARIES.
Without limiting the foregoing, it should be understood that any estimates,
valuations and/or projections contained or assumed in the accompanying material
involve judgments with respect to numerous factors many of which are beyond the
control of Iowa-Illinois, Midwest and Dillon Read and difficult to predict.
ACCORDINGLY, THERE CAN BE NO ASSURANCE THAT ANY OF THE RESULTS INDICATED IN THE
ACCOMPANYING MATERIALS BASED ON SUCH ESTIMATES, VALUATIONS AND/OR PROJECTIONS
WILL BE REALIZED, ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE SET FORTH ABOVE
AND NO REPRESENTATION OR WARRANTY CAN BE OR IS MADE BY IOWA-ILLINOIS, MIDWEST,
MIDAMERICAN, DILLON READ OR ANY OF THEIR RESPECTIVE DIRECTORS, EMPLOYEES,
AFFILIATES, ADVISORS, AGENTS OR REPRESENTATIVES AS TO THE ACCURACY OR
ACHIEVABILITY OF ANY SUCH REALIZATION. IN ADDITION, CERTAIN OF THE FINANCIAL
INFORMATION CONTAINED IN THE ACCOMPANYING MATERIALS ARE SUPERSEDED BY SUBSEQUENT
FINANCIAL INFORMATION AND SHOULD NOT BE REGARDED AS A CURRENT OR OTHERWISE
MEANINGFUL STATEMENT OF THE RESULTS OF OPERATIONS OR FINANCIAL CONDITION OF
IOWA-ILLINOIS, MIDWEST, MIDAMERICAN OR ANY OTHER PERSONS AS OF THE DATE OF THE
JOINT PROXY STATEMENT/PROSPECTUS.
It should be understood that any estimates, valuations and/or projections
contained in the accompanying material were prepared or derived from information
supplied by Iowa-Illinois or Midwest without any independent verification
thereof by Dillon Read.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
Project Dome
Discussion Materials
July 12, 1994
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
COMPARISON OF RED AND BLUE TO PEER GROUP
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Peer Group
Red Median Blue
--- ------ ----
<S> <C> <C> <C>
Last Five Year EPS Growth (11.8%) (1.9%) (4.6%)
Last Five Year Dividend Growth N.M. 1.8% 1.5%
Projected Five Year EPS Growth (I.B.E.S.) 2.0% 3.4% 3.8%
1994 Estimated Dividend Payout Ratio 89.2% 85.7% 88.7%
Times Interest Earned 3.24x 3.24x 4.30x
Long-Term Debt/Capitalization 48.5% 46.3% 46.8%
<FN>
*Peer Group Includes CILCORP, CIPSCO, IES Industries, Illinova Corp., Interstate
Power, Iowa-Illinois Gas & Electric, Midwest Resources, UtiliCorp United and
WPL Holdings.
</TABLE>
<PAGE>
- -------------------------------------------------------------------------------
Comparison of Red and Blue to Peer Group
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Peer Group
Red Median Blue
--- ------ ----
<S> <C> <C> <C>
Price/1994 Estimated E.P.S. 11.6x 10.7x 10.7x
Price/1996 Estimated E.P.S. 10.4x 10.4x 10.1x
Price/Cash Flow From Operations 4.8x 4.3x 4.3x
Price/Book Value 1.19x 1.21x 1.21x
Market Capitalization/Operating Cash Flow 6.5x 6.5x 5.4x
Dividend Yield 7.7% 7.7% 8.3%
Equity Market Value ($MM) $831.5 $829.3 $612.6
</TABLE>
<PAGE>
- -------------------------------------------------------------------------------
Historical Stock Price Performance
- -------------------------------------------------------------------------------
Daily Close: 6/21/91 - 7/08/94
[Graph]
[See Appendix of Graphic Differences]
<PAGE>
- --------------------------------------------------------------------------------
Red and Blue Shareholders
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Red Blue
---- ----
<S> <C> <C>
Total Institutional Holdings 12.8% 17.2%
Top 20 Holders 11.1% 13.4%
Five Largest Holders Franklin Resources Lindner Management
Wells Fargo State Street Bank & Trust
State Street Bank & Trust Mellon Bank
Invista Capital Management Wells Fargo
CALPERS Wilshire Asset Management
</TABLE>
<PAGE>
- -----------------------------------------------------------------------------
Red and Blue Company Projections
- -----------------------------------------------------------------------------
- - Both companies, but particularly Red, foresee EPS growth above Wall Street
estimates.
<TABLE>
<CAPTION>
Internal Projections Median Analyst
-------------------- --------------
<S> <C> <C>
Red 1995 EPS $1.62 $1.35
Blue 1995 EPS $2.04 $2.03
Red Five Year Growth 5.8% 2.0%
Blue Five Year Growth 6.5% 3.8%
</TABLE>
- - Driven by EPS growth, each company expects to decrease its dividend payout
ratio.
<TABLE>
<CAPTION>
Return on Equity Earnings Per Share Dividend Payout Ratio
------------------- ------------------- ---------------------
1994 1998 1994 1998 1994 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Red 10.6% 13.3% $1.33 $1.97 87.0% $58.9%
Blue 11.8% 13.4% $2.04 $2.54 84.8% 71.3%
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
Red Company Projections
- --------------------------------------------------------------------------------
- - Red forecasts annual operating income growth of 9.4% between 1994 and 1998.
This is a result of significant growth in revenues - particularly in "other"
(non-utility) revenues.
- - Retail KW sales are expected to increase by 2% annually.
- - $18.2 million rate increase assumed to be initially collected in 1995.
- - Red's gas revenues are forecasted to grow by 3.5% annually. This growth
reflects retail sales growth of 1.5% annually, coupled with $11.4 million of
rate increases during 1994-1996.
- - "Other Revenues" are expected to grow from $269 million in 1994 to $417
million in 1998.
- - no further detail is provided
<PAGE>
- -------------------------------------------------------------------------------
Key Due Diligence Issues
- -------------------------------------------------------------------------------
- - Cooper Purchase Power Contract
- - Planned Rate Cases
- - Environmental Clean-up Exposure
- - Nonregulated Businesses
- Source of Growth
- Century Power Leveraged Lease
- Real Estate Holdings
<PAGE>
- -------------------------------------------------------------------------------
Mergers of Equals - Significant Terms
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Pro Forma Market Newco Board Special Voting CEO HQ
Merging Parties Ownership Premium Composition Requirements Arrangements Location
- --------------- --------- ------- ----------- -------------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Cleveland Electric (CEI) 69% 66% None CEI: Pres./CEO Cleveland
Toledo Edison (TED) 31% 6.0% 33% TED: Chairman
- ------------------------------------------------------------------------------------------------------------
Midwest Energy (ME) 47% 50% None ME: Pres./COO Des Moines
(Chairman/CEO
in two years)
Iowa Resources (IR) 53% 8.3% 50% IR: Chairman/CEO
(for two years)
- -------------------------------------------------------------------------------------------------------------
Washington Water 56% 53% None WWP: Chairman/ Spokane
Power (WWP) CEO (thru 1998, then
Chairman thru 2001)
Sierra Pacific (SRP) 44% 17.4% 47% SRP: President/ (SRP Hdqtrs.
COO (CEO in 1999 in Reno)
and Chairman in 2002)
</TABLE>
<PAGE>
- -------------------------------------------------------------------------------
Mergers of Equals -Significant Terms
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Pro Forma Market Newco Board Special Voting CEO HQ
Merging Parties Ownership Premium Composition Requirements Arrangements Location
- --------------- --------- ------- ----------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
IE Industries (IE) 61% 62% None, except IE: Pres./CEO Cedar Rapids
operational
commitments
specified in
merger agreement
Iowa Southern (IS) 39% 29.4% 38% IS: Chairman (IS Hdqtrs.
in Centerville
for five years)
- -----------------------------------------------------------------------------------------------------------------
Cincinnati G & E (CIN) 60% 53% Supermajority CIN: Chairman/ Cincinnati
CEO (thru 1995)
PSI Energy (PIN) 40% 19.2%* 47% Voting Provisions PIN: Pres./COO (PSI Hdqtrs.
(Chairman/CEO in Plainfield)
after 1995)
<FN>
*Premium to market for original offer made on 12/12/92, which was subsequently
raised after IPALCO's competing offer.
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
SIERRA PACIFIC/WASHINGTON WATER POWER MERGER
- --------------------------------------------------------------------------------
- - On June 28, 1994, Sierra Pacific Resources (SRP) and Washington Water
Power (WWP) announced their intention to merge and form a new company,
Resources West Energy Corp. (RWE).
- - Each WPP shareholder will receive one share of RWE, while each SRP
shareholder will receive 1.44 shares of RWE. This will give former SRP
shareholders 44% of RWE's stock, while WWP's former shareholders will
control the other 56%.
- - Judging strictly by the contribution of each party to RWE, it is clear
that factors besides the relative market valuations were considered in
establishing the exchange ratio.
<TABLE>
<CAPTION>
Contribution from Each Party
----------------------------
SRP WWP
--- ---
<S> <C> <C>
Latest Equity Market Value (6/27/94) 41% 59%
LTM Operating Income 44% 56%
LTM Operating Cash Flow 45% 55%
LTM Net Income 46% 54%
3/31/94 Book Value of Equity 43% 57%
Pro Forma Ownership 44% 56%
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SIERRA PACIFIC/WASHINGTON WATER POWER MERGER
- --------------------------------------------------------------------------------
Daily Close: 5/26/94 - 7/08/94
[Graph]
- --------------------------------------------------------------------------------
[See Appendix of Graphic Differences]
<PAGE>
- --------------------------------------------------------------------------------
RED/BLUE COMPARISON
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Summary Financial Results
(as of or for 12 months ended 3/31/94
----------------------------------------------
($ in millions)
Red Blue Proforma
--- ---- --------
<S> <C> <C> <C>
Electric Revenues $662.1 $346.9 $1,009.0
Gas Revenues 326.1 221.5 547.6
Total 1,183.2 * 657.7 1,840.9
Operating Cash Flow 265.1 209.0 474.1
Operating Income 167.8 129.1 296.9
Net Income to Common 61.9 50.9 112.8
Equity Market Value 831.5 612.6 1,444.1
Senior Debt Ratings A2/A+ Aa3/AA-
<FN>
*Includes $195.0 million of construction and other revenues.
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
RED/BLUE COMPARISON
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Contribution Summary - Current Results
--------------------------------------------
Red Blue
--- ----
<S> <C> <C>
Revenues 64.3% 35.7%
Operating Income 56.5% 43.5%
Operating Cash Flow 55.9% 44.1%
Net Income to Common 54.8% 45.2%
Cash Flow From Operations 55.1% 44.9%
Book Value 58.0% 42.0%
Market Value 57.6% 42.4%
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
RED/BLUE COMPARISON
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Contribution Summary - 1998 Projected Results
---------------------------------------------
Red Blue
--- ----
<S> <C> <C>
Revenues 66.3% 33.7%
Operating Income 57.3% 42.7%
Operating Cash Flow 55.6% 44.4%
Net Income To Common 58.9% 41.1%
Cash Flow From Operations 55.9% 44.1%
Book Value 59.3% 40.7%
Net Present Value of Projected Cash Flows 55-57% 43-45%
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
ESTABLISHING THE EXCHANGE RATIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ownership Market Premium
Blue Share ----------------- ------------------- Blue Dividend
Exchange Ratio(1) Red Blue Red Blue Change
- -------------- --- ---- --- ---- -----------
<S> <C> <C> <C> <C> <C>
1.350 58.1% 41.9% 2.2% -- (9.5%)
1.375 57.7% 42.3% 0.4% -- (7.8%)
1.400 57.2% 42.8% -- 1.4% (6.1%)
1.425 56.8% 43.2% -- 3.2% (4.5%)
1.450 56.4% 43.6% -- 5.1% (2.8%)
1.475 56.0% 44.0% -- 6.9% (1.1%)
1.500 55.5% 44.5% -- 8.7% 0.6%
1.525 55.1% 44.9% -- 10.5% 2.3%
1.550 54.7% 45.3% -- 12.3% 3.9%
1.575 54.3% 45.7% -- 14.1% 5.6%
1.600 53.9% 46.1% -- 15.9% 7.3%
<FN>
(1) Assumes Red shares are exchanged one-for-one
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
EXCHANGE RATIO ANALYSIS
- --------------------------------------------------------------------------------
Market-to-Market Exchange Ratio
[Graph]
- --------------------------------------------------------------------------------
[See Appendix of Graphic Differences]
<PAGE>
- --------------------------------------------------------------------------------
ESTABLISHING THE EXCHANGE RATIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Merger Consequences to Blue
----------------------------------------
Blue Exchange Ratio 1.40 1.45 1.50 1.55
---- ---- ---- ----
<S> <C> <C> <C> <C>
Premium to Current Market 1.4% 5.1% 8.7% 12.3%
Proforma Ownership 42.8% 43.6% 44.5% 45.3%
Earnings Per Share (Dilution)/Accretion*
1994 Estimate (5.0%) (3.1%) (1.2%) 0.6%
1995 Estimate 6.4 8.5 10.6 12.6
1996 Estimate 5.2 7.3 9.4 11.3
Cash Flow Per Share (Dilution)/Accretion
Latest 12 Months (4.4%) (2.5%) (0.6%) 1.2%
Book Value Per Share (Dilution)/Accretion (1.8%) 3.8% 5.8% 7.7%
Dividend Increase (Decrease) ** (6.1%) (2.8%) 0.6% 3.9%
<FN>
* Before any cost savings.
** Assumes Red dividend per share is not changed.
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
ESTABLISHING THE EXCHANGE RATIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Merger Consequences to Red
-------------------------------------
Blue Exchange Ratio 1.40 1.45 1.50 1.55
---- ---- ---- ----
<S> <C> <C> <C> <C>
Proforma Ownership 57.2% 56.4% 55.5% 54.7%
Earnings Per Share (Dilution)/Accretion*
1994 Estimate 4.1% 2.5% 1.0% (0.5%)
1995 Estimate (4.3) (5.7) (7.1) (8.5)
1996 Estimate (3.6) (5.0) (6.4) (7.8)
Net After-tax Savings Needed For
No Dilution in 1996 $5.5 MM $7.9 MM $10.3 MM $12.7 MM
Cash Flow Per Share (Dilution)/Accretion
Latest 12 Months 3.6% 2.0% 0.5% (1.0%)
Book Value Per Share (Dilution)/Accretion (1.3%) (2.8%) (4.2%) (5.6%)
<FN>
* Before any cost savings.
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
COMPLETING THE TRANSACTION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Merger Consequences to Green
of Acquiring Red or Blue*
----------------------------
Acquisition Acquisition
of Red of Blue
------ -------
<S> <C> <C>
Proforma Ownership by Target 59.2% 51.7%
Earnings Per Share (Dilution)/Accretion**
1994 Estimate (16.5%) (10.3%)
1995 Estimate (10.6) (12.9)
1996 Estimate (8.0) (10.1)
Net After-tax Savings Needed For No Dilution in 1996 $14.0 MM $14.9 MM
Cash Flow Per Share (Dilution)/Accretion
Latest Twelve Months (18.0%) (12.2%)
Book Value Per Share (Dilution)/Accretion (9.9%) (9.4%)
Proforma Dividend Payout Ratio (1994 Estimate) 102.0% 95.5%
<FN>
* Assumes a pooling at a 30% premium to market.
** Before any cost savings.
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
COMPLETING THE TRANSACTION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Summary of Termination Fees in Large Utility Mergers
<S> <C> <C>
Utility Mergers Reviewed 10
With Termination Fees 8
Without Termination Fees 2
With Cross-Options 2
Without Cross-Options 8
Range of Termination Fees * $3 MM - $70 MM 1.1% - 5.7% of Consideration
Median of Eight Termination Fees * $24.5 MM 3.4% of Consideration
Two Cross-Options 17.6% - 18% of shares outstanding
<FN>
* Reflects fees payable by smaller party in each transaction.
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL/MARKET BENEFITS OF MERGER
- --------------------------------------------------------------------------------
- - This transaction should be viewed by the financial community as a
strategic combination which improves the competitive position of both
parties.
- - Financial position remains strong, dividend stability is improved, and the
opportunity to enhance earnings growth through synergies is created.
- - Increased financial clout and flexibility, which should result in more
efficient capital raising through larger offerings and better pricing.
- - Creates a large regional power, well positioned to benefit from future
industry consolidation.
- - Increased liquidity for stockholders.
- - Increased level of attention from research analysts and investors.
- --------------------------------------------------------------------------------
<PAGE>
APPENDIX OF GRAPHIC DIFFERENCES
DESCRIPTION OF HISTORICAL STOCK PRICE PERFORMANCE GRAPH
The graph is entitled "Historical Stock Price Performance," subtitled
"Daily Close: 6/21/91 - 7/08/94." On the y-axis, the graph charts the price as
a percentage of the 6/21/91 closing price. The percentages range from 60% at
the origin to 160%. On the x-axis, the graph charts dates from June 21, 1991
to July 5, 1994 in approximately 45 day intervals, although data points are
recorded on a daily basis.
The graph tracks the daily close for Blue, Red, and S&P Electrics.
The data points for the percentages of Blue, Red and S&P Electrics all
begin at 100% on June 21, 1991. The data points for Blue, Red and S&P Electrics
end between approximately 101% and 78% on July 8, 1994.
DESCRIPTION OF SIERRA PACIFIC/WASHINGTON WATER POWER MERGER GRAPH
The graph is entitled "Sierra Pacific/Washington Water Power Merger,"
subtitled "Daily Close 5/26/94 - 7/08/94." On the y-axis, the graph charts the
price as a percentage of the 5/26/94 closing price. The percentages range from
88% at the origin to 102%. On the x-axis, the graph charts dates from May 26,
1994 to July 7, 1994.
The graph tracks the close for both Sierra Pacific and Washington Water
Power.
The data points for each day's percentage for both Sierra Pacific and
Washington Water Power begin at 100% on May 26, 1994. The data points for
Sierra Pacific end at approximately 101% on July 8, 1994. The data points for
Washington Water Power end at approximately 90% on July 8, 1994.
DESCRIPTION OF EXCHANGE RATIO ANALYSIS GRAPH
The graph is entitled "Exchange Ratio Analysis," subtitled "Market-to
Market Exchange Ratio." On the y-axis, the graph charts the ratio of red shares
for each blue share. The ratios range from 1.0 at the origin to 1.5. On the
x-axis, the graph charts dates from June 21, 1991 to July 5, 1994 in
approximately six and 1/2 week intervals, although data points are recorded on
a weekly basis.
The data points for each week's ratio fluctuated as it rose from
approximately 1.13 at the initial date of June 21, 1991 to end at approximately
1.35 on July 5, 1994.
<PAGE>
Exhibit 99(g)
The accompanying material was compiled on a confidential basis by Dillon,
Read & Co. ("Dillon Read") for use solely by the Board of Directors of Iowa-
Illinois Gas and Electric Company ("Iowa-Illinois") in evaluating the merger
proposal described in the joint proxy statement/prospectus included in the
Registration Statement to which the accompanying material has been filed as an
exhibit. This material was not prepared with a view to public disclosure, filing
under the Securities Act of 1933, as amended, or the Securities Exchange Act of
1934, as amended (together, the "Securities Laws"), or conforming with any
disclosure standards under the Securities Laws. This material was prepared
solely for use by the Board of Directors of Iowa-Illinois in July 1994 to
consider in connection with a potential merger as described in such joint proxy
statement/prospectus. NEITHER IOWA-ILLINOIS OR DILLON READ, NOR ANY OF THEIR
RESPECTIVE DIRECTORS, EMPLOYEES, AFFILIATES, ADVISORS, AGENTS OR
REPRESENTATIVES, MAKES ANY REPRESENTATION WITH RESPECT TO THE ACCURACY OR
COMPLETENESS OF ANY OF THE ACCOMPANYING MATERIAL. NOTHING CONTAINED IN SUCH
MATERIAL IS, OR SHOULD BE RELIED UPON AS, A REPRESENTATION OR WARRANTY AS TO THE
PAST, PRESENT OR FUTURE RESULTS OF OPERATIONS OR FINANCIAL CONDITION OF IOWA-
ILLINOIS, MIDWEST RESOURCES INC. ("MIDWEST") OR MIDAMERICAN ENERGY COMPANY
("MIDAMERICAN") OR ANY OF THEIR SUBSIDIARIES.
Without limiting the foregoing, it should be understood that any estimates,
valuations and/or projections contained or assumed in the accompanying material
involve judgments with respect to numerous factors many of which are beyond the
control of Iowa-Illinois, Midwest and Dillon Read and difficult to predict.
ACCORDINGLY, THERE CAN BE NO ASSURANCE THAT ANY OF THE RESULTS INDICATED IN THE
ACCOMPANYING MATERIALS BASED ON SUCH ESTIMATES, VALUATIONS AND/OR PROJECTIONS
WILL BE REALIZED, ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE SET FORTH ABOVE
AND NO REPRESENTATION OR WARRANTY CAN BE OR IS MADE BY IOWA-ILLINOIS, MIDWEST,
MIDAMERICAN, DILLON READ OR ANY OF THEIR RESPECTIVE DIRECTORS, EMPLOYEES,
AFFILIATES, ADVISORS, AGENTS OR REPRESENTATIVES AS TO THE ACCURACY OR
ACHIEVABILITY OF ANY SUCH REALIZATION. IN ADDITION, CERTAIN OF THE FINANCIAL
INFORMATION CONTAINED IN THE ACCOMPANYING MATERIALS ARE SUPERSEDED BY SUBSEQUENT
FINANCIAL INFORMATION AND SHOULD NOT BE REGARDED AS A CURRENT OR OTHERWISE
MEANINGFUL STATEMENT OF THE RESULTS OF OPERATIONS OR FINANCIAL CONDITION OF
IOWA-ILLINOIS, MIDWEST, MIDAMERICAN OR ANY OTHER PERSONS AS OF THE DATE OF THE
JOINT PROXY STATEMENT/PROSPECTUS.
It should be understood that any estimates, valuations and/or projections
contained in the accompanying material were prepared or derived from information
supplied by Iowa-Illinois or Midwest without any independent verification
thereof by Dillon Read.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
PROJECT RED
DISCUSSION MATERIALS
JULY 26, 1994
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
COMPARISON OF RED AND BLUE TO PEER GROUP
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Peer Group *
Red Median Blue
--- ------------ ----
<S> <C> <C> <C>
Last Five Year EPS Growth (11.8%) (1.9%) (4.6%)
Last Five Year Dividend Growth N.M. 1.8% 1.5%
Projected Five Year EPS Growth (I.B.E.S.) 2.0% 3.4% 3.8%
1994 Estimated Dividend Payout Ratio 89.2% 85.7% 88.7%
Times Interest Earned 3.24x 3.24x 4.30x
Long-Term Debt/Capitalization 48.5% 46.3% 46.8%
<FN>
* Peer Group includes CILCORP, CIPSCO, IES Industries, Illinova Corp.,
Interstate Power, Iowa-Illinois Gas & Electric, Midwest Resources,
UtiliCorp United and WPL Holdings.
</TABLE>
1
<PAGE>
- --------------------------------------------------------------------------------
COMPARISON OF RED AND BLUE TO PEER GROUP
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Peer Group
Red Median Blue
--- ------------ ----
<S> <C> <C> <C>
Price/1994 Estimated E.P.S. 11.3x 11.2x 11.2x
Price/1995 Estimated E.P.S. 10.9x 10.7x 10.7x
Price/1996 Estimated E.P.S. 10.2x 10.5x 10.6x
Price/Cash Flow From Operations 4.7x 4.5x 4.5x
Price/Book Value 1.16x 1.26x 1.26x
Market Capitalization/Operating Cash Flow 6.4x 6.4x 5.5x
Dividend Yield 7.9% 7.9% 8.0%
Equity Market Value ($MM) $810.9 $810.9 $638.2
</TABLE>
2
<PAGE>
- --------------------------------------------------------------------------------
HISTORICAL STOCK PRICE PERFORMANCE
- --------------------------------------------------------------------------------
[GRAPH]
[See Appendix of Graphic Differences]
3
<PAGE>
- --------------------------------------------------------------------------------
RECENT STOCK PRICE ACTIVITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Stock Price % Change % Change % Change
On 7/25/94 Since 7/19/94 Since 7/8/94 Since 12/31/93
----------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
Red $14.75 (1.7%) (2.5%) (18.1%)
Blue 21.75 0.0% 4.2% (11.7%)
S&P Electrics 64.95 0.1% 0.8% (20.5%)
</TABLE>
4
<PAGE>
- --------------------------------------------------------------------------------
RED/BLUE COMPARISON
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Summary Financial Results
(as of or for 12 months ended 3/31/94)
-------------------------------------------
($ in millions)
Red Blue Proforma
--- ---- --------
<S> <C> <C> <C>
Electric Revenues $662.1 $346.9 $1,009.0
Gas Revenues 326.1 221.5 547.6
Total 1,183.2* 657.7 1,840.9
Operating Cash Flow 265.1 209.0 474.1
Operating Income 167.8 129.1 296.9
Net Income to Common 61.9 50.9 112.8
Equity Market Value 810.9 638.2 1,449.2
Senior Debt Ratings A2/A+ Aa3/AA-
<FN>
* Includes $195.0 million of construction and other revenues.
</TABLE>
5
<PAGE>
- -------------------------------------------------------------------------------
RED/BLUE COMPARISON
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Contribution Summary-Current Results
--------------------------------------
Red Blue
--- ----
<S> <C> <C>
Revenues 64.3% 35.7%
Operating Income 56.5% 43.5%
Operating Cash Flow 55.9% 44.1%
Net Income to Common 54.8% 45.2%
Cash Flow From Operations 55.1% 44.9%
Book Value 58.0% 42.0%
Market Value 56.0% 44.0%
</TABLE>
6
<PAGE>
- -------------------------------------------------------------------------------
EXCHANGE RATIO ANALYSIS
- -------------------------------------------------------------------------------
[GRAPH]
[See Appendix of Graphic Differences]
7
<PAGE>
- -------------------------------------------------------------------------------
ESTABLISHING THE EXCHANGE RATIO
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Blue Dividend Change With Newco Dividend of:
Exchange Blue Blue -------------------------------------------
Ratio Ownership Market Premium* $1.16 0% $1.18 1.7% $1.20 3.4%
-------- --------- -------------- ----- ----- -----
<S> <C> <C> <C> <C> <C>
1.442 43.5% (2.2%) (3.3%) (1.6%) 0.0%
1.450 43.6% (1.7%) (2.8%) (1.1%) 0.6%
1.460 43.8% (1.0%) (2.1%) (0.4%) 1.3%
1.470 44.0% (0.3%) (1.4%) 0.3% 2.0%
1.480 44.1% 0.4% (0.8%) 0.9% 2.7%
1.490 44.3% 1.0% (0.1%) 1.6% 3.4%
1.500 44.5% 1.7% 0.6% 2.3% 4.0%
<FN>
*Based on 7/25/94 closing prices for Red ($14.75) and Blue ($21.75).
</TABLE>
8
<PAGE>
- -------------------------------------------------------------------------------
PRO FORMA PROJECTIONS - REVISED CASE
- -------------------------------------------------------------------------------
- Red receives all of the projected electric rate increase it
anticipates
- Red receives all of the projected gas rate increases it anticipates
- Red utility operation and maintenance expenses are projected to grow
by 2.2% annually after 1995
- original projections reflected decline of $900,000 annually
- Projected earnings from Red non-regulated operations exclude Century
Contractors West and Donovan Construction Company, which are assumed
to have been written off ($7.5 million charge to Common Equity). The
remaining operations' projections have been reduced 50%.
- Pre-tax cost savings to shareholders of ($2.3) million in 1996 (due to
costs to achieve), $7.7 million in 1997 and $9.6 million in 1998
- estimates from Deloitte & Touche study
- Projected earnings from Blue non-regulated operations reduced to level
presented at May Board retreat
- Newco pays dividend of $1.20 per share
9
<PAGE>
- -------------------------------------------------------------------------------
REVISED PROJECTIONS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Effect of Revisions on Base Case
--------------------------------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Red
- ---
Base Case EPS $1.33 $1.62 $1.63 $1.82 $1.97
Revised EPS 1.32 1.58 1.53 1.66 1.71
% Change (0.7%) (2.5%) (6.1%) (8.8%) (13.2%)
Blue
- ----
Base Case EPS $2.04 $2.04 $2.09 $2.26 $2.54
Revised EPS 2.04 2.03 1.94 2.02 2.16
% Change -- (0.5%) (7.2%) (10.6%) (15.0%)
</TABLE>
10
<PAGE>
- -------------------------------------------------------------------------------
PRO FORMA PROJECTIONS
RED AND BLUE PROJECTIONS WITH REVISIONS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Dollars Shown in Millions)
4 Year
1994 1995 1996 1997 1998 CAGR
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Utility Revenues $1,569.1 $1,627.8 $1,665.4 $1,714.3 $1,756.5 2.9%
Operating Cash Flow 499.8 539.4 542.8 573.3 597.3 4.6%
Net Income 133.2 150.1 144.9 161.6 170.7 6.4%
Net Debt 1,626.2 1,635.8 1,663.4 1,670.7 1,675.8
Common Equity 1,216.1 1,278.2 1,311.2 1,360.4 1,406.2
Net Debt/Capitalization
- Blue Stand-Alone 56.1% 56.7% 56.9% 56.6% 56.6%
- Pro Forma 54.2% 53.2% 53.1% 52.4% 51.7%
Operating Cash Flow/
Fixed Charges
- Blue Stand-Alone 4.2x 4.1x 4.0x 4.1x 4.2x
- Pro Forma 4.2x 4.3x 4.3x 4.6x 4.8x
Dividend Payout Ratio
- Blue Stand-Alone 84.9% 86.3% 91.2% 88.8% 84.0%
- Pro Forma ($1.20 Flat) 89.6% 81.1% 85.2% 76.9% 73.2%
</TABLE>
11
<PAGE>
- -------------------------------------------------------------------------------
ESTABLISHING THE EXCHANGE RATIO
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Merger Consequences to Blue: Accretion/(Dilution)
------------------------------------------------
1.442 1.460 1.480 1.500
----- ----- ----- -----
<S> <C> <C> <C> <C>
Book Value Per Share 3.5% 4.2% 5.0% 5.8%
Latest 12 Months Cash Flow Per Share (2.8%) (2.1%) (1.4%) (0.6%)
Earnings Per Share*
1994 Projected (3.5%) (2.9%) (2.1%) (1.4%)
1995 Projected 7.0% 7.8% 8.6% 9.4%
- -----------------------------------------------------------------------------------------------
1996 Projected 6.5% 7.3% 8.1% 8.9%
1997 Projected 13.6% 14.4% 15.3% 16.2%
1998 Projected 11.6% 12.4% 13.3% 14.1%
<FN>
* Based on revised projections.
</TABLE>
12
<PAGE>
- --------------------------------------------------------------------------------
ESTABLISHING THE EXCHANGE RATIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Blue Earnings Per Share Accretion/(Dilution)
--------------------------------------------
1.442 1.460 1.480 1.500
----- ----- ----- -----
<S> <C> <C> <C> <C>
Projections Without Adjustment*
1994 (3.2%) (2.5%) (1.8%) (1.0%)
1995 8.3% 9.0% 9.9% 10.7%
- -------------------------------------------------------------------------------
1996 6.9% 7.7% 8.5% 9.3%
1997 9.2% 9.9% 10.8% 11.6%
1998 6.7% 7.4% 8.3% 9.1%
Wall Street Analyst Consensus*
1994 (2.2%) (1.5%) (0.7%) 0.0%
1995 (2.3%) (1.6%) (0.9%) (0.1%)
- -------------------------------------------------------------------------------
1996 0.8% 1.6% 2.3% 3.1%
<FN>
* Before cost savings.
</TABLE>
13
<PAGE>
- --------------------------------------------------------------------------------
ESTABLISHING THE EXCHANGE RATIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Red Earnings Per Share Accretion/(Dilution)
-------------------------------------------
1.442 1.460 1.480 1.500
----- ----- ----- -----
<S> <C> <C> <C> <C>
Projections Without Adjustment*
1994 2.6% 2.0% 1.4% 0.8%
1995 (5.5%) (6.0%) (6.5%) (7.1%)
- --------------------------------------------------------------------------------
1996 (4.7%) (5.2%) (5.8%) (6.4%)
1997 (6.1%) (6.6%) (7.2%) (7.7%)
1998 (4.7%) (5.2%) (5.8%) (6.3%)
Wall Street Analyst Consensus*
1994 1.7% 1.2% 0.6% 0.0%
1995 1.9% 1.3% 0.7% 0.1%
- --------------------------------------------------------------------------------
1996 (0.6%) (1.2%) (1.8%) (2.4%)
<FN>
* Before cost savings.
</TABLE>
14
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL/MARKET BENEFITS OF MERGER
- --------------------------------------------------------------------------------
- This transaction should be viewed by the financial community as a
strategic combination which improves the competitive position of both
parties.
- Financial position remains strong, dividend stability is improved, and
the opportunity to enhance earnings growth through synergies is
created.
- Increased financial clout and flexibility, which should result in more
efficient capital raising through larger offerings and better pricing.
- Creates a large regional power, well positioned to benefit from future
industry consolidation.
- Increased liquidity for stockholders.
- Increased level of attention from research analysts and investors.
15
<PAGE>
APPENDIX OF GRAPHIC DIFFERENCES
DESCRIPTION OF HISTORICAL STOCK PRICE PERFORMANCE GRAPH
The graph is entitled "Historical Stock Price Performance," subtitled
"Daily Close: 6/21/91 - 7/22/94." On the y-axis, the graph charts the price as
a percentage of the 6/21/91 closing price. The percentages range from 60% at
the origin to 160%. On the x-axis, the graph charts dates from June 21, 1991 to
July 22, 1994 in approximately 45 day intervals, although data points are
recorded on a daily basis.
The graph tracks the daily close for Blue, Red, and S&P Electrics.
The data points for the percentages of Blue, Red and S&P Electrics all
begin at 100% on June 21, 1991. The data points for Blue, Red and S&P Electrics
end between approximately 102% and 78% on July 22, 1994.
DESCRIPTION OF EXCHANGE RATIO ANALYSIS GRAPH
The graph is entitled "Exchange Ratio Analysis," subtitled "Market-to
Market Exchange Ratio." On the y-axis, the graph charts the ratio of red shares
for each blue share. The ratios range from 1.0 at the origin to 1.5. On the
x-axis, the graph charts dates from June 21, 1991 to July 22, 1994 in seven week
intervals, although data points are recorded on a weekly basis.
The data points for each week's ratio fluctuated as it rose from
approximately 1.13 at the initial date of June 21, 1991 to end at approximately
1.45 on July 22, 1994.
